SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended SEPTEMBER 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to ________ .
Commission File Number: 0-28056
------------------
COACH USA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0496471
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 888-0104
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at November 11, 1997 was 20,165,292.
<PAGE>
COACH USA, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
COACH USA, INC. PRO FORMA COMBINED
Introduction to Pro Forma Combined Statements of Income........ 3
Pro Forma Combined Statements of Income........................ 4
Notes to Pro Forma Combined Statements of Income............... 5
COACH USA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets.......................... 6
Condensed Consolidated Statements of Income.................... 7
Condensed Consolidated Statements of Stockholders' Equity...... 8
Condensed Consolidated Statements of Cash Flows................ 9
Notes to Condensed Consolidated Financial Statements...........10
Item II - Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................19
PART II - OTHER INFORMATION
Item 1 - Legal proceedings...........................................23
Item 2 - Changes in Securities.......................................23
Item 3 - Defaults Upon Senior Securities.............................23
Item 4 - Submission of Matters to a Vote of Security Holders.........23
Item 5 - Other Information...........................................23
Item 6 - Exhibits and Reports on Form 8-K............................23
(a)Exhibits.
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
(b)Reports on Form 8-K.
Signature...............................................................24
<PAGE>
COACH USA, INC. PRO FORMA COMBINED
COACH USA, INC.
PART I, ITEM 1 -- FINANCIAL INFORMATION
GENERAL INFORMATION
INTRODUCTION TO PRO FORMA COMBINED STATEMENTS OF INCOME
In September 1995, Coach USA, Inc. ("Coach USA" or the "Company"), was
founded to create a national company providing motorcoach transportation
services, including charter and tour services, and related passenger ground
transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of an
initial public offering (the "Initial Public Offering"), six established
businesses. Consideration for these businesses consisted of a combination of
cash and common stock of Coach USA. These six businesses along with Coach USA
prior to the Initial Public Offering are referred to herein as the "Founding
Companies" and the transaction pursuant to which these six businesses were
acquired is referred to herein as the "Merger" or "Mergers." Coach USA has
acquired additional businesses in 1996 and 1997. Of these additional businesses
acquired (collectively the "Acquisitions"), several acquisitions were accounted
for as poolings-of-interests and are referred to herein as the "Pooled
Companies." The remaining businesses acquired were accounted for as purchases
and are referred to herein as the "Purchased Companies" .
The accompanying pro forma combined statements of income of the Company for
the nine months ended September 30, 1996 and 1997, respectively, include the
combined operations of the Pooled Companies and the Founding Companies from
January 1, 1996, and the Purchased Companies from the date of their respective
acquisition.
The Founding Companies were not under common control or management through
May 1996. The Pooled Companies and Purchased Companies were not under common
control or management prior to their respective acquisition. This pro forma
information may not be indicative of the actual results if the transactions had
occurred on the dates indicated or the actual results which may be realized in
the future. Expected benefits and cost reductions anticipated by the Company,
future corporate costs of Coach USA, and interest expense have not been adjusted
in the pro forma information for 1996 or 1997 to reflect savings as a result of
the offering proceeds or to reflect additional interest expense and amortization
related to the senior subordinated notes issued in June 1997.
Operating results for the interim periods are not necessarily indicative of
the results for full years. The results of the Company have historically been
subject to significant seasonal fluctuations. It is suggested that these pro
forma combined financial statements be read in conjunction with the consolidated
financial statements of the Company and the Founding Companies and the notes
thereto included in the Company's Annual Report on Form 10-K (File No. 28056),
as filed with the Securities and Exchange Commission ("SEC") and the
supplemental consolidated financial statements of the Company included in Form
8-K dated August 8, 1997.
3
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
------ ------
REVENUES....................................................$242,312 $354,018
OPERATING EXPENSES.......................................... 183,064 260,861
------- -------
Gross profit.......................................... 59,248 93,157
GENERAL AND ADMINISTRATIVE EXPENSES......................... 33,044 39,146
GOODWILL AND OTHER AMORTIZATION............................. 435 2,379
ACQUISITION RELATED COSTS................................... 340 918
------- -------
Operating income...................................... 25,429 50,714
INTEREST EXPENSE............................................ 8,978 13,990
------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.......... 16,451 36,724
PROVISION FOR INCOME TAXES.................................. 7,279 14,681
------- -------
INCOME BEFORE EXTRAORDINARY ITEMS........................... 9,172 22,043
EXTRAORDINARY ITEMS (NET OF INCOME TAXES)................... 4,205 (603)
------- -------
NET INCOME ................................................. $13,377 $21,440
======= =======
PRO FORMA ADJUSTMENTS:
Income before extraordinary items........................ $ 9,172 $22,043
Pro forma compensation and interest differential......... 7,020 857
Acquisition related costs................................ 340 918
Less: Pro forma provision for income taxes.............. 2,617 325
------- -------
PRO FORMA INCOME BEFORE EXTRAORDINARY ITEMS................. $13,915 $23,493
======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING...................... 17,400 20,420
======= =======
PRO FORMA INCOME PER COMMON AND COMMON
EQUIVALENT SHARE BEFORE EXTRAORDINARY ITEMS................. $ .80 $ 1.15
======= =======
The accompanying notes are an integral part of these pro forma combined
statements of income.
4
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
The Founding Companies, Pooled Companies and Purchased Companies have been
managed prior to their acquisitions as independent private companies. Therefore,
general and administrative expenses and interest expense for the periods
presented reflect compensation and related benefits that owners received from
their respective businesses prior to acquisition. Additional pro forma
adjustments have been presented for the purpose of reflecting net income as if
the merger of the Founding Companies and the acquisition of the Pooled Companies
had occurred January 1, 1996. Certain stockholders agreed to reductions in
salaries, benefits and the conversion of outstanding debt to equity in
connection with the Acquisitions. Certain stockholders also have entered into
employment agreements which provide for a set base salary and certain other
benefits and two-year covenants not to compete following termination of such
person's employment.
The pro forma data presents compensation at the level that certain
stockholders of the Company agreed to receive from the Founding and Pooled
Companies subsequent to the Merger and Pooled Company acquisitions as well as a
non-recurring non-cash charge recorded by the Company in March 1996. In
addition, the pro forma data presents the reduction of interest expense related
to the conversion of stockholders' debt to equity at one of the Pooled
Companies, the reduction of the acquisition related costs incurred in the
acquisition of the Pooled Companies, and the incremental provision for income
taxes as if all entities had been subject to federal and state income taxes and
for the impact of the compensation differential and interest reduction discussed
above.
PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of pro forma net income per common and common equivalent
share for the nine months ended September 30, 1996 is based upon 17,399,702
weighted average shares outstanding which includes (i) 2,165,724 shares issued
by Coach USA prior to the Initial Public Offering, (ii) 5,099,687 shares issued
to the stockholders of the Founding Companies in connection with the Initial
Public Offering, (iii) 1,700,714 of the 4,140,000 shares sold in the Initial
Public Offering to pay the cash portion of the consideration for the Founding
Companies, (iv) 118,142 of the 4,140,000 shares sold in the Initial Public
Offering attributed to excess S Corporation distributions, (v) 2,321,144 of the
4,140,000 shares sold in the Initial Public Offering, net of shares sold to
cover the purchase of the Founding Companies, (vi) 5,436,592 shares issued in
connection with the acquisition of the Pooled Companies, (vii) 425,039 shares
issued in connection with the conversion of indebtedness to equity at one of the
Pooled Companies, and (viii) 132,660 shares representing the weighted average
portion of shares for the dilution attributable to outstanding options to
purchase the Company's common stock, using the treasury stock method.
The computation of pro forma net income per common and common equivalent
share for the nine months ended September 30, 1997 is based upon 20,419,928
weighted average shares outstanding, common and common equivalent shares, which
include (i) 19,351,349 shares issued and outstanding for the entire nine month
period and (ii) 981 shares issued to minority interests of the Pooled Companies,
and (iii) 387,064 shares representing the weighted average portion of shares
issued in connection with the Purchased Companies acquired in 1997, (iv) 21,888
shares representing the weighted average portion of shares issued in connection
with the exercise of stock options, and (v) 658,646 shares representing the
weighted average portion of shares for the dilution attributable to outstanding
options to purchase the Company's common stock, using the treasury stock method.
5
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31 SEPTEMBER 30,
1996 1997
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................$ 3,570 $ 3,831
Accounts receivable, less allowance of $2,650
and $2,789 ....................................... 24,120 42,376
Notes receivable, current portion.................... 2,811 3,774
Inventories.......................................... 11,400 18,474
Prepaid expenses and other current assets............ 14,128 45,292
-------- -------
Total current assets............................. 56,029 113,747
PROPERTY AND EQUIPMENT, net............................... 229,952 343,857
NOTES RECEIVABLE, less allowance of $500 and $500......... 4,231 7,750
GOODWILL, net............................................. 30,561 113,347
OTHER ASSETS, net......................................... 18,536 20,937
-------- -------
Total assets.....................................$339,309 $599,638
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations..........$ 22,416 $17,390
Accounts payable and accrued liabilities............. 49,274 93,539
-------- -------
Total current liabilities........................ 71,690 110,929
LONG-TERM OBLIGATIONS, net of current maturities.......... 114,350 113,035
SENIOR SUBORDINATED NOTES................................. -- 150,000
CONVERTIBLE SUBORDINATED NOTES, net of current maturities. 18,500 44,705
DEFERRED INCOME TAXES..................................... 23,969 38,456
-------- -------
Total liabilities................................ 228,509 457,125
-------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.01 par, 100,000,000 shares
authorized, 19,351,349 and 20,030,349 shares
issued and outstanding............................. 193 200
Additional paid-in capital........................... 104,220 114,765
Cumulative translation adjustment.................... (209) (198)
Retained earnings.................................... 6,596 27,746
-------- -------
Total stockholders' equity....................... 110,800 142,513
-------- -------
Total liabilities and stockholders' equity...... $339,309 $599,638
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1997 1996 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES ................................. $93,629 $143,382 $197,374 $ 354,018
OPERATING EXPENSES ....................... 67,354 102,221 146,139 260,861
------- --------- -------- ---------
Gross profit ....................... 26,275 41,161 51,235 93,157
GENERAL AND ADMINISTRATIVE EXPENSES ...... 11,429 14,520 25,268 39,146
AMORTIZATION EXPENSE ..................... 200 1,037 435 2,379
ACQUISITION RELATED COSTS ................ 340 524 340 918
------- --------- -------- ---------
Operating income ................... 14,306 25,080 25,192 50,714
INTEREST EXPENSE ......................... 3,175 6,345 7,758 13,990
------- --------- -------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS ................... 11,131 18,735 17,434 36,724
PROVISION FOR INCOME TAXES ............... 4,943 7,121 7,237 14,681
------- --------- -------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS ........ 6,188 11,614 10,197 22,043
EXTRAORDINARY ITEMS (NET OF INCOME TAXES) 4,205 (202) 4,205 (603)
------- --------- -------- ---------
NET INCOME ............................... $ 10,393 $ 11,412 $ 14,402 $ 21,440
======= ========= ======== =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .......... 17,725 20,629 11,735 20,420
======= ========= ======== =========
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
BEFORE EXTRAORDINARY ITEMS ............... $ .35 $ .56 $ .87 $ 1.08
EXTRAORDINARY ITEMS ...................... .24 (.01) .36 (.03)
------- --------- -------- ---------
NET INCOME ............................... $ .59 $ .55 $ 1.23 $ 1.05
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED TOTAL
------------------ PAID-IN TRANSLATION EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT EQUITY
------ ------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ........................... 5,437 $ 54 $ 7,411 $ (200) $(3,54) $ 3,716
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 of Founding Companies from
S Corporation to C Corporation ................... -- -- -- -- (5,426) (5,426)
Conversion of debt to equity ........................ 425 4 10,198 -- -- 10,202
S Corporation dividends paid by
certain Pooled Companies ......................... -- -- -- -- (3,275) (3,275)
Adjustment to conform fiscal year
ends of Pooled Companies ......................... -- -- -- -- 182 182
Net income .......................................... -- -- -- -- 15,977 15,977
Capital contributions equal to the current income
taxes of S Corporations .......................... -- -- 809 -- -- 809
Other ............................................... -- -- 330 (9) (13) 308
----- -------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 ........................... 19,351 $ 19 $ 104,220 $ (209) $ 6,596 $ 110,800
Issuance of Common Stock:
Acquisition of Purchased Companies ................ 390 4 8,486 -- -- 8,490
Exercise of stock options ......................... 87 1 1,223 -- -- 1,224
Equity of acquired companies treated as insignificant
poolings-of-interest .............................. 197 2 378 -- 449 829
Other ............................................... 5 -- 458 11 (739) (270)
Net income .......................................... -- -- -- -- 21,440 21,440
----- -------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 1997 .......................... 20,030 $ 200 $ 114,765 (198) $27,746 $ 142,513
===== ======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..............................................$ 14,402 $ 21,440
Adjustments to reconcile net income to net cash
provided by operating activities-
Extraordinary (gain) loss............................ (4,205) 603
Depreciation and amortization ....................... 10,805 21,959
Gain on disposal of assets........................... (832) (1,954)
Deferred tax provision .............................. 717 6,131
Changes in operating assets and liabilities-
Accounts receivable, net.......................... (6,778) (9,917)
Inventories....................................... (2,909) (4,974)
Notes receivable.................................. (2,067) (4,482)
Prepaid expenses and other current assets......... 3,933 (28,284)
Accounts payable and accrued liabilities.......... 544 9,251
Other............................................. (1,673) (7,380)
-------- --------
Net cash provided by operating activities...... 11,937 2,393
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................... (26,765) (80,662)
Proceeds from sales of property and equipment........... 5,029 30,125
Purchase of intangibles................................. (5,384) --
Cash consideration paid for Founding Companies, net
of cash acquired) ................................... 22,112 --
Cash consideration paid for Purchased Companies,
net of cash acquired.................................. (12,666) (47,879)
Proceeds from sales of investments...................... 1,005 --
-------- --------
Net cash used in investing activities.......... (60,893) (98,416)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations............. (90,722) (66,359)
Proceeds from issuance of long-term obligations, net.... 92,102 162,403
Proceeds from the issuance of common stock ............. 48,871 1,224
S Corporation dividends paid by certain Pooled
Companies............................................. (534) (739)
Other................................................... 10 (245)
-------- --------
Net cash provided by financing activities...... 49,727 96,284
NET INCREASE IN CASH....................................... 771 261
CASH AND CASH EQUIVALENTS, beginning of period............. 5,199 3,570
-------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 5,970 $ 3,831
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............................... $ 7,056 $11,663
Cash paid for income taxes........................... 1,118 822
Assets acquired under capital leases................. 2,981 2,355
Debt issued for Purchased Companies.................. 22,500 26,205
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In September 1995, Coach USA, Inc. ("Coach USA" or the "Company") was
founded to create a national company providing motorcoach transportation
services, including charter and tour services, and related passenger ground
transportation services.
In May 1996, Coach USA acquired, simultaneously with the closing of its
initial public offering (the "Initial Public Offering"), six established
businesses. Consideration for these businesses consisted of a combination of
cash and common stock of Coach USA (the "Common Stock"). These six businesses
along with Coach USA prior to the Initial Public Offering are referred to herein
as the "Founding Companies," and the transaction pursuant to which these six
businesses were acquired is referred to herein as the "Merger" or "Mergers."
Coach USA has acquired additional businesses in 1996 and 1997. Of these
additional businesses acquired, those accounted for as poolings-of-interests are
referred to herein as the "Pooled Companies." The remaining businesses were
accounted for as purchases and are referred to herein as the "Purchased
Companies" (see Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures, normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim consolidated financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the audited supplemental consolidated financial
statements and notes thereto of Coach USA included in the Company's Form 8-K
filed with the SEC on August 8, 1997.
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues and net
income during the first and fourth quarters.
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform with
the current presentation.
10
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
3. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of net income per common and common equivalent share for
the three months ended September 30, 1996 is based upon 17,724,678 weighted
average common and common equivalent shares outstanding which includes (i) the
weighted average portion of 2,165,724 shares issued by Coach USA prior to the
Initial Public Offering, (ii) the weighted average portion of 5,099,687 shares
issued to the stockholders of the Founding Companies in connection with the
Initial Public Offering, (iii) the weighted average potion of 4,140,000 shares
sold in the Initial Public Offering, (iv) 5,436,592 shares issued in connection
with the acquisition of the Pooled Companies, (v) 425,039 shares issued in
connection with the conversion of indebtedness to equity at one of the Pooled
Companies, and (vi) 457,636 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase the
Company common stock, using the treasury method.
The computation of net income per common and common equivalent share for
the nine months ended September 30, 1996 is based upon 11,735,180 weighted
average common and common equivalent shares outstanding which includes (i) the
weighted average portion of 2,165,724 shares issued by Coach USA prior to the
Initial Public Offering, (ii) the weighted average portion of 5,099,687 shares
issued to the stockholders of the Founding Companies in connection with the
Initial Public Offering, (iii) the weighted average portion of 4,140,000 shares
sold in the Initial Public Offering, (iv) 5,436,592 shares issued in connection
with the acquisition of the Pooled Companies, (v) 425,039 shares issued in
connection with the conversion of indebtedness to equity at one of the Pooled
Companies, and (vi) 212,469 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase the
Company common stock, using the treasury stock method.
The computation of net income per common and common equivalent share for the
three months ended September 30, 1997 is based upon 20,628,578 weighted average
common and common equivalent shares outstanding, which include (i) 19,351,349
shares issued and outstanding for the entire three month period, (ii) 981 shares
issued to minority interest of the Pooled Companies, (iii) 587,740 representing
the weighted average portion of shares issued in connection with the
Acquisitions completed in 1997, (iv) 64,953 shares representing the weighted
average portion of shares issued in connection with the exercise of stock
options, and (v) 623,555 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase the
Company common stock, using the treasury stock method.
The computation of net income per common and common equivalent share for the
nine months ended September 30, 1997 is based upon 20,419,928 weighted average
common and common equivalent shares outstanding, which include (i) 19,351,349
shares issued and outstanding for the entire nine month period, (ii) 981 shares
issued to minority interest of the Pooled Companies, (iii) 387,064 shares
representing the weighted average portion of shares issued in connection with
the Acquisitions completed in 1997, (iv) 21,888 shares representing the weighted
average portion of shares issued in connection with the exercise of stock
options, and (v) 658,646 shares representing the weighted average portion of
shares for the dilution attributable to outstanding options to purchase the
Company common stock, using the treasury stock method.
Fully diluted net income per common and common equivalent share is equal to
primary earnings per share for all periods presented.
11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 revises the methodology to be used in computing earnings per share (EPS)
such that the computations required for primary and fully diluted EPS are to be
replaced with "basic" and "diluted" EPS. Basic EPS is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS is computed in the same manner as fully diluted
EPS, except that, among other changes, the average share price for the period is
used in all cases when applying the treasury stock method to potentially
dilutive outstanding options.
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. The Company anticipates that the amounts
reported for basic EPS for the unaudited nine months ended September 30, 1996
and 1997 will be $1.25 and $1.08, and that basic EPS for the unaudited pro forma
nine months ended September 30, 1996 and 1997 will be $.81 and $1.19. The
Company anticipates that the amounts reported for diluted EPS for the unaudited
nine months ended September 30, 1996 and 1997 will be $1.22 and $1.04 and that
diluted EPS for the unaudited pro forma nine months ended September 30, 1996 and
1997 will be $.80 and $1.14.
4. LONG TERM OBLIGATIONS
In May 1996, the Company entered into a revolving credit agreement ("Credit
Facility"). In August 1997, the Company amended and restated its Credit
Facility. The Credit Facility, as amended, provides for a revolving facility of
$300 million through a syndicate of eighteen banks, and allows the Company to
have other senior indebtedness of $80 million (in addition to fully subordinated
debt) outside the Credit Facility. The Credit Facility is secured by
substantially all of the assets of the Company and matures August, 2000, at
which time all amounts then outstanding become due. Interest on outstanding
borrowings is charged, at the Company's option, at the banks' prime rate plus up
to 0.25% or the London Interbank Offered Rate ("LIBOR") plus 0.50% to 1.75%
(6.66% at November 4, 1997), both as determined by the ratio of the Company's
funded debt to cash flow (as defined). A commitment fee ranging from 0.15% to
0.375% is payable on the unused portion of the Credit Facility. Under the terms
of the Credit Facility, the Company must maintain certain financial ratios,
including maximum leverage ratios, minimum net worth, minimum fixed charge
coverage ratios, and maximum capital expenditure levels. The Credit Facility
prohibits the payment of cash dividends. As of November 4, 1997, the Company had
a total of $133.1 million outstanding under the Credit Facility and other
sources and had utilized $10.6 million of the facility for letters of credit
securing certain insurance obligations and performance bonds, resulting in a
borrowing availability of $236.3 million under the Credit Facility and other
sources. The Company's obligations under the Credit Facility are guaranteed by
the domestic subsidiaries of the Company.
In June 1997, the Company completed the sale of $150.0 million aggregate
principal amount of 93/8% senior subordinated notes due 2007. The net proceeds
from the offering were used to repay amounts owed under the Credit Facility.
During 1997, the Company has issued $26.2 million in convertible
subordinated notes (the Notes) to former owners of certain of the Purchased
Companies as partial consideration of the acquisition purchase
12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
price. The Notes bear interest, payable quarterly, at a weighted average
interest rate of 5.3 percent and are convertible by the holder into shares of
the Company's Common Stock at a weighted average price of $37.49 per share. The
Notes are redeemable for cash or the Company's Common Stock at any time after
one year of issuance. The terms of the Notes require $12.1 million of principal
payments in 1999 and 14.1 million of principle payments in 2000.
5. BUSINESS COMBINATIONS
POOLINGS
During 1996 and through the third quarter of 1997, the Company acquired all
of the outstanding stock of thirteen companies in exchange for 5,436,592 shares
of Common Stock. These companies provide motorcoach transportation, paratransit
and taxicab services. These acquisitions have been accounted for as
poolings-of-interests and the results of operations of these thirteen companies
are included for all periods presented herein.
PURCHASES
During 1996 and through the third quarter of 1997, the Company completed
several acquisitions accounted for as purchases. The aggregate consideration
paid in these transactions consisted of $72.0 million in cash, 587,740 shares of
Common Stock and $48.7 million of notes convertible into 1,455,430 shares of
Common Stock. The accompanying balance sheet as of September 30, 1997 includes
preliminary allocations of the respective purchase prices and are subject to
final adjustment. The preliminary allocations reflected liabilities in excess of
assets of $115.3 million, which has been recorded as Goodwill and is being
amortized over 40 years. Set forth below are unaudited pro forma combined
revenue and income data reflecting the pro forma effect of these acquisitions on
the Company's results of operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997. The unaudited data presented below
consists of the income statement data as presented in these condensed
consolidated financial statements plus (i) the income statement data of the
Founding Companies for the periods prior to June 1, 1996 and (ii) all Purchased
Companies as if the acquisitions were effective on the first day of the year
being reported. The revenue and net income data are in thousands.
Year Ended Nine Months
December 31, Ended September 30,
1996 1997
------------ -------------------
Revenues.............................. $ 495,794 $ 395,962
Income before extraordinary items .... 21,481 22,403
Income per share before extraordinary
items ............................. 1.23 1.09
Pro forma adjustments included in the amounts above primarily relate to:
(a) reductions in former owners, and certain key employees, salary and benefits;
(b) adjustment to depreciation and amortization expense due to the purchase
price allocations; (c) adjustment to the federal and state income tax provisions
based on the combined operations; (d) elimination of historical interest expense
related to certain obligations converted to equity; (e) elimination of
non-recurring acquisition costs associated with Pooled Companies; and (f) to
record interest expense on cash expended and the convertible subordinated notes
issued in the acquisitions of the Purchased Companies.
13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
The pro forma results presented above are not necessarily indicative of
actual results which might have occurred had the operations and management teams
of the Company, the Founding Companies, the Pooled Companies and the Purchased
Companies been combined at the beginning of the periods presented.
6. COMMITMENTS AND CONTINGENCIES
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided for certain of these
actions in the accompanying interim condensed consolidated financial statements.
In the opinion of management, uninsured losses, if any, resulting from the
ultimate resolution of these matters will not be material to the Company's
financial position or results of operations.
REGULATORY MATTERS
The Surface Transportation Board ("STB") must approve or exempt any
consolidation or merger of two or more regulated interstate motorcoach operators
or the acquisition of one such operator by another. As of November 11, 1997, the
STB had exempted from regulatory approval requirements each of the acquisition
transactions involving federally-regulated interstate motorcoach operators
entered into by the Company through April 1997. There can be no assurance that
the Company will be able to obtain such approval or exemption with respect to
the acquisitions completed after April 1997 or future acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The Company's operations include risks relating to bodily injury include
risks relating to 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 September 30, 1997. The
accrual is based on known facts and historical trends. Management believes such
accrual to be adequate.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2000.
14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION
The Company's payment obligations under the Senior Subordinated Notes are
jointly and severally guaranteed (the "Subsidiary Guarantees") by all domestic
subsidiaries (Guarantors) of the Company. The following unaudited condensed
consolidating balance sheet, statement of income and statement of cash flows
presents the combined financial statements of the Guarantors and non-guarantor
subsidiaries. Separate financial statements and other disclosures concerning the
Guarantors are not deemed material to investors.
15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ -- $ 3,356 $ 475 $ -- $ 3,831
Accounts receivable, less allowance .................... -- 33,034 9,342 -- 42,376
Notes receivable, current portion ...................... -- 3,774 -- -- 3,774
Inventories ............................................ -- 16,761 1,713 -- 18,474
Prepaid expenses and other current assets .............. -- 42,364 2,928 -- 45,292
-------- -------- -------- --------- ---------
Total current assets .............................. -- 99,289 14,458 -- 113,747
PROPERTY & EQUIPMENT, net .............................. -- 328,067 15,790 -- 343,857
NOTES RECEIVABLE, less allowance ....................... -- 7,750 -- 7,750
GOODWILL, net .......................................... -- 103,386 9,962 -- 113,347
INTERCOMPANY & INVESTMENTS
IN SUBSIDIARIES ................................... 355,998 -- -- (355,998) --
OTHER ASSETS, net ...................................... 7,019 13,350 568 -- 20,937
-------- -------- -------- --------- ---------
Total assets ...................................... $363,017 $551,842 $ 40,777 $(355,998) $ 599,638
======== ======== ======== ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations ............ $ -- $ 6,029 $ 11,361 $ -- $ 17,390
Accounts payable and accrued liabilities ............... 106 83,087 10,346 -- 93,539
-------- -------- -------- --------- ---------
Total current liabilities ......................... 106 89,116 21,707 -- 110,929
LONG-TERM OBLIGATIONS, net of current ........................ 70,200 320,206 11,211 (288,582) 113,035
SENIOR SUBORDINATED NOTES .................................... 150,000 -- -- -- 150,000
CONVERTIBLE SUBORDINATED NOTES, net .......................... -- 44,705 -- -- 44,705
DEFERRED INCOME TAXES ........................................ -- 34,956 3,500 -- 38,456
-------- -------- -------- --------- ---------
Total liabilities ................................. 220,306 488,983 36,418 (288,582) 457,125
STOCKHOLDERS' EQUITY:
Common stock ........................................... 200 60 4 (64) 200
Additional paid-in capital ............................. 114,765 37,725 1,668 (39,393) 114,765
Cumulative translation adjustment ...................... -- -- (198) -- (198)
Retained Earnings ...................................... 27,746 25,074 2,885 (27,959) 27,746
-------- -------- -------- --------- ---------
Total stockholders' equity ........................ 142,711 62,859 4,359 (67,416) 142,513
-------- -------- -------- --------- ---------
Total liabilities and stockholders' equity ........ $363,017 $551,842 $ 40,777 $(355,998) $ 599,638
======== ======== ======== ========= =========
</TABLE>
16
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES .............................................. $ -- $ 322,876 $ 31,142 $ -- $ 354,018
OPERATING EXPENSES .................................... -- 236,288 24,573 -- 260,861
-------- --------- -------- -------- ---------
Gross profit .................................... -- 86,588 6,569 -- 93,157
GENERAL AND ADMINISTRATIVE EXPENSES ................... 40 36,800 2,306 -- 39,146
AMORTIZATION EXPENSE .................................. -- 2,197 182 -- 2,379
ACQUISITION RELATED EXPENSES .......................... -- 840 78 -- 918
-------- --------- -------- -------- ---------
Operating Income ................................ (40) 46,751 4,003 -- 50,714
INTEREST EXPENSE ...................................... -- 13,247 743 -- 13,990
EQUITY IN INCOME OF SUBSIDIARIES ...................... 21,480 -- -- (21,480) --
-------- --------- -------- -------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ......................... 21,440 33,504 3,260 (21,480) 36,724
PROVISION FOR INCOME TAXES ............................ -- 13,296 1,385 -- 14,681
-------- --------- -------- -------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS ..................... 21,440 20,208 1,875 (21,480) 22,043
EXTRAORDINARY ITEMS (net of income taxes) ............. -- (575) (28) -- (603)
-------- --------- -------- -------- ---------
NET INCOME ............................................ $ 21,440 $ 19,633 $ 1,847 $(21,480) $ 21,440
======== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
17
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ............................................. $ 21,440 $ 19,633 $ 1,847 $(21,480) $ 21,440
Adjustments to reconcile net income -
Extraordinary loss .................................. -- 603 -- -- 603
Depreciation and amortization ....................... -- 20,838 1,121 -- 21,959
Equity in income of subsidiaries .................... (21,480) -- -- 21,480 --
(Gain)/loss on sale of assets ....................... -- (1,139) (815) -- (1,954)
Deferred income tax provision ....................... -- 5,147 984 -- 6,131
Changes in operating assets and liabilities -
Accounts receivable, net ......................... -- (4,550) (5,367) -- (9,917)
Inventories ...................................... -- (4,917) (57) -- (4,974)
Notes receivable, net ............................ -- (4,482) -- -- (4,482)
Prepaids and other current assets ................ -- (26,322) (1,962) -- (28,284)
Accounts payable and accrued liabilities ......... 40 6,089 3,122 -- 9,251
Other ............................................ -- (7,579) 199 -- (7,380)
--------- --------- ------- -------- ---------
Net cash provided by (used in)
operating activities ...................... -- 3,321 (928) -- 2,393
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .................... -- (74,783) (5,879) -- (80,662)
Proceeds from sales of property and equipment .......... -- 22,599 7,526 -- 30,125
Cash consideration paid for Founding Cos, net .......... -- -- -- -- --
Cash consideration paid for Purchased Cos, net ......... (45,712) -- (2,167) -- (47,879)
--------- --------- ------- -------- ---------
Net cash provided by (used in)
investing activities ..................... (45,712) (52,184) (520) -- (98,416)
CASH FLOW FROM FINANCING ACTIVITIES:
Intercompany ........................................... (119,174) 119,174 -- -- --
Principal payments on long-term obligations ............ -- (60,183) (6,176) -- (66,359)
Proceeds from issuance of long-term obligations ........ 160,100 (4,794) 7,097 -- 162,403
Proceeds from exercise of Common Stock Options ......... 1,224 -- -- -- 1,224
S Corporation dividends paid by certain Pooled Cos ..... -- (739) -- -- (739)
Other .................................................. -- (234) (11) -- (245)
--------- --------- ------- -------- ---------
Net cash provided by (used in)
financing activities ...................... 42,150 53,224 910 -- 96,284
NET INCREASE (DECREASE) IN CASH ............................ (3,562) 4,361 (538) -- 261
CASH AND CASH EQUIVALENTS, beginning of year ............... -- 2,557 1,013 -- 3,570
--------- --------- ------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year ..................... $ (3,562) $ 6,918 $ 475 $ -- $ 3,831
========= ========= ======= ======== =========
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ include, among others, risks associated with acquisitions, fluctuations
in operating results because of acquisitions and variations in stock prices,
changes in government regulations, competition, and risks of operations and
growth of the newly acquired businesses.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneously with the closing of the Initial Public Offering, the
six Founding Companies. Through the remainder of 1996, and through September 30,
1997, the Company completed the acquisition of several companies, some of which
have been accounted for as poolings-of- interest and some of which have been
accounted for as purchases. As a result, the pro forma combined financial
statements, including the pro forma combined 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,
pro forma results may not be comparable to, or indicative of, future
performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts to provide motorcoach
services. Taxicab operation revenues are derived from fees and other services
charged to independent taxicab operators. Operating expenses consist primarily
of salaries and benefits for motorcoach drivers and mechanics, depreciation,
maintenance, fuel, oil, insurance and commissions to agents. General and
administrative expenses consist primarily of compensation and related benefits
to the owners and certain key employees of the Founding Companies, the Pooled
Companies, and the Purchased Companies, administrative salaries and benefits,
marketing, communications and professional fees.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS -- PRO FORMA COMBINED (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1996 1997 1996 1997
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ............................................................ $93,629 $143,382 $242,312 $354,018
Operating Expenses .................................................. 67,354 102,221 183,064 260,861
------- -------- -------- --------
Gross Profit ................................................... 26,275 41,161 59,248 93,157
General and Administrative Expenses ................................. 9,665 14,138 26,924 38,289
Goodwill and Other Amortization ..................................... 200 1,037 435 2,379
Interest Expense .................................................... 2,950 6,345 8,078 13,990
------- -------- -------- --------
Income Before Income Taxes and Extraordinary Items .................. 13,460 19,641 23,811 38,499
Provision for Income Taxes .......................................... 5,638 7,254 9,896 15,006
------- -------- -------- --------
Pro Forma Income Before Extraordinary Items ......................... $ 7,822 $ 12,387 $ 13,915 $ 23,493
======= ======== ======== ========
</TABLE>
The pro forma combined results discussed below occurred when the combined
Founding Companies were under common control and management from June 1, 1996,
and the Pooled and Purchased Companies were under common control from the date
of their respective acquisitions. All other periods reflected were not under
common control or management and may not be comparable to, or indicative of,
future performance.
COMBINED RESULTS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 1996 COMPARED TO 1997
Revenues increased by 53.1% and 46.1% to $143.4 million and $354.0 million,
respectively, for the three and nine months ended September 30, 1997. The
increase in revenues was largely due to the revenues of the Purchased Companies
of $47.2 million and $97.1 million, respectively, for the three and nine months
ended September 30, 1997.
Operating expenses increased 51.8% and 42.5% to $102.2 million and $260.9
million for the three and nine months ended September 30, 1997. The increase in
operating expenses was the result of the increased operations, including
operations of the Purchased Companies, offset by savings in the Company's
insurance program and parts buying program.
General and Administrative expenses, after elimination of the Compensation
Differential, and acquisition related costs increased 46.3% and 42.2% as
compared to the three and nine months ended September 30, 1996, respectively.
The increase in general and administrative expenses in the nine month period
ended September 30, 1997 was largely due to the acquisition of the Purchased
Companies and an increase of $2.1 million related to the establishment of the
corporate management group required to execute the acquisition program and to
manage the consolidated group of companies.
Goodwill and Other Amortization increased $0.8 million and $1.9 million,
respectively, for the three and nine months ended September 30, 1997, primarily
as a result of the acquisition of the Purchased Companies and the amortization
of deferred offering costs associated with the senior subordinated notes issued
in June 1997.
Interest expense increased $3.4 million and $5.9 million as compared to the
three and nine months ended September 30, 1996, due to the higher level of debt
related to additional equipment, debt related to the Purchased Companies and
additional interest costs associated with the senior subordinated notes issued
in June 1997, 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, and due to lower rates from the credit facility.
Pro forma combined net income before extraordinary items, which has been
adjusted for the Compensation Differential and the pro forma provision for
taxes, increased during the three and nine months ended September 30,
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
1997 as compared to the three and nine months ended September 30, 1996 primarily
due to continued revenue growth and the effects of increased purchasing power on
lowering certain costs.
RESULTS OF OPERATIONS -- HISTORICAL (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1996 1997 1996 1997
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ............................................................ $93,629 $143,382 $197,374 $354,018
Operating Expenses .................................................. 67,354 102,221 146,139 260,861
------- -------- -------- --------
Gross Profit ................................................... 26,275 41,161 51,235 93,157
General and Administrative Expenses ................................. 11,429 14,520 25,268 39,146
Goodwill and Other Amortization ..................................... 200 1,037 435 2,379
Acquisition Costs ................................................... 340 524 340 918
Interest and Other .................................................. 3,175 6,345 7,758 13,990
------- -------- -------- --------
Income Before Income Taxes and Extraordinary Items .................. 11,131 18,735 17,434 36,724
Provision for Income Taxes .......................................... 4,943 7,121 7,237 14,681
------- -------- -------- --------
Income Before Extraordinary Items ................................... $ 6,188 $ 11,614 $ 10,197 $ 22,043
======= ======== ======== ========
</TABLE>
The historical results discussed below occurred when the combined Founding
Companies were under common control and management from June 1, 1996, and the
Pooled and Purchased Companies were under common control from September 1, 1996.
All other periods reflected were not under common control or management and may
not be comparable to, or indicative of, future performance.
HISTORICAL RESULTS FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO 1997
Revenues increased by 53.1% and 79.4% to $143.4 million and $354.0 million
for the three and nine months ended September 30, 1997 compared to the
comparable period in the prior year. The increase in revenues was largely due to
the revenues of the Purchased Companies of $47.2 and $97.1 million, and
incremental increases at certain Pooled Companies.
Operating expenses increased 51.8% and 78.5% to $102.2 million and $260.9
million for the three and nine months ended September 30, 1997 compared to the
comparable period in the prior year. The increase in operating expenses was
directly related to increased revenues.
General and Administrative expenses increased 27.0% and 54.9% as compared
to the three and nine months ended September 30, 1996. The increase in general
and administrative expenses in the three and nine month period ended September
30, 1997 was primarily due to the overall increase in operations and the
establishment of the corporate management group required to execute the
acquisition program and to manage the consolidated group of companies.
Goodwill and Other Amortization increased $.8 million and $1.9 million,
respectively, for the three and nine months ended September 30, 1997, primarily
as a result of the acquisition of the Purchased Companies and the amortization
of deferred offering costs associated with the senior subordinated notes issued
in June 1997.
Interest expense increased $6.2 million as compared to the nine months
ended September 30, 1996, due to the higher level of debt related to additional
equipment, debt related to the Purchased Companies and additional interest costs
associated with the senior subordinated notes issued in June 1997, partially
offset by the repayment of
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
debt through the use of proceeds of the Initial Public Offering, a secondary
offering of Coach USA common stock, and due to lower rates from the credit
facility.
Net income increased during the three and nine months ended September 30,
1997 as compared to the three and nine months ended September 30, 1996 primarily
due to the acquisitions of the Founding Companies and Purchased Companies and
the effects of increased purchasing power on lowering certain costs.
EFFECTS OF COMBINATION
Effective in the second quarter of 1996, the Company began incurring
expenses, including salaries for members of senior management and administrative
staff, travel and office expenses, related to the establishment of its corporate
and administrative infrastructure. Management believes that these additional
costs will be offset by operational efficiencies achieved through integration of
the operations of these companies. Specifically the Company expects insurance,
financing and benefits efficiencies to be derived as a result of the Company's
acquisition program.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.4 million for the nine
months ended September 30, 1997. Capital expenditures net of disposals during
the period totaled $50.5 million. The majority of the capital expenditures were
for the purchase of motorcoach equipment for fleet additions.
In 1996, the Company completed the Initial Public Offering of 4,140,000
shares of Common Stock and a secondary offering of 2,084,307 shares of Common
Stock, resulting in net proceeds of approximately $96.6 million. The net
proceeds were used to pay the cash portion of the purchase price for the
Founding Companies, repay certain indebtedness assumed by the Company in the
Mergers and to repay amounts owed under the Credit Facility.
In August 1997, the Company further amended and restated its credit
agreement (the "Credit Facility"). The Credit Facility agreement, as amended,
provides for a revolving credit facility of $300 million through a syndicate of
eight banks, and allows for an additional $80 million of debt (other than fully
subordinated debt) outside the credit facility. The Credit Facility is secured
by substantially all of the assets of the Company and matures in August 2000.
Interest on outstanding borrowings is charged, at the Company's option, at the
banks' prime rate plus up to .25% or the London Interbank Offered Rate ("LIBOR")
plus .50% to 1.75%, both as determined by the ratio of the Company's funded debt
to cash flow (as defined). A commitment fee ranging from 0.15% to 0.375% is
payable on the unused portion of the Credit Facility. Under the terms of the
Credit Facility, the Company must maintain certain minimum financial ratios. The
Credit Facility prohibits the payment of cash dividends. As of November 4, 1997,
the Company had a total of $133.1 million outstanding under the Credit Facility
and other outside credit facilities and had utilized $10.6 million of the
facility for letters of credit securing certain insurance obligations and
performance bonds, resulting in a borrowing availability of $236.3 million under
the Credit Facility.
In June 1997, the Company completed the sale of $150.0 million aggregate
principal amount 93/8% senior subordinated notes due 2007. The net proceeds from
the offering were used to repay amounts owed under the Credit Facility.
Management believes that the Company's revolving credit facility, its cash
flows from operations, and shares of Common Stock available under its shelf
registration statement will provide sufficient liquidity or acquisition currency
to execute the Company's acquisition and internal growth plans for the next
twelve 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.
22
<PAGE>
COACH USA, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
A report on Form 8-K was filed with the SEC on August 8, 1997 in
connection with the acquisition by the Company of five businesses
during the period from February 28, 1997 to May 31, 1997.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Coach USA, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COACH USA, INC.
Dated: November 14, 1997 By: /s/ LAWRENCE K. KING
Name: Lawrence K. King
Title:Senior Vice President and
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,831
<SECURITIES> 0
<RECEIVABLES> 45,165
<ALLOWANCES> (2,789)
<INVENTORY> 18,474
<CURRENT-ASSETS> 113,747
<PP&E> 422,832
<DEPRECIATION> (78,975)
<TOTAL-ASSETS> 599,638
<CURRENT-LIABILITIES> 110,929
<BONDS> 150,000
0
0
<COMMON> 200
<OTHER-SE> 142,313
<TOTAL-LIABILITY-AND-EQUITY> 599,638
<SALES> 354,018
<TOTAL-REVENUES> 354,018
<CGS> 260,861
<TOTAL-COSTS> 303,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,990
<INCOME-PRETAX> 36,724
<INCOME-TAX> 14,681
<INCOME-CONTINUING> 22,043
<DISCONTINUED> 0
<EXTRAORDINARY> (603)
<CHANGES> 0
<NET-INCOME> 21,440
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
