SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended MARCH 31, 1998 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 500
HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 888-0104
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock of the Registrant, par value $.01
per share, outstanding at May 12, 1998 was 26,811,314.
1
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COACH USA, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
<S> <C>
COACH USA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets...................................... 3
Condensed Consolidated Statements of Income................................ 4
Condensed Consolidated Statements of Stockholders' Equity.................. 5
Condensed Consolidated Statements of Cash Flows............................ 6
Notes to Condensed Consolidated Financial Statements....................... 7
Item II - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 17
PART II - OTHER INFORMATION
Item 2 - Changes in Securities.................................................... 20
(c)Recent Sales of Unregistered Securities
Item 6 - Exhibits and Reports on Form 8-K......................................... 20
(a)Exhibits.
27 Financial Data Schedule
(b)Reports on Form 8-K.
Signature............................................................................. 21
</TABLE>
2
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................$ 3,648 $ 4,151
Accounts receivable, net of allowance of $3,663 and $4,055...... 43,346 49,426
Inventories..................................................... 22,490 26,157
Notes receivable, current portion............................... 4,138 4,497
Prepaid expenses and other current assets....................... 24,219 22,790
--------- ---------
Total current assets....................................... 97,841 107,021
PROPERTY AND EQUIPMENT, net........................................... 395,800 460,936
NOTES RECEIVABLE, net of allowance of $500 and $500................... 8,906 10,240
GOODWILL, net......................................................... 145,576 174,014
OTHER ASSETS, net..................................................... 17,747 17,825
--------- ---------
Total assets...............................................$ 665,870 $ 770,036
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations.....................$ 12,012 $ 14,692
Current maturities of convertible subordinated notes............ -- 8,330
Accounts payable and accrued liabilities........................ 91,140 93,588
--------- ---------
Total current liabilities.................................. 103,152 116,610
LONG-TERM OBLIGATIONS, net of current maturities...................... 158,752 234,750
SENIOR SUBORDINATED NOTES............................................. 150,000 150,000
CONVERTIBLE SUBORDINATED NOTES, net of current maturities............. 52,300 51,596
DEFERRED INCOME TAXES................................................. 41,111 45,423
--------- ---------
Total liabilities.......................................... 505,315 598,379
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par, 500,000 shares authorized, 1 share
issued and outstanding....................................... -- --
Common stock $.01 par, 100,000,000 shares authorized,
21,817,918 and 22,188,421 shares issued and outstanding,
respectively................................................. 218 222
Additional paid-in capital...................................... 121,534 130,253
Cumulative translation adjustment............................... (479) (455)
Retained earnings............................................... 39,282 41,637
--------- ---------
Total stockholders' equity................................. 160,555 171,657
--------- ---------
Total liabilities and stockholders' equity.................$ 665,870 $ 770,036
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA )
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES......................................................... $ 96,532 $ 149,983
OPERATING EXPENSES............................................... 76,959 117,980
----------- -----------
Gross profit............................................. 19,573 32,003
GENERAL AND ADMINISTRATIVE EXPENSES.............................. 11,714 18,814
AMORTIZATION EXPENSE............................................. 526 1,439
ACQUISITION RELATED COSTS........................................ 139 --
----------- -----------
Operating income......................................... 7,194 11,750
INTEREST EXPENSE................................................. 4,199 7,745
----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS.......................................... 2,995 4,005
PROVISION FOR INCOME TAXES....................................... 1,318 1,562
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS................................ 1,677 2,443
EXTRAORDINARY ITEMS, net of income taxes......................... (119) (88)
----------- -----------
NET INCOME....................................................... $ 1,558 $ 2,355
=========== ===========
BASIC EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEMS............................ $ .08 $ .11
EXTRAORDINARY ITEMS ......................................... (.01) --
----------- -----------
NET INCOME ...................................................... $ .07 $ .11
=========== ===========
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY ITEMS............................ $ .08 $ .11
EXTRAORDINARY ITEMS.......................................... $ (.01) $ (.01)
----------- -----------
NET INCOME....................................................... $ .07 $ .10
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------ PAID-IN TRANSLATION RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996................... 20,901 $ 209 $105,576 $ (209) $ 8,694 $114,270
Issuance of Common Stock:...................
Acquisition of Purchased Companies ...... 596 6 12,385 -- -- 12,391
Exercise of stock options................ 119 1 2,509 -- -- 2,510
Equity of acquired companies treated as
Immaterial Poolings-of-Interest ......... 197 2 378 -- 396 776
S Corporation dividends paid by certain
Pooled Companies......................... -- -- -- -- (1,216) (1,216)
Other....................................... 5 -- 686 (270) -- 416
Net income.................................. -- -- -- -- 31,408 31,408
------- ------- -------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997 .................. 21,818 218 121,534 (479) 39,282 160,555
Issuance of Common Stock:
Acquisition of Purchased Companies....... 247 2 5,258 -- -- 5,260
Exercise of stock options................ 52 1 1,462 -- -- 1,463
Conversion of convertible subordinated
note ................................... 71 1 1,999 -- -- 2,000
Other....................................... -- -- -- 24 -- 24
Net income.................................. -- -- -- -- 2,355 2,355
------- ------- -------- ------- ------- --------
BALANCE AT MARCH 31, 1998 (unaudited).......... 22,188 $ 222 $130,253 $ (455) $41,637 $171,657
======= ======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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COACH USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 1,558 $ 2,355
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization ................................... 6,614 11,117
Gain on sale of assets........................................... (417) (251)
Deferred tax provision .......................................... 1,522 1,702
Changes in operating assets and liabilities, net of effect of
Purchased Companies --
Accounts receivable, net..................................... 996 (4,681)
Inventories.................................................. (457) (3,176)
Prepaid expenses and other current assets.................... (1,391) 2,247
Accounts payable and accrued liabilities..................... (5,702) (8,109)
Other........................................................ 1,110 54
--------- ---------
Net cash provided by operating activities................. 3,833 1,258
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................................... (36,283) (35,340)
Proceeds from sales of property and equipment........................... 6,107 3,180
Cash consideration paid for Purchased Companies, net of cash acquired... (26,128) (18,385)
Increase in notes receivable............................................ (2,069) (1,693)
--------- ---------
Net cash used in investing activities..................... (58,373) (52,238)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations............................. (39,736) (30,253)
Proceeds from issuance of long-term obligations ........................ 98,394 80,249
Proceeds from issuance of Common Stock.................................. -- 1,463
Other................................................................... (21) --
--------- --------
Net cash provided by financing activities................. 58,637 51,459
EFFECT OF EXCHANGE RATE CHANGES............................................. (9) 24
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................... 4,088 503
CASH AND CASH EQUIVALENTS, beginning of period.............................. 2,786 3,648
--------- ---------
CASH AND CASH EQUIVALENTS, end of period....................................$ 6,874 $ 4,151
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..............................................$ 4,562 $ 11,365
Cash paid for income taxes.......................................... 531 6,676
Assets acquired under capital leases................................ 5,533 --
Convertible subordinated notes issued for Purchased Companies....... 18,330 9,626
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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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, six established businesses. Through March 31, 1998, the
Company has acquired 58 additional businesses. Of these additional businesses
acquired, 22 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" (see Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Coach USA, the Purchased Companies since their respective dates of
acquisition and give retroactive effect to the acquisitions of the Pooled
Companies.
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 consolidated financial statements and notes
thereto included in Coach USA's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the SEC.
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues,
operating income and net income during the first and fourth quarters.
7
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COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in prior periods to conform with
the current presentation. All significant intercompany transactions have been
eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The Company's Canadian subsidiaries maintain their books and records in
Canadian dollars. Assets and liabilities of these operations are translated into
U.S. dollars at the exchange rate in effect at the end of each accounting
period, and income statement accounts are translated at the average exchange
rate prevailing during the period. Gains and losses resulting from such
translation are reported as an element of comprehensive income and as a separate
component of stockholders' equity. Gains and losses from transactions in foreign
currencies are reported in other income and are not significant.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net income. The
Company has adopted SFAS No. 130 effective January 1, 1998. For the three months
ended March 31, 1997 and 1998, the only component of other comprehensive income
was unrealized gains (losses) on foreign currency translation. Comprehensive
income for the three months ended March 31, 1997 and 1998 was $1.5 million and
$2.4 million, respectively.
3. NET INCOME PER COMMON SHARE
Earnings per share amounts are based on the weighted average number of shares
of common stock and common stock equivalents outstanding during the period. The
weighted average number of shares used to compute basic and diluted earnings per
share for the three months ended March 31, 1997 and 1998 are illustrated below
(in thousands):
8
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COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1998
-------- --------
<S> <C> <C>
Net income:
Net income for basic earnings per share -
income available to common stockholders................ $ 1,558 $ 2,355
-------- ---------
Effect of convertible subordinated notes under the
"if converted" method - interest expense addback,
net of taxes........................................... -- --
-------- --------
Net income for diluted earnings per share - income
available to common stockholders....................... $ 1,558 $ 2,355
======== =========
Weighted average shares:
Weighted average shares outstanding for
basic earnings per share............................... 20,903 22,024
Effect of dilutive stock options and warrants.............. 434 599
Effect of convertible subordinated notes under
the "if converted" method - weighted
convertible shares issuable............................ -- --
-------- --------
Weighted average shares outstanding for diluted
earnings per share..................................... 21,337 22,623
======== =========
</TABLE>
There is no interest expense addback reported or weighted shares
attributable to convertible subordinated notes in the table above, as the effect
of convertible subordinated notes outstanding was anti-dilutive for both periods
presented.
4. LONG TERM OBLIGATIONS
In August 1997, the Company amended and restated its credit agreement. The
credit agreement, as amended and restated, provides for a revolving credit
facility of $300 million through a bank syndicate and allows for an additional
$80 million of debt outside the credit facility, in addition to fully
subordinated debt. The proceeds of the facility are to be used for working
capital, capital expenditures and acquisitions, including refinancing of
indebtedness related to acquisitions. The facility is secured by substantially
all of the assets of the Company and matures in August 2000, 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 0.25%, or
the London Interbank Offered Rate (LIBOR") plus 0.50% to 1.75%, both as
determined by the ratio of the Company's funded debt to cash flow, as defined. A
commitment fee 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 31, 1998, the Company had a total of $249.4 million outstanding under the
revolving and other outside credit facilities and had utilized $16.8 million of
the facility for letters of credit securing certain insurance obligations and
performance bonds, resulting in a borrowing availability of $113.8 million under
the revolving and other outside credit facilities. The Company is currently in
negotiations with its bank syndicate to amend its credit agreement. The
amendment would result in more favorable pricing to the Company and extend the
maturity date.
9
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COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
Subsequent to March 31, 1998, the Company paid down amounts owed under the
Credit Facility by $85.5 million using the net proceeds from the sale of
2,000,000 shares of Common Stock sold in a secondary public offering (see Note
8).
CONVERTIBLE SUBORDINATED NOTES
As of March 31, 1998, the Company had outstanding $59.9 million of
convertible subordinated notes issued to certain former owners of the Purchased
Companies as partial consideration of the acquisition purchase price. The notes
bear interest at a weighted average interest rate of 5.12% and are convertible
by the holder into shares of the Company's Common Stock at the option of the
Company at any time after one year of issuance. Subsequent to March 31, 1998,
the Company converted approximately $21.2 million of convertible subordinated
notes (see Note 8).
5. BUSINESS COMBINATIONS
POOLINGS
During 1997, the Company acquired all of the outstanding stock of sixteen
companies in exchange for approximately 3,900,000 shares of Common Stock.
Thirteen of these companies provide motorcoach and other passenger ground
transportation services and three provide taxicab and luxury sedan services.
These acquisitions have been accounted for as poolings-of-interests and the
results of operations of these companies are included for all periods presented
herein. The prior periods presented have not been restated for three of these
companies, the Immaterial Pooled Companies. There were no acquisitions completed
during the first quarter of 1998 which were accounted for as
poolings-of-interests.
PURCHASES
During 1997, the Company acquired twenty businesses in transactions
accounted for as purchases. Nineteen of these businesses provide motorcoach
transportation services and one provides taxicab services. The aggregate
consideration paid in these transactions was $64.6 million in cash, net of cash
acquired, approximately 595,000 shares of the Company's Common Stock and $33.8
million in subordinated notes convertible into approximately 905,000 shares of
Common Stock. The accompanying condensed consolidated balance sheet as of March
31, 1998, includes certain preliminary allocations of the respective purchase
prices and is subject to final adjustment. The preliminary allocations resulted
in goodwill recognized of $109.4 million, representing the excess of the
purchase price over the fair value of the net assets acquired.
During the three months ended March 31, 1998, the Company acquired
thirteen businesses in transactions accounted for as purchases. Twelve of these
businesses provide motorcoach transportation services and one provides taxicab
services. The aggregate consideration paid in these transactions was $18.4
million in cash, net of cash acquired, approximately 247,000 shares of the
Company's Common Stock and $9.6 million in subordinated notes convertible into
approximately 205,000 shares of Common Stock. The accompanying condensed
consolidated balance sheet as of March 31, 1998, includes certain preliminary
allocations of the respective purchase prices and is subject to final
adjustment. The preliminary allocations resulted in goodwill recognized of $28.0
million, representing the excess of the purchase price over the fair value of
the net assets acquired.
10
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COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
The PRO FORMA STATEMENT OF INCOME DATA INCLUDING COMPENSATION DIFFERENTIAL
AND OTHER ADJUSTMENTS below includes the historical financial statement data of
the Company (including the Pooled Companies) for all periods presented, the
Immaterial Pooled Companies from the beginning of the fiscal quarter in which
they were acquired, and the Purchased Companies since the date of their
respective acquisition. In addition, the data below gives pro forma effect to
(i) certain reductions in salaries and benefits to the former owners of the
Pooled Companies which were agreed to in connection with the acquisition of the
Pooled Companies, (the "Compensation Differential"); (ii) certain tax
adjustments related to the taxation of certain Pooled Companies as S
Corporations prior to the consummation of the acquisitions; (iii) the tax impact
of the Compensation Differential in each period; and (iv) the elimination of
non-recurring costs associated with certain acquisitions accounted for as
poolings-of-interests. The PRO FORMA FOR PURCHASED COMPANIES data below gives
effect to all items above and also gives effect to the acquisition of the
Purchased Companies as if those acquisitions occurred on January 1, 1997, and
gives further pro forma effect to (i) the Compensation Differential of the
Purchased Companies, (ii) the amortization of goodwill, (iii) interest expense
attributable to cash expended and convertible subordinated notes issued in
connection with the acquisition of the Purchased Companies, (iv) an adjustment
to record interest expense and debt issuance costs related to the Senior
Subordinated Notes issued in June 1997, as if the notes had been outstanding for
all periods presented, and (v) income tax adjustments attributable to the above
adjustments (in thousands, except per share data).
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF INCOME DATA INCLUDING COMPENSATION DIFFERENTIAL
AND OTHER ADJUSTMENTS:
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1998
---------- ---------
(unaudited)
<S> <C> <C>
Revenues .......................................... $ 96,532 $ 149,983
Income before extraordinary items.................... 2,026 2,443
Diluted income per share before extraordinary items.. 0.10 0.11
PRO FORMA FOR PURCHASED COMPANIES:
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1998
---------- ---------
(unaudited)
Revenues .......................................... $ 139,990 $ 155,799
Income before extraordinary items.................... 578 1,997
Diluted income per share before extraordinary items.. 0.03 0.09
</TABLE>
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 Pooled Companies and the Purchased Companies been combined
at the beginning of the periods presented.
11
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
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 May 12, 1998, the STB
had approved or exempted from regulatory approval requirements each of the
acquisition transactions involving federally-regulated interstate motorcoach
operators entered into by the Company through December 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 December 1997 or future
acquisitions.
ESTIMATED INSURANCE CLAIMS PAYABLE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company has
commercial liability insurance policies that provide coverage by the insurance
company, subject to deductibles ranging from $5,000 to $250,000. The Company is
consolidating its insurance program under a program which provides for
deductibles ranging from $100,000 to $250,000. As such, any claim within the
deductible per incident would be the financial obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through March 31, 1998. The accrual
is based on known facts and historical trends. Management believes such accrual
to be adequate.
7. SUPPLEMENTAL GUARANTOR INFORMATION
The Company's payment obligations under the Senior Subordinated Notes are
jointly and severally guaranteed by all domestic subsidiaries (the 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.
12
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................... $ -- $ 4,610 $ (459) $ $ 4,151
Accounts receivable, net of
allowance ................................... -- 46,639 2,787 49,426
Inventories .................................. -- 24,502 1,655 26,157
Notes receivable, current portion ............ -- 4,497 -- 4,497
Prepaid expenses and other current assets .... -- 21,304 1,486 22,790
--------- -------- -------- --------- ---------
Total current assets ..................... -- 101,552 5,469 -- 107,021
PROPERTY & EQUIPMENT, net .................... -- 445,976 14,960 460,936
NOTES RECEIVABLE, net of allowance ........... -- 10,240 -- 10,240
GOODWILL, net ................................ -- 164,688 9,326 174,014
INTERCOMPANY & INVESTMENTS
IN SUBSIDIARIES .......................... 504,560 -- -- (504,560) --
OTHER ASSETS, net ............................ 7,039 10,406 380 17,825
--------- -------- -------- --------- ---------
Total assets ............................. $ 511,599 $732,862 $ 30,135 $(504,560) $ 770,036
========= ======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations .. $ -- $ 5,352 $ 9,340 $ $ 14,692
Current maturities of convertible
subordinated notes ....................... -- 8,330 -- 8,330
Accounts payable and accrued liabilities ..... 3,899 84,826 4,862 93,588
--------- -------- -------- --------- ---------
Total current liabilities ................ 3,899 98,508 14,202 -- 116,610
LONG-TERM OBLIGATIONS, net of current
maturities ................................... 186,043 471,695 10,058 (433,046) 234,750
SENIOR SUBORDINATED NOTES ........................ 150,000 -- -- 150,000
CONVERTIBLE SUBORDINATED NOTES,
net of current maturities .................... -- 51,596 51,596
DEFERRED INCOME TAXES ............................ -- 42,965 2,458 45,423
--------- -------- -------- --------- ---------
Total liabilities ........................ 339,942 664,764 26,719 (433,046) 598,379
STOCKHOLDERS' EQUITY:
Preferred stock .............................. -- -- -- -- --
Common stock ................................. 222 80 5 (85) 222
Additional paid-in capital ................... 130,253 55,442 1,668 (57,110) 130,253
Cumulative translation adjustment ............ (455) -- (455) 455 (455)
Retained earnings ............................ 41,637 12,576 2,198 (14,774) 41,637
--------- -------- -------- --------- ---------
Total stockholders' equity ............... 171,657 68,098 3,416 (71,514) 171,657
--------- -------- -------- --------- ---------
Total liabilities and stockholders' equity $ 51,599 $732,862 $ 30,135 $(504,560) $ 770,036
========= ======== ======== ========= =========
</TABLE>
13
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................................$ -- $ 142,812 $ 7,171 $ $ 149,983
OPERATING EXPENSES...................... -- 110,514 7,466 117,980
--------- --------- --------- --------- ---------
Gross profit ....................... -- 32,298 (295) -- 32,003
GENERAL AND ADMINISTRATIVE EXPENSES..... 18 17,960 836 18,814
AMORTIZATION EXPENSE.................... 372 997 70 1,439
ACQUISITION RELATED EXPENSES............ -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income.................... (390) 13,341 (1,201) -- 11,750
INTEREST EXPENSE........................ -- 7,356 389 7,745
EQUITY IN INCOME OF SUBSIDIARIES........ 2,745 -- -- (2,745) --
--------- --------- --------- --------- ---------
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEMS................. 2,355 5,985 (1,590) (2,745) 4,005
PROVISION FOR INCOME TAXES.............. -- 2,215 (653) 1,562
--------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS....... 2,355 3,770 (937) (2,745) 2,443
EXTRAORDINARY ITEMS, net of income taxes -- (88) -- (88)
--------- --------- --------- --------- ---------
NET INCOME..............................$ 2,355 $ 3,682 $ (937) $ (2,745) $ 2,355
========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES
----------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................$ 2,355 $ 3,682 $ (937)
Adjustments to reconcile net income--
Depreciation and amortization.......................... 372 10,577 168
Equity in income of subsidiaries....................... (2,745) -- --
Gain on sale of assets................................. -- (88) (163)
Deferred income tax provision.......................... -- 2,118 (417)
Changes in operating assets and liabilities, net of
effect of Purchased Companies --
Accounts receivable, net............................ -- (5,191) 510
Inventories......................................... -- (2,992) (184)
Prepaid expenses and other current assets........... -- 2,087 160
Accounts payable and accrued liabilities............ (3,993) (3,079) (1,037)
Other............................................... 123 4 (73)
------------- ------------ -------------
Net cash provided by
(used in) operating activities................ (3,888) 7,119 (1,973)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... -- (34,598) (742)
Proceeds from sales of property and equipment............. -- 2,899 281
Cash consideration paid for Purchased Companies, net...... (18,385) -- --
Increase in notes receivable.............................. -- (1,693) --
------------- ------------ -------------
Net cash used in investing activities............ (18,385) (33,392) (461)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany activity..................................... (45,890) 45,890 --
Principal payments on long-term obligations............... -- (29,915) (338)
Proceeds from issuance of long-term obligations........... 76,320 1,862 2,067
Proceeds from issuance of Common Stock.................... 1,463 -- --
Other..................................................... -- -- --
------------- ------------ -------------
Net cash provided by financing activities........ 31,893 17,837 1,729
EFFECT OF EXCHANGE RATE CHANGES............................... -- -- 24
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH............................... 9,620 (8,436) (681)
CASH AND CASH EQUIVALENTS,
beginning of period....................................... (9,620) 13,046 222
------------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of period......................$ -- $ 4,610 $ (459)
============= ============ =============
ELIMINATIONS CONSOLIDATED
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ (2,745) $ 2,355
Adjustments to reconcile net income--
Depreciation and amortization ..................... 11,117
Equity in income of subsidiaries .................. 2,745 --
Gain on sale of assets ............................ (251)
Deferred income tax provision ..................... 1,702
Changes in operating assets and liabilities, net of
effect of Purchased Companies --
Accounts receivable, net ....................... (4,681)
Inventories .................................... (3,176)
Prepaid expenses and other current assets ...... 2,247
Accounts payable and accrued liabilities ....... (8,109)
Other .......................................... 54
---------- ----------
Net cash provided by
(used in) operating activities ........... -- 1,258
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .................. (35,340)
Proceeds from sales of property and equipment ........ 3,180
Cash consideration paid for Purchased Companies, net . (18,385)
Increase in notes receivable ......................... (1,693)
---------- ----------
Net cash used in investing activities ....... -- (52,238)
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany activity ................................ --
Principal payments on long-term obligations .......... (30,253)
Proceeds from issuance of long-term obligations ...... 80,249
Proceeds from issuance of Common Stock ............... 1,463
Other ................................................ --
---------- ----------
Net cash provided by financing activities ... -- 51,459
EFFECT OF EXCHANGE RATE CHANGES .......................... -- 24
---------- ----------
NET INCREASE (DECREASE) IN CASH .......................... -- 503
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................................. -- 3,648
---------- ----------
CASH AND CASH EQUIVALENTS, end of period ................. $ -- $ 4,151
========== ==========
</TABLE>
15
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --
(CONTINUED)
8. SUBSEQUENT EVENTS
On May 12, 1998, the Company completed the sale of 2,000,000 shares of the
Company's Common Stock at a price of $45 per share in a secondary public
offering. The proceeds from the offering of $85.5 million, net of underwriters'
commissions and other expenses, were used to repay amounts owed under the Credit
Facility. In addition, the Company converted approximately $21.2 million of
convertible subordinated notes previously issued in connection with certain
acquisitions, resulting in the issuance of approximately 612,000 additional
shares of Common Stock.
16
<PAGE>
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.
In May 1996, Coach USA acquired, simultaneously with the closing of its
initial public offering, six established businesses. Through March 31, 1998, the
Company has acquired 58 additional businesses. Of these additional businesses
acquired, 22 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 Company continues to realize savings by consolidating certain general,
administrative and purchasing functions and reducing insurance expenses. 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 corporate management.
Neither these savings nor the costs associated therewith for the periods prior
to the date of the respective subsequent acquisitions have been included in the
financial information discussed below. As such, historical 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 direct tour expenses. General and
administrative expenses consist primarily of management and administrative
salaries and benefits, marketing, communications and professional fees.
RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Revenues................................................ $ 96,532 $ 149,983
Operating Expenses...................................... 76,959 117,980
--------- ---------
Gross Profit........................................ 19,573 32,003
General and Administrative Expenses..................... 11,714 18,814
Amortization Expense.................................... 526 1,439
Acquisition Related Costs............................... 139 --
Interest Expense........................................ 4,199 7,745
--------- ---------
Income Before Income Taxes and Extraordinary Items...... 2,995 4,005
Provision for Income Taxes.............................. 1,318 1,562
--------- ---------
Income Before Extraordinary Items....................... $ 1,677 $ 2,443
========= =========
</TABLE>
The historical results above include the results of the Pooled Companies,
in both periods presented, and the Purchased Companies from their respective
dates of acquisition.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO 1998
Revenues increased by 55.4% to $150.0 million for the three months ended
March 31, 1998. The increase in revenues was largely due to the incremental
revenues of certain Purchased Companies acquired in 1997 and 1998 of $39.4
million, additional revenues of approximately $5.1 million related to the
expansion of transit services and continued internal growth in the charter, tour
and taxicab operations.
Operating expenses increased 53.3% to $117.9 million for the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997. The
increase in operating expenses was primarily due to the acquisition of the
Purchased Companies in 1997 and 1998 and the overall increase in operations
throughout the Company, partially offset by savings in the Company's insurance
and parts buying programs.
General and administrative expenses increased 60.6% to $18.8 million for
the three months ended March 31, 1998, as compared to the three months ended
March 31, 1997. The increase in general and administrative expenses was
primarily due to the acquisition of the Purchased Companies in 1997 and 1998 and
the additional costs of the corporate management group required to execute the
acquisition program and to manage the consolidated group of companies.
Interest expense increased $3.5 million for the three months ended March
31, 1998, as compared to the three months ended March 31, 1997, due to higher
levels of debt resulting from cash paid, debt assumed and convertible
subordinated notes issued in connection with the acquisition of certain
Purchased Companies in 1997 and 1998, and the incremental effect of the higher
interest rate on the Company's senior subordinated notes issued in June 1997.
Net income before extraordinary items increased during the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997,
primarily due to the acquisitions of the Purchased Companies and the effects of
increased purchasing power on lowering certain costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.3 million for the three
months ended March 31, 1998. Capital expenditures during the period, net of
trade-ins and proceeds from sales of property and equipment, totaled $32.2
million. The majority of the capital expenditures were for the purchase of
motorcoach equipment for fleet additions. Also, during the three months ended
March 31, 1998, the Company had net new borrowings of $50.0 million. These
proceeds were used in part for the $18.4 million of cash consideration paid to
certain Purchased Companies, net of cash acquired, and to fund capital
expenditures during the period.
In August 1997, the Company amended and restated its credit agreement. The
credit agreement, as amended and restated, provides for a revolving credit
facility of $300 million through a bank syndicate and allows for an additional
$80 million of debt outside the credit facility, in addition to fully
subordinated debt. The proceeds of the facility are to be used for working
capital, capital expenditures and acquisitions, including refinancing of
indebtedness related to acquisitions. The facility is secured by substantially
all of the assets of the Company and matures in August 2000, 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 0.25%, or
the London Interbank Offered Rate ("LIBOR") plus 0.50% to 1.75%, both as
determined by the ratio of the Company's funded debt to cash flow, as defined. A
commitment fee 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 May
12,
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
1998, the Company had a total of $182.6 million outstanding under the revolving
and other outside credit facilities and had utilized $16.7 million of the
facility for letters of credit securing certain insurance obligations and
performance bonds, resulting in a borrowing availability of $180.7 million under
the revolving and other outside credit facilities. The Company is currently in
negotiations with its bank syndicate to amend its credit agreement. The
amendment would result in more favorable pricing to the Company and extend the
maturity date.
On May 12, 1998, the Company completed the sale of 2,000,000 shares of the
Company's Common Stock at a price of $45 per share in a secondary public
offering. The proceeds from the offering of $85.5 million, net of underwriters'
commissions and other expenses, were used to repay amounts owed under the
revolving 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.
19
<PAGE>
COACH USA, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
The following information relates to securities of the Company issued
or sold by the Company during the three months ended March 31, 1998.
In connection with the acquisition of certain Purchased Companies
completed during the three months ended March 31, 1998, the Company issued
subordinated notes convertible into approximately 205,000 shares of Common Stock
to certain former owners of these businesses.
The foregoing transactions were effected without registration of the
relevant security under the Securities Act of 1933 in reliance upon the
exemption provided by Section 4(2) of the Securities Act of 1933 for
transactions not involving a public offering.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Coach USA, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COACH USA, INC.
Dated: May 13, 1998
By: LAWRENCE K. KING
Name: Lawrence K. King
Title: Senior Vice President and Chief
Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MARCH 31, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,151
<SECURITIES> 0
<RECEIVABLES> 53,481
<ALLOWANCES> (4,055)
<INVENTORY> 26,157
<CURRENT-ASSETS> 107,021
<PP&E> 563,610
<DEPRECIATION> (102,674)
<TOTAL-ASSETS> 770,036
<CURRENT-LIABILITIES> 116,610
<BONDS> 384,750
0
0
<COMMON> 222
<OTHER-SE> 171,435
<TOTAL-LIABILITY-AND-EQUITY> 770,036
<SALES> 149,983
<TOTAL-REVENUES> 149,983
<CGS> 117,980
<TOTAL-COSTS> 138,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,745
<INCOME-PRETAX> 4,005
<INCOME-TAX> 1,562
<INCOME-CONTINUING> 2,443
<DISCONTINUED> 0
<EXTRAORDINARY> (88)
<CHANGES> 0
<NET-INCOME> 2,355
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
