SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NO.: 0-28056
COACH USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0496471
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056-1903
(888) COACH-US
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 16, 1998, the aggregate market value of the 19,367,394 shares of
the registrant's common stock held by non-affiliates of the registrant was
$843,692,101, based on the $43.5625 last sale price of the registrant's common
stock on the New York Stock Exchange on that date.
As of March 16, 1998, 22,055,833 shares of the registrant's common stock were
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is
incorporated by reference from the registrant's definitive proxy statement,
which will be filed with the Commission not later than 120 days following
December 31, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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PART I
ITEM 1. BUSINESS
Coach USA, Inc. ("Coach USA" or the "Company") is the largest provider of
motorcoach charter, tour and sightseeing services and one of the four largest
non-municipal providers of commuter and transit motorcoach services in the
United States. The Company also provides airport ground transportation,
paratransit and other related passenger ground transportation services. The
Company's services at December 31, 1997 were provided through a fleet of
approximately 4,600 motorcoaches and high occupancy vehicles, including 500
motorcoaches provided by various transit authorities pursuant to service
contracts.The Company's charter and tour fleet features luxury, European style
motorcoaches with plush seats, televisions, VCRs and other amenities. The
Company's taxicab and executive sedan vehicle services include dispatching and
vehicle sales, leasing and financing for more than 2,500 vehicles, primarily
owned by independent contractor drivers.
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services; however, it conducted no
operations prior to its initial public offering in May 1996 (the "Initial Public
Offering"). Coach USA acquired, simultaneously with the closing of the Initial
Public Offering, six motorcoach service businesses (the "Founding Companies").
During the year ended December 31, 1996, the Company acquired eight additional
motorcoach businesses and one taxicab service business. During the year ended
December 31, 1997, the Company acquired 34 additional motorcoach businesses and
two taxicab and executive sedan businesses. Therefore, from the Initial Public
Offering through the end of fiscal 1997, excluding the Founding Companies, the
Company has acquired 42 motorcoach businesses and three taxicab and executive
sedan businesses. Subsequent to year-end and through March 16, 1998, the Company
acquired seven additional motorcoach businesses and one additional taxicab
service business.
The Company's strategy is to continue to aggressively pursue additional
acquisitions to consolidate and enhance its position in its current markets and
to acquire operations in new markets. The Company believes that it can continue
to successfully implement this strategy due to the synergies being created by
the consolidation of various operating companies under common ownership of the
Company.
INDUSTRY OVERVIEW
The motorcoach industry in the United States can be broadly divided into
three types of services: (i) recreation and excursion (charter, tour and
sightseeing); (ii) commuter and transit; and (iii) regularly scheduled intercity
service. The motorcoach industry is highly fragmented with approximately 5,000
motorcoach operators. These companies collectively generated in excess of $20
billion in revenues in 1997. The Company believes that the taxicab services
industry has a similar profile but smaller market size.
The Company believes that there will be increasing demand for recreation
and excursion services, commuter and transit motorcoach services and airport
related services for a broad range of customers based on a number of factors,
including:
GROWING TRAVEL AND TOURISM INDUSTRY. Travel and tourism is one of the
fastest growing industries in the United States. Nationwide charter users
include such large organizations as AAA, AARP and convention organizers, whose
members are potential users of motorcoach services. As the population of the
United States continues to age, the Company believes more people will find
motorcoach touring an attractive, low cost alternative to travel by automobile.
Also, as the number of foreign tourists traveling
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to the United States continues to increase, motorcoach travel will continue to
be a popular way for these tourists to travel in the United States.
PRIVATIZATION. The Company expects state and local governments to
accelerate their efforts to privatize capital intensive operations, such as
commuter and transit services, and ancillary services, such as paratransit
services required under the Americans with Disabilities Act ("ADA"). The Company
believes that this acceleration will result primarily from a decrease in federal
funds available to subsidize operations and the increasing capital cost of
acquiring equipment. Examples of this type of business of the Company completed
in fiscal 1997 include the multi-year privatization contracts for transit
services with the city of Seattle for $32 million in gross revenues for the life
of the contract, and with the city of Los Angeles for $44 million in gross
revenues for the life of the contract.
OUTSOURCING. Many hotels, casinos, rental car companies, colleges and other
institutions operate large motorcoach fleets and other high occupancy vehicles.
These entities are increasingly seeking to outsource these non-core activities
as a means to better manage their capital and operating resources and to improve
their profits.
EXPANDING METROPOLITAN AREAS. Metropolitan areas are continuing to expand
geographically and in population. As a result, state and local governments face
increasing automobile traffic congestion, deteriorating infrastructures and a
continuing migration of offices and commuters to suburban locations. These
trends should increase the Company's opportunities to provide motorcoach
commuter and transit services. The Company believes that the fuel and emissions
efficiency, flexibility and low capital cost of motorcoaches and other high
occupancy vehicles will make them increasingly viable alternatives to the high
cost of widening existing roads or establishing or expanding other transit and
commuter systems, such as subways and commuter trains.
INCREASING AIRPORT CONGESTION. The number of passengers served by the
current United States airport system is estimated to increase by 25% over the
next five years. Currently, there is no coordinated effort to provide seamless
transportation between planes and motorcoaches or other modes of ground
transportation, and many passengers continue to use private automobiles for
local or regional travel to and from airports. With no major airport expansions
expected at most major airports in the next five years, the Company believes
that motorcoaches, vans and other high occupancy vehicles can alleviate much of
this congestion and address the shortage of convenient parking at many airports.
In addition, taxicab and executive sedan services are an integral part of
passenger ground transportation to and from most major airports.
SERVICES PROVIDED
The type and level of services provided by the Company vary by market
served. The services offered in each of the Company's markets are determined by
the management team responsible for that market location and are based on such
management's estimate of the demand for a particular service in the market,
competition to provide that service and the Company's ability to provide that
service consistent with the quality standard that the Company seeks.
The Company provides motorcoach and high occupancy vehicle (i.e. shuttles,
vans and minibuses) services on both a contracted and per seat basis. For
contracted services, the Company arranges a fee for the use of the equipment. In
these arrangements, the customer contracts the vehicle for use and the Company
is paid a rate, generally on a daily or per mile basis, that is not dependent on
passenger load factors. In per seat operations, the Company is paid by each
individual customer. Fares for these per seat
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services are usually determined by the Company and payment is received from
individual passengers or through a commissioned agent. In some states, these
fares are subject to regulatory approval.
The Company's taxicab and executive sedan service revenues are derived
primarily from services provided to independent contractors that own or lease
and operate vehicles under one of the Company's trade names. The independent
contractor drivers pay a weekly or daily fee in advance to the Company for
dispatching, use and maintenance of the vehicle equipment, liability insurance
coverage, use of operating rights, charge account and other services. The
independent contractor collects and retains the fares from the passenger. Fares
charged to passengers are subject to municipal or state regulatory approval.
MOTORCOACH SERVICES
The Company's motorcoaches are either owned by the Company or leased under
long-term leases, pursuant to which the Company is responsible for all
maintenance, insurance and upkeep. Certain transit privatization contracts
provide equipment and insurance to the Company. The majority of the Company's
motorcoach drivers are employees of the Company with the remainder provided
pursuant to a leasing arrangement. In certain of the motorcoach operations, the
drivers are independent contractors.
RECREATION AND EXCURSION
CHARTER AND TOUR SERVICES. Charter services are provided on a fixed daily
rate, based on mileage and hours of operation. The Company offers both daily and
long-term charter and tour arrangements (as long as 30 days) with various levels
of luxury and price. The Company has arrangements with tour agencies to provide
various levels of service and equipment for agent-sponsored and organized tours.
Under these arrangements, the Company contracts with tour agencies to provide
the motorcoach and driver at a fixed daily rate. To increase equipment
utilization, the Company also regularly offers shorter charter service to
various social groups or other organizers for transportation to events or
specific destinations. In some instances, the Company organizes its own tours
and markets them on a per passenger basis.
SIGHTSEEING. Per seat sightseeing services are provided on a scheduled
basis at an advertised or published price. Typically, customers will make
reservations for the tours or can simply board on an "open-door" basis at
scheduled locations. Payment is made by the customer, or through the travel
agent or the hotel. The Company uses a network of hotel lobby ticket counters,
hotel concierges and travel agents to sell the Company's sightseeing tours.
AIRPORT SERVICE. The Company picks up passengers at airports in various
cities and transports them to and from their hotel, casino, cruise ship or
convention site. The Company provides passenger ground transportation services
into, from and between airports in certain cities in which the Company has
operations using motorcoaches and other high occupancy vehicles. This service is
provided on either a fixed schedule or service on demand basis. In fixed
schedule services, the Company provides regular pick-up and drop-off services
while fixed fee services can be arranged through computerized reservations
systems or through purchase at a service desk at the airport. Taxicab and
executive sedan service operations are an integral part of the passenger ground
transportation services to and from the airports in the cities in which the
Company operates.
SPECIALIZED DESTINATION ROUTE. The Company provides specialized destination
route services, including daily scheduled service to casinos in various gaming
states including Connecticut, New Jersey, Louisiana, Nevada and Colorado. Luxury
motorcoaches pick passengers up at specified locations. Tickets are sold through
agents and at specified locations. Customers are taken on an "open-door" basis
or by reservation.
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COMMUTER AND TRANSIT SERVICES
COMMUTER SERVICES. In most of its commuter services, the Company has fixed
routes serviced on a daily basis. Most of these routes are owned (as a result of
having received Federal or state regular route authority) by the individual
operating subsidiaries. Many of the Company's motorcoaches that are dedicated to
commuter service are owned by a state or municipal transit authority and
provided to the Company at nominal rent or given by such authority to the
Company to service a particular route. In all cases, the drivers and operations
personnel are employed by the Company and the Company is responsible for
maintenance of the equipment. The Company is paid through individual ticket
purchases or through a fare box. Contracts with transit authorities for this
service typically have one to three year terms and are periodically reviewed for
rate and fare increases. Commuter service is provided daily.
OUTSOURCING CONTRACTS. The Company has agreements with various
corporations, institutions and government entities to provide motorcoaches,
drivers and equipment for their employees and customers. The Company contracts
with the customer to provide the schedule of service required by the customer,
sometimes 24 hours per day.
PRIVATIZATION TRANSIT CONTRACTS. In privatization transit contracts, the
Company has a contract with a transit authority for fixed routes on a daily
basis, with the schedule established by the transit authority. The Company
operates dedicated equipment owned by the Company or by the transit authority.
In each instance, the drivers and operations personnel are employees of the
Company and the Company is responsible for equipment maintenance. The Company is
paid a fixed amount from the municipality based on number of miles or hours
operated. Contracts for this service range from three to five years and are
periodically reviewed for rate increases.
PARATRANSIT SERVICES. The Company has contracts with agencies of various
counties that are responsible for coordinating the non-emergency transportation
of medical aid patients. Following delivery to the Company of patient
reservation schedules, the Company provides the scheduled service, usually
through use of independent contractor drivers, and invoices the county
organization for services provided. These contracts are generally on a
multi-year basis and require the Company to meet certain performance standards.
TAXICAB SERVICES
The majority of the Company's taxicabs and executive sedans are owned by
independent contractor drivers, with the remainder being owned by the Company
and leased on a daily or weekly basis to independent contractor drivers. None of
the taxicab drivers are employees of the Company. In addition to the daily or
weekly fee paid by the drivers to the Company for dispatching and other support
services, the Company derives revenues through vehicle sales and financing
services to drivers, maintenance, parts and labor provided to drivers and
vehicle mini-billboard advertising.
RADIO DISPATCHED SERVICES. Radio dispatched services are provided primarily
on a call-in basis. When the request is made for service, the closest available
vehicle is notified through the Company's computer dispatching system. An
independent contractor driver of the identified vehicle accepts the trip and
picks up the customer.
AIRPORT SERVICES. Taxicab and executive sedan services are provided to
passengers going to and coming from the airports in the municipalities in which
the Company provides these services. Most services provided to passengers coming
from the airports are provided on a demand basis as passengers depart the
airport and summon a taxicab or executive sedan at the airport cab station.
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PARATRANSIT SERVICES. Pursuant to contracts with local transit authorities,
the Company provides on demand transportation services for disabled and other
persons that are in need of transportation services. These contracts are
generally on a multi-year basis and require the Company to meet certain
performance standards.
BUSINESS STRATEGY
The Company's objective is to be the largest provider of regional and local
motorcoach and passenger ground transportation services in the United States.
Management plans to achieve this goal by:
EXPANDING THROUGH ACQUISITIONS. The Company intends to continue to pursue
an aggressive acquisition strategy to enhance its position in its current
markets and to acquire operations in new markets by:
ENTERING NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring
well-established motorcoach and other passenger ground transportation
service providers that, like the Founding Companies and many of the
subsequent acquisitions, are leaders in their regional markets.
EXPANDING EXISTING MARKETS. The Company also plans to acquire additional
motorcoach and other passenger ground transportation service providers in
many of the markets in which it operates, including acquisitions that
either broaden the range of services provided by the Company in that market
or expand the geographic scope of the Company's operations in that market,
as well as tuck-in acquisitions of smaller operations. The Company believes
that tuck-in acquisitions will increase operating efficiencies without a
proportionate increase in administrative costs and, in some instances, will
broaden the Company's range of services.
ACCELERATING INTERNAL GROWTH. A key component of the Company's strategy is
to accelerate internal growth at each of the existing operations and each
subsequently acquired business. The Company believes internal growth can be
accelerated by:
COORDINATION OF SALES AND MARKETING PROGRAMS. The travel and tourism
industry has experienced significant growth in recent years, and the
Company expects this trend to continue. The operating subsidiaries of the
Company have begun to coordinate, when appropriate, sales and marketing
programs as a means to expand their recreational and excursion business.
The operating subsidiaries will continue to target travel and tour
companies, national and international travel agencies and convention
organizers, as well as organizations such as AAA, AARP and professional and
amateur athletic teams, in order to expand services to larger users of
their services.
DEVELOPING PRIVATIZATION AND OUTSOURCING. The Company believes that the
trend toward privatization and outsourcing will accelerate, as more transit
authorities and businesses such as hotels, casinos, rental car agencies,
colleges and other institutions that operate their own fleets decide to
privatize or outsource non-core operations.
CAPITALIZING ON THE CORPORATE STRUCTURE. The Company intends to continue to
take advantage of its corporate structure by:
CENTRALIZING ADMINISTRATIVE FUNCTIONS. The Company believes that it
will continue to have greater purchasing power, resulting in significant
cost savings in such areas as equipment and parts, tires, insurance and
financing, than the operating locations had independently. The Company has
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begun to realize cost savings through the consolidation of administrative
functions such as employee benefits, safety and maintenance programs and
risk management.
INCREASING OPERATING EFFICIENCIES. The Company has begun to consolidate
certain operations and eliminate redundant facilities and redeploy
equipment through coordination among the various operating subsidiaries.
The Company believes that there will continue to be opportunities to
eliminate redundant facilities and redeploy equipment. Additionally, the
Company expects to continue to benefit from cross-marketing and increased
equipment utilization that has occurred among the various operating
locations of the Company.
ACQUISITION STRATEGY
The Company believes that there are many attractive acquisition candidates
in the motorcoach and passenger ground transportation services industry because
of the highly fragmented nature of the industry, industry participants' need for
capital and their owners' desire for liquidity. The Company will continue to
pursue an aggressive acquisition program to consolidate and enhance its position
in its current markets and to acquire operations in new markets.
The Company acquired the six Founding Companies simultaneous with the
Initial Public Offering, and through the remainder of fiscal 1996, the Company
completed the acquisition of eight additional motorcoach service businesses and
one additional taxicab service business. During the year ended December 31,
1997, the Company acquired thirty-four additional motorcoach businesses and two
taxicab and executive sedan businesses. Therefore, from the Initial Public
Offering through the end of fiscal 1997, excluding the Founding Companies, the
Company has acquired 42 motorcoach businesses and three taxicab and executive
sedan businesses. Subsequent to year-end and through March 16, 1998, the Company
completed the acquisition of seven additional motorcoach businesses and one
additional taxicab business. The Company has increased and expanded its presence
in the markets serviced in fiscal 1996, and has entered several major new
markets in the United States and Canada.
The Company believes that it can continue to successfully implement its
acquisition program due to: (i) its strategy for creating a national company,
which should enhance an acquired company's ability to compete in its local and
regional market through an expansion of offered services, improved equipment
utilization and lower operating costs; (ii) the additional capital available for
new equipment; (iii) the potential for increased profitability as a result of
the Company's centralization of certain administrative functions, greater
purchasing power and economies of scale; (iv) its financial strength and
visibility as a public company; and (v) its decentralized management strategy,
which should, in most cases, enable an acquired company's management to remain
involved in the operation of the company.
The Company has analyzed a substantial amount of data on the motorcoach and
passenger ground transportation services industry and individual businesses
within the industry and believes it is well positioned to continue implementing
its acquisition program. Several of the principals of the current operating
subsidiaries have maintained leadership roles in both national and regional
motorcoach and taxicab service trade associations, which has allowed these
principals to become personally acquainted with operators of motorcoach and
passenger ground transportation services businesses across the country. The
Company believes that the visibility of these individuals within these
associations will continue to increase the industry's awareness of the Company
and its strategies, thereby attracting interest from local and regional
operators.
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OPERATIONS
The majority of the Company's daily operations continue to be handled at
the local subsidiary level and the Company will continue to maintain a
decentralized management structure. However, the growth in the number of
operating subsidiaries, and the growth in operations of existing subsidiaries
will continue to require further coordination among management on a regional
basis. Therefore, the operating subsidiaries have begun to coordinate and
implement consolidation opportunities and other strategies to maximize equipment
and facility utilization on a regional as well as a local basis.
Most of the Company's locations have an operations center staffed by
customer service personnel, fleet managers and dispatchers. All of the Company's
commuter and transit services as well as its sightseeing and specialized
destination route services are operated with dedicated fleets of motorcoaches
and drivers, and most fleets include back-up vehicles in case of equipment
breakdown or higher passenger volume. Because commuter and transit services and
specialized destination route services involve fixed routes which rarely vary,
the dispatch function is limited to communicating with drivers by radio to
determine that the motorcoach is in service, the number of passengers embarked
and whether the motorcoach is on schedule and to deal with any problems in
route. When necessary, dispatchers can communicate necessary modifications in
schedules to meet customer demand and increase utilization. Operations personnel
schedule individual motorcoaches for recreation and excursion services as
charter business is obtained. In many instances, the Company receives bookings
for tours and charters well in advance, which enables the Company to predict
periods during which equipment utilization is likely to be low. When this
occurs, the Company more actively solicits charter business in an effort to
maintain equipment utilization or schedules alternative uses for its equipment,
particularly during the winter months when tourism declines. Computerized
dispatch services are an integral part of the daily support services provided to
the independent contractor drivers in the taxicab and executive sedan business.
The Company continues to centralize certain administrative support
activities. The Company believes that by continuing to remove the burden and
attention-diverting responsibility of administrative and support functions, the
local management of the operating companies will be able to focus on pursuing
new business opportunities and improving equipment utilization and yields.
The Company's operations (and the revenues generated from the operations)
are concentrated in a similar fashion to the population centers across the
United States and Canada, with particular concentrations of operations and
revenue in the New York/New Jersey area and southern California.
MAINTENANCE
Each of the Company's motorcoach operating locations has a comprehensive
preventive maintenance program for its equipment to minimize equipment downtime
and prolong equipment life. This program includes regular safety checks when a
motorcoach returns to the terminal, regular oil and filter changes, lubrication,
cooling system checks and wheel alignment on average every 6,000 to 12,000
miles, and more extensive maintenance procedures at greater intervals. Interiors
of motorcoaches are cleaned and exteriors washed usually on a daily basis.
Repairs and maintenance are primarily performed at various maintenance
facilities operated by the Company. Most maintenance provided by outside
facilities results from on-the-road breakdowns or involves major engine
overhauls.
To the extent economically and logistically practicable, the Company shares
maintenance facilities and personnel among the operating locations. The Company
expects this will result in a decrease in the
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percentage of maintenance costs incurred at outside shops and a decrease in
total maintenance costs. The Company has begun to consolidate certain facilities
which will enable the Company where appropriate to eliminate redundant
maintenance facilities.
The Company continues to replace older motorcoaches with newer equipment.
In many instances this replacement reduces maintenance costs largely because
late model motorcoaches are more reliable and have better engine and power train
warranties. When cost effective to do so, the Company has relocated older
motorcoaches to markets where they can be utilized. The Company intends to
purchase most of its motorcoaches with standard component specifications,
particularly engines and drive trains, thereby reducing the complexity of
maintenance and spare parts management. The Company has entered into a leasing
agreement for tires on terms more favorable than previously available to the
acquired companies individually.
SALES AND MARKETING
The Company has a broad customer base. No single customer of the Company
accounted for more than 2% of revenues in 1997. Management at the Company's
operating locations has been responsible for establishing and maintaining
relationships with tour organizers, travel agencies and other regular users of
charter and tour services as well as pursuing outsourcing and privatization
opportunities. Most of the motorcoach operations also have a sales staff that
focuses primarily on obtaining specific charter and tour business.
The principal means of marketing charter and tour services has been in
telephone directories, yellow pages and through direct mail or personal contact
with customers included in each operating location's data bases, which include
civic groups, schools and domestic and foreign tour organizers and travel
agencies. The Company uses ticket counters in hotel lobbies and concierges to
market and promote sightseeing services.
The Company's specialized destination route services to casinos are
promoted primarily by individual casinos. These casinos will either pay the
Company for the transportation or provide incentives to passengers transported
by the Company to the casino. In some instances, the casinos actively advertise
these promotions in various media, such as newspapers, television and
billboards.
The Company, through its operating subsidiaries, intends to continue to
coordinate sales and marketing campaigns and programs for its recreation and
excursion services. The focus of the marketing effort will continue to be on
national users of motorcoach service, such as domestic and international travel
and tour agencies, convention organizers and sports teams. The Company believes
that it will have a marketing advantage over its competitors since it will be
able to offer consistent, dependable, quality service in various metropolitan
areas in the United States, thereby enabling its customers to use the Company's
services in multiple locations rather than dealing with numerous regional or
local motorcoach operators.
Contracts with counties and municipalities to provide commuter and transit
and paratransit services are generally obtained through a competitive bidding
process. In some instances where the Company is the existing provider, the
county or municipality may elect to renegotiate the Company's existing contract
instead of putting the contract out for rebid. The Company believes that
counties and municipalities consider quality of service, reliability and price
to be the most important factors in awarding contracts although other factors,
such as financial stability, personnel policies and practices and total cost
both to the municipality and the public, are also considered.
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The Company's taxicab and executive sedan service operations utilize the
yellow pages, billboards and signs on the taxicabs as the primary means of
marketing services. Paratransit contracts are obtained through a competitive
bidding process. The airport services provided through high occupancy vehicles
are sold on a per seat basis through agents at the airports and the hotel pick
up locations.
COMPETITION
The portions of the motorcoach and ground transportation industry in which
the Company operates are highly competitive, fragmented and served by numerous
operators, most of which serve only a single area or region. The Company's
competitors include other operators of motorcoaches and other high occupancy and
taxicab and luxury sedan vehicles, rent-a-car companies and, to a more limited
extent, airlines, Amtrak and commuter rail service providers. Some of the
Company's competitors, which vary depending on geographic region and the nature
of the service provided, have greater financial, technical and marketing
resources and generate greater revenues than the Company in specific regions.
The majority of the Company's motorcoach competitors consist of small regional
operators with a strong presence in their respective markets. The Company
believes that as it expands geographically, it may compete with additional
national, regional and local transportation service providers.
The Company believes that the principal competitive factors in the
motorcoach industry are reliability, customer service and price, as well as
equipment comfort and appearance. In addition, competition with respect to some
services is limited in some locations by the difficulty in obtaining required
state route authorizations. The Company believes that its ownership of route
authorizations provides it with a competitive advantage in certain markets
because of the relative difficulty of obtaining these authorizations.
The Company competes for acquisition candidates. The Company believes that
its decentralized management philosophy and operating strategies will make it an
attractive acquiror to other motorcoach and ground transportation companies.
However, no assurance can be given that the Company's acquisition program will
continue to be successful or that the Company will be able to compete
effectively in its chosen markets.
REGULATION
As a result of the ICC Termination Act of 1995 (the "Termination Act"), the
Interstate Commerce Commission (the "ICC"), which previously regulated
motorcoach operators engaged in interstate commerce, was abolished effective
January 1, 1996. However, certain of the ICC's regulatory functions were
transferred as of that date to the Surface Transportation Board (the "STB"), a
new regulatory body established within the United States Department of
Transportation (the "USDOT"), and certain other functions were transferred to
the United States Secretary of Transportation (the "Secretary"). Under the
Termination Act, motorcoach operators engaged in interstate commerce are
generally required to be registered with the Secretary, who has delegated
responsibility for registration to the Office of Motor Carriers of the Federal
Highway Administration ("FHWA"), another body of the USDOT. By virtue of the
Termination Act, persons who held operating authority issued by the ICC prior to
December 31, 1995 were automatically deemed registered with the Secretary. Most
of the Company's operating companies held authority issued by the ICC prior to
December 31, 1995, and, accordingly, were deemed registered with the FHWA and
are now subject to the regulatory requirements of the STB and the FHWA.
The Bus Regulatory Reform Act of 1982 significantly reduced federal
regulation of the motorcoach industry. The Termination Act further lessened
regulatory requirements, with the result that the Secretary, the STB and the
FHWA have only limited regulatory authority over interstate motorcoach
operations. The
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level of fares is not subject to federal regulation, and motorcoach operators
are not required to file tariffs. Motorcoach operators are, however, required by
the Termination Act to provide transportation service on reasonable request and
to provide safe and adequate service, equipment and facilities. They must also
maintain minimum amounts of insurance and file evidence of such insurance with
the FHWA. The Secretary and the STB are vested with enforcement authority,
including authority to impose civil penalties, with respect to violations of
applicable regulatory requirements. The Secretary may also suspend, amend or
revoke a registration for willful failure to comply with the Termination Act,
with the regulations of the Secretary, the STB or the FHWA or with any condition
of the operator's registration.
The Termination Act preempts states, their political subdivisions and
multi-state agencies from regulating the scheduling or rates of interstate or
intrastate transportation provided by motorcoach operators on interstate routes.
However, states may require motorcoach operators to provide notice, not in
excess of 30 days, of changes in their schedules. These preemption provisions do
not apply to commuter service.
The Company is subject to extensive FHWA and state regulations with respect
to the qualifications of its drivers and the safety of its vehicles and their
operation. See "-- Drivers and Other Personnel" and "-- Safety." In addition,
the high occupancy vehicles operated by the Company are required by FHWA
regulations to meet Federal noise standards established by the Environmental
Protection Agency. The Company believes that it has conducted its operations in
substantial compliance with FHWA regulations, and the Company does not believe
that ongoing compliance with such regulations will require substantial capital
expenditures. Under the ADA, the Company could become obligated to provide
accessible vehicles to persons who are disabled under certain circumstances
defined in that statute and in USDOT regulations. If the Company were required
to make its motorcoaches compatible with ADA regulations, it could result in
significant capital expenditures by the Company. The Company is subject to
regulation by the Occupational Safety and Health Administration with respect to
worker and workplace safety.
Certain states in which the Company operates, such as New Jersey, Nevada
and Pennsylvania, have a comprehensive regulatory scheme in connection with the
operation of high occupancy vehicles and with respect to the safety of operation
and equipment. Although some of the regulatory restrictions of these states have
been preempted by federal legislation, as described above, these states still
maintain strong regulatory control over wholly intrastate routes. Because
certain operations of the Company have been granted authority to provide
commuter service and scheduled intrastate service, the Company has a competitive
advantage. However, there can be no assurance that these states will maintain
their current regulatory postures, and any reduction in regulation of motorcoach
operators could adversely affect the Company.
The Termination Act requires the STB's approval of any transaction under
which a person that is not a regulated motorcoach operator, such as Coach USA,
acquires control of two or more STB-regulated motorcoach operators. However, the
STB is empowered to exempt persons from this requirement for approval of
motorcoach acquisitions. Coach USA filed a petition with the STB seeking such
exemption in order to permit the acquisition by Coach USA of the Founding
Companies and their affiliates that are regulated by the STB, and the exemption
was granted and became effective on May 3, 1996. The Company filed a petition
with the STB seeking an exemption in connection with the acquisition of five
motorcoach businesses that were part of the acquisitions completed in August and
December 1996 and the exemptions were granted on November 8, 1996 and May 15,
1997, respectively. The Company filed twenty three applications for exemption or
approval with the STB in connection with the acquisitions completed in fiscal
1997; seven were approved on May 15, 1997, three were approved on November 13,
1997; one was approved on December 4, 1997; three were approved on February 24,
1998; and the remaining nine are pending.
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The Company's taxicab and executive sedan service operations are regulated
at the state and local level. Local regulations focus on the number of vehicles
that are authorized to provide taxicab services and whether new entries into the
local marketplace will be granted authority to do business. These regulatory
authorities also set and periodically review the maximum fares that can be
charged to passengers.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various Federal, state and local
environmental laws and regulations governing vehicle emissions, underground and
aboveground fuel tanks and the storage, use and disposal of hazardous materials
and hazardous waste in connection with the Company's in-house maintenance
operations. These laws include the Water Pollution Control Act, the Clean Air
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act and various
state and local laws. There are underground storage tanks at several of the
Company's facilities. The Company also conducts motorcoach washing at certain of
its facilities and the resulting waste must be disposed of in accordance with
regulatory requirements. In the event of a spill, the Company would be
responsible for the cost of the clean-up, which could be significant. As a
result of historical operations, there have been spills and releases of
hazardous substances, including petroleum and petroleum products, at several of
the Company's facilities and the Company has had to remediate these spills and
releases. However, additional spills and releases of hazardous substances of
which the Company is unaware, including spills and releases of petroleum and
petroleum products, may have occurred at the Company facilities. With respect to
unknown pre-existing contamination at a facility, in most instances, each of the
stockholders of the applicable business acquired by the Company has agreed to
indemnify the Company (up to the amount of consideration such stockholder
received, after satisfaction of a threshold payable by the Company, which varies
depending on the transaction) for liabilities in connection with such
contamination. If and to the extent that any stockholder of such a business had
actual knowledge of a spill or release and did not disclose it to the Company,
such stockholder has agreed to indemnify the Company for all liabilities in
connection with such contamination. Some of the operating companies have
disclosed that from time to time they have spilled or released certain hazardous
substances in the course of operating their businesses.
The Company has begun to initiate the implementation of an environmental
compliance program at all of its facilities in an effort to prevent or reduce
future releases of hazardous substances.
DRIVERS AND OTHER PERSONNEL
As of December 31, 1997, the Company had approximately 10,600 employees, of
whom approximately 6,700 were motorcoach drivers and approximately 1,500 were
maintenance personnel. The balance includes administrative personnel, sales
personnel, customer service personnel, fleet managers, dispatchers and safety
and training personnel. Of these employees, approximately 7,800 are full-time
employees. The Company's taxicab, executive sedan and paratransit services are
primarily provided through independent contractor drivers that are not employees
of the Company.
The Company has established motorcoach driver retention programs which seek
to maintain a sufficient number of qualified drivers to handle passenger
service. Each operating location historically had relatively minimal driver
turnover among full-time drivers other than for sightseeing and tour services,
where the need for motorcoach drivers varies seasonally. Safety and
dependability of drivers are critical to the Company's operations. Motorcoach
drivers are required to comply with all applicable Federal and state driver
qualification and safety regulations, including hours of service and medical
qualifications, and to hold a Commercial Driver's License issued in conformity
with regulations of the FHWA. Drivers are
11
<PAGE>
also subjected to drug and alcohol testing requirements imposed by the FHWA,
including random, reasonable suspicion and post-accident testing. Driver
applicants are required to have significant driving experience and to pass
medical examinations. Taxicab and luxury sedan drivers are subject to laws and
regulations governing driving records, appearance and presentation which are
monitored by local municipalities.
As of December 31, 1997, several different unions, each through various
local affiliations, represented approximately 3,300 employees of the Company, of
whom approximately 2,900 were motorcoach drivers. The Company is a party to a
number of different collective bargaining agreements which expire at various
dates through 2002. In the last 10 years, the various operating companies have
not experienced any significant work stoppages and the Company believes that
relationships with union representatives and union employees are satisfactory.
SAFETY
The Company is dedicated to safe operations. The Company vigorously adheres
to the FHWA and comparable state motor carrier safety rules, including rules
concerning safe motor vehicle equipment, driver qualifications and safe
operation of vehicles. The Company maintains drug and alcohol testing programs
for its motorcoach drivers in conformity with FHWA and comparable state
requirements. The Company also addresses accidents and other incidents and takes
follow-up steps intended to reduce the risk of repeat accidents and incidents.
The Company employs safety specialists and maintains safety programs
designed to meet the specific needs of the operating location, including field
spotters and riders who assess motorcoach driver performance. In addition, the
Company employs specialists to perform compliance checks and conduct safety
tests throughout the operations. The Company conducts a number of safety
programs designed to promote compliance with rules and regulations and to reduce
accidents and injury claims. These programs include incentive programs for
accident-free driving, driver safety meetings, distribution of safety bulletins
to drivers and participation in national safety associations.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations are bodily injury and
property damage to third parties and workers' compensation. The Company
maintains insurance against these risks in amounts which it considers sufficient
and is subject to loss deductibles per incident ranging from $5,000 to $250,000.
As such, any claim within the deductible per incident would be a financial
obligation of the Company.
YEAR 2000 ISSUES
Some of the existing operating and financial computer systems utilized by
the Company at its operating subsidiaries will need to be modified or replaced
by the Company or its vendors to increase the date field or make other
modifications to reflect the upcoming change in the century. The Company
believes that the resolution of this issue and the modifications required will
not have a material impact on the business of the Company.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this Report, including without
limitation
12
<PAGE>
(a) statements in paragraph three under "Business" regarding the Company's
strategy of consolidation through acquisitions and the factors that will
contribute toward the success of that strategy, (b) the statements in paragraphs
two, three, four, six and seven under "Industry Overview" regarding the demand
for transportation services and the factors impacting that demand, (c) the
statements under "Business Strategy" regarding the Company's acquisition,
internal growth and economies-of-scale strategies, (d) the statements in
paragraph one under "Acquisition Strategy" regarding the number of acquisition
candidates in the industry, (e) the statements in paragraphs three and four
under "Acquisition Strategy" regarding the factors contributing to the success
of the acquisition program, (f) statements in paragraphs two and three under
"Operations" regarding the benefits of a decentralized management structure, (g)
the statements in paragraph four under "Maintenance" regarding the impact on
maintenance costs of motorcoach replacement, (h) the statements in paragraph
four under "Sales and Marketing" regarding the sales and marketing campaigns,
(i) the statements in paragraph five under "Sales and Marketing" regarding the
considerations used by governmental agencies in awarding contracts, (j) the
statements under "Competition" regarding potential competition, competitive
factors in the motorcoach industry and the Company's ability to compete for
acquisition candidates, (k) the statements under "Drivers and Other Personnel"
regarding the Company's relationship with union representatives and employees,
and (l) the statements under "Year 2000 Issues" regarding the modifications of
computer systems are forward looking statements. Although the Company believes
that the expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Report, including without limitation in conjunction with the
forward looking statements included in this Report. All subsequent written and
oral forward looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.
13
<PAGE>
ITEM 2. PROPERTIES
FACILITIES
At December 31, 1997, the Company's facilities consisted principally of
offices, garages and maintenance facilities. Some of these are single
facilities, and other facilities have limited operations, which may not include
complete maintenance services. The Company owns twenty-eight of the facilities
on which motorcoach and high occupancy vehicle operations are located, and three
of the facilities on which taxicab and executive sedan operations are located.
The remaining facilities are leased, including some from related parties. The
Company believes that its facilities are adequate for its current needs.
The Company leases its executive and administrative offices in Houston,
Texas.
EQUIPMENT
The Company operates approximately 3,500 motorcoaches and 1,100 other high
occupancy vehicles. Approximately 300 of these motorcoaches are provided by
various transit authorities for nominal rent, with the Company assuming full
responsibility for maintenance and repairs. These motorcoaches are provided
under contracts to perform transit and commuter services and must be returned to
the transit authorities in the event the contracts for them are not renewed. In
addition, approximately 200 other motorcoaches have been provided by certain
transit authorities to the Company to operate for the normal useful operating
lives thereof, and these motorcoaches must only be returned to such transit
authorities if the Company surrenders its routes for which such motorcoaches
were provided, or at the end of the normal useful operating lives thereof. The
Company's owned fleet of motorcoaches has an average age of six years.
Motorcoaches have a useful operating life in excess of 15 years. The Company's
replacement policy will depend on the use being made of the particular
motorcoach, but the Company expects that on average it will replace motorcoaches
every 10 to 12 years. A majority of the Company's current fleet of motorcoaches
are from one manufacturer, Motorcoach Industries Incorporated, although other
manufacturers are represented in the Company's fleet. Most engines and drive
trains are manufactured by Detroit Diesel and Allison Transmissions,
respectively. This continuity of engine and drive train should enable the
Company to implement a standardized, Company-wide maintenance program and allow
it to reduce its spare parts inventory. The Company leases most of its tires
from Firestone, with the lease payments based on mileage driven on the tires.
The Company's taxicab and executive sedan service operations provide
dispatch and related services to a fleet of over 2,500 vehicles, of which
approximately 1,100 are owned and operated by independent contractor drivers and
the remainder of which are owned by the Company and leased on a daily or weekly
basis to independent contractor drivers. The Company offers full service
maintenance and repairs on vehicles owned by the independent contractor drivers
and provides maintenance on the vehicles owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
One or more of the operations of the Company (or other operations acquired
in the future by the Company) may become subject to litigation in connection
with the competitive bidding process for a contract to provide transit, commuter
or paratransit services on behalf of a transit authority. Unsuccessful bidders
occasionally will challenge, through a regulatory appeals process or in court,
the awarding of the
14
<PAGE>
contract and will often name the successful bidder as an additional defendant.
The cost of defending such an action can be significant, and if the required
competitive bidding procedures were not followed by the transit authority, the
authority could be ordered to begin the process over or even award the contract
to another bidder.
From time to time, the Company is a party to routine litigation incidental
to its business. The majority of the claims are for personal injury or property
damage incurred in the transportation of its passengers. The Company is also a
party to routine litigation regarding contracts and employment claims. The
Company is not aware of any pending claims or threatened claims which, if
adversely determined, might materially affect the Company's operating results or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock traded on the Nasdaq National Market from May
14, 1996, the date of the Initial Public Offering, until May 7, 1997. Since May
8, 1997, the Company's Common Stock has traded on the New York Stock Exchange.
The following table sets forth the high and low last sale prices for the Common
Stock for the period from May 14, 1996 through March 16, 1998.
HIGH LOW
-------- --------
1996
Second quarter (from May 14).............. $ 22 3/4 $ 17 5/8
Third quarter............................. 27 1/2 18
Fourth quarter............................ 32 25
1997
First quarter............................. 34 1/4 27 5/8
Second quarter............................ 31 1/4 24 1/2
Third quarter............................. 31 7/16 24 7/8
Fourth quarter............................ 35 1/16 27
1998
First quarter (through March 16, 1998).... 45 1/2 28 5/8
At March 16, 1998, there were approximately 231 stockholders of record of
the Company's Common Stock. On March 16, 1998, the last reported sale price of
the Common Stock on the New York Stock Exchange was $43.5625 per share.
DIVIDENDS
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's revolving credit
agreement includes, and any additional lines of credit established in the future
may include, restrictions on the ability of the Company to pay dividends without
the consent of the lender.
SALE OF UNREGISTERED SECURITIES
The following information relates to securities of the Company issued or
sold by the Company during the past two fiscal years which were not registered
under the Securities Act:
(i) In January 1996, the Company issued 30 shares of Common Stock at
an effective price of $.01 per share to officers of the Company; and
(ii) In March 1996, the Company issued 39.2 shares of Common Stock at
an effective price of $.01 per share to officers of the Company, Shelli
LePori (an employee of Notre Capital Ventures II, LLC, the firm which
founded the Company), Dominic Puopolo and M Three Trust (a trust for the
benefit of the children of Paul M. Verrochi) (Messrs. Puopolo and Verrochi
are principals with American Business Partners, LLC, formerly known as Exel
Motorcoach Partners, LLC, a former consultant to the Company, and Mr.
Verrochi is a member of the board of directors of the Company).
16
<PAGE>
Subsequent to the issuance of the foregoing shares, and prior to the
completion of the Initial Public Offering, Coach USA declared a stock dividend
and issued 9,999 shares of Common Stock for each share of Common Stock then
outstanding.
Simultaneously with the completion of the Initial Public Offering, the
Company issued 5,099,687 shares of its Common Stock in connection with the
Mergers of the six Founding Companies.
In connection with the acquisition of businesses completed in August 1996,
the Company issued 2,558,580 shares of Common Stock to the stockholders of the
companies in the transactions accounted for as poolings-of-interests and
subordinated notes convertible into 750,460 shares of Common Stock to the
stockholders of the purchased companies accounted for as purchases.
In connection with the acquisition of businesses completed in December
1996, the Company issued 1,150,795 shares of Common Stock to the stockholders of
the companies acquired in three transactions accounted for as
poolings-of-interests.
In connection with the acquisition of businesses completed in the first
quarter of fiscal 1997, the Company issued 578,033 shares of Common Stock to the
stockholders of the companies in the transactions accounted for as
poolings-of-interests and subordinated notes convertible into 256,410 shares of
Common Stock to stockholders of the companies accounted for as purchases.
In connection with the acquisition of businesses completed in the second
quarter of fiscal 1997, the Company issued 1,289,956 shares of Common Stock to
the stockholders of the companies in the transactions accounted for as
poolings-of-interests and subordinated notes convertible into 102,128 shares of
Common Stock to stockholders of the companies accounted for as purchases.
In connection with the acquisition of businesses completed in the third
quarter of fiscal 1997, the Company issued subordinated notes convertible into
118,603 shares of Common Stock to stockholders of the companies accounted for as
purchases. In addition, on July 26, 1997, the Company issued warrants to
purchase 100,000 shares of Common Stock at a strike price of $26.00 per share
(which was the closing price of the Common Stock on that date) to American
Business Partners, LLC, formerly known as Exel Motorcoach Partners, LLC.
In connection with the acquisition of businesses completed in the fourth
quarter of fiscal 1997, the Company issued subordinated notes convertible into
200,288 shares of Common Stock to stockholders of the companies accounted for as
purchases.
In connection with the acquisition of businesses completed subsequent to
year end through March 16, 1998, the Company issued subordinated notes
convertible into 122,000 shares of Common Stock to stockholders of the companies
accounted for as purchases.
Each of these transactions was effected without registration of the
relevant security under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving a
public offering.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
COACH USA, INC.
SELECTED PRO FORMA FINANCIAL DATA
Coach USA acquired, simultaneously with the closing of the Initial Public
Offering, the Founding Companies. During the remainder of 1996 and through 1997,
the Company completed 45 acquisitions, 19 of which were accounted for as
poolings-of-interests (the "Pooled Companies"), 3 of which were accounted for as
immaterial poolings-of-interests (the "Immaterial Pooled Companies"), and 23 of
which were accounted for as purchases (the "Purchased Companies"). The PRO FORMA
STATEMENT OF INCOME DATA INCLUDING COMPENSATION DIFFERENTIAL AND OTHER
ADJUSTMENTS and PRO FORMA BALANCE SHEET DATA below include historical financial
statement data of the Founding Companies at historical cost, the Company
(including the Pooled Companies) for all periods presented, 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 effect to (i) certain reductions
in salaries and benefits to the former owners of the Founding Companies and the
Pooled Companies, which were agreed to in connection with the mergers of the
Founding Companies and the acquisition of the Pooled Companies, as well as a
non-recurring, non-cash charge recorded by the Company (collectively, the
"Compensation Differential"); (ii) certain tax adjustments related to the
taxation of certain Founding Companies and Pooled Companies as S Corporations
prior to the consummation of the mergers of the Founding Companies and the
acquisitions completed through 1997; (iii) the tax impact of the Compensation
Differential in each period; (iv) for 1995 and 1996, the conversion of debt to
equity at one of the Pooled Companies; and (v) the elimination of non-recurring
pooling costs associated with the 1996 and 1997 acquisitions. The PRO FORMA FOR
PURCHASED COMPANIES data below gives effect to all items above and also gives
effect to the acquisitions of the Purchased Companies as if those acquisitions
occurred on January 1, 1996, and gives pro forma effect to (i) Compensation
Differential of the Purchased Companies, (ii) the amortization of goodwill,
(iii) interest expense attributable to convertible subordinated notes issued,
and (iv) income tax adjustments attributable to the above adjustments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA
INCLUDING COMPENSATION DIFFERENTIAL
AND OTHER ADJUSTMENTS:
Total revenues .................................. $281,872 $282,397 $316,275 $370,781 $ 542,790
Operating expenses .............................. 226,471 221,839 241,103 281,924 398,945
Gross profit .................................... 55,401 60,558 75,172 88,857 143,845
General and administrative expenses ............. 33,193 37,253 40,527 41,365 62,029
Operating income ................................ 22,208 23,305 34,645 47,492 81,816
Income before extraordinary items ............... 7,108 7,961 13,494 20,461 35,682
Extraordinary items ............................. 1,191 -- -- 2,648 (929)
Net income ...................................... 8,299 7,961 13,494 23,109 34,753
BASIC EARNINGS PER SHARE:
Income before extraordinary items
per share .................................... $ 1.13 $ 1.67
Net income per share ............................ 1.27 1.62
Weighted average shares (1) ..................... 18,152 21,412
DILUTED EARNINGS PER SHARE:
Income before extraordinary items
per share .................................... $ 1.12 $ 1.61
Net income per share ............................ 1.26 1.57
Weighted average shares (1) ..................... 18,543 22,954
PRO FORMA FOR PURCHASED COMPANIES:
Total revenues .................................. $571,060 $ 615,770
Operating expenses .............................. 430,978 452,918
Gross profit .................................... 140,082 162,852
General and administrative expenses ............. 71,140 75,641
Operating income ................................ 68,942 87,211
Income before extraordinary items ............... 22,679 35,633
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA HISTORICAL HISTORICAL
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) ................... $ (16,779) $ (18,727) $ (19,314) $ (22,036) $ (5,311)
Total assets ................................ 182,561 207,085 241,538 366,040 665,870
Total debt, including current
portion .................................. 101,499 121,278 138,125 153,978(2) 320,764(2)
Stockholders' equity ........................ 23,234 24,517 31,204 114,270 160,555
</TABLE>
- ------
(1) See Note 11 of the Notes to Consolidated Financial Statements for a
reconciliation of weighted average shares outstanding for the year ended
December 31, 1997.
(2) Does not include $22.5 million and $52.3 million of outstanding
convertible subordinated notes as of December 31, 1996 and 1997,
respectively, issued in connection with the acquisitions of the Purchased
Companies.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Coach USA was founded in September 1995 to create a nationwide provider of
motorcoach and other ground transportation services. On May 17, 1996, Coach USA
acquired, simultaneous with the closing of its Initial Public Offering, the six
Founding Companies. During the remainder of 1996 and through 1997, the Company
completed 45 acquisitions, 19 of which were accounted for as
poolings-of-interests (the "Pooled Companies"), and 23 of which were accounted
for as purchases (the "Purchased Companies"). Additionally, three acquisitions
have been accounted for as immaterial poolings-of-interests (the "Immaterial
Pooled Companies"). As a result, the pro forma financial statements, including
the pro forma results discussed below, include the historical financial
statements 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 the
Pooled Companies; (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 acquisitions
completed through 1997; and (iv) the tax impact of the Compensation Differential
in each period.
The Company continues to realize savings by consolidating certain general,
administrative and purchasing functions and reducing insurance expenses. In
addition, the Company continues 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 increase in costs related to the Company's corporate
management. Neither these savings nor the costs associated therewith, for the
periods prior to the Initial Public Offering or the date of the respective
subsequent acquisitions, have been included in the pro forma financial
information discussed below. As a result, historical pro forma results may not
be comparable to, or indicative of, future performance.
The Company's motorcoach revenues are derived from fares charged to
individual passengers and fees charged under contracts and other arrangements 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 compensation and
related benefits to the former owners and certain key employees of the Founding
Companies and the subsequent acquisitions, administrative salaries and benefits,
marketing, communications and professional fees.
PRO FORMA RESULTS FOR 1996 COMPARED TO 1997
Total revenues increased $172.0 million, or 46.4%, to $542.8 million for
the year 1997. The increase in revenues was primarily due to revenues from
Purchased Companies acquired in 1997 of $106.3 million and the incremental
revenues of the Purchased Companies acquired in 1996 of $26.0 million. The
remaining increase was largely due to: (i) additional revenues of approximately
$10.0 million related to the expansion of transit services, and (ii) continued
growth in the charter, tour and taxicab operations.
Operating expenses increased $117.0 million, or 41.5%, to $398.9 million
for 1997. The increase in operating expenses was primarily due to the
acquisition of the Purchased Companies discussed above
20
<PAGE>
and an overall increase in operations throughout the Company, partially offset
by savings in the Company's insurance and parts buying programs.
General and administrative expenses in 1997, after elimination of the
Compensation Differential and non-recurring pooling costs, increased $20.7
million, or 50.0%, from $41.4 million in 1996 to $62.0 million. The increase in
general and administrative expenses was largely due to the acquisition of the
Purchased Companies and additional costs of the corporate management group
required to execute the acquisition program and to manage the consolidated group
of companies.
Interest expense increased $9.7 million in 1997 as compared to 1996 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, and additional equipment purchases.
Pro forma net income before extraordinary items, adjusted for the
Compensation Differential, non-recurring pooling costs, and the pro forma
provision for taxes, increased during 1997 as compared to 1996 primarily due to
the acquisition of the Purchased Companies, continued revenue growth and the
effects of increased purchasing power.
The extraordinary items recorded in 1997 include extraordinary losses of
$0.9 million, net of taxes, related to prepayment penalties on early retirement
of certain debt.
PRO FORMA RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $54.5 million, or 17.2% from $316.3 million in
1995 to $370.8 million in 1996. The increase in revenues was primarily
attributable to revenues from Purchased Companies acquired in 1996 of $16.8
million. Additionally, revenues increased due to: (i) an increase in taxicab
service revenues of $9.3 million, attributable to internal expansion, (ii) an
increase in motorcoach charter and special destination revenues of $7.9 million,
primarily attributable to increased service to Atlantic City and Louisiana
casinos, and (iii) continued growth in the charter and tour operations.
Operating expenses increased $40.8 million, or 16.9%, from $241.1 million
in 1995 to $281.9 million in 1996. The increase in operating expenses was
primarily due to the operating expenses from the Purchased Companies acquired in
1996 of $12.8 million. The remaining increase is consistent with the overall
increase in operations throughout the Company.
General and administrative expenses, after elimination of the Compensation
Differential and non-recurring pooling costs, increased $0.8 million, or 2.1%
from $40.5 million in 1995 to $41.4 million in 1996.
Interest expense increased $2.6 million in 1996 as compared to 1995 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, and additional equipment purchases. This increase was
partially offset by the repayment of debt through the use of proceeds of the
Initial Public Offering and a secondary offering of Coach USA Common Stock
completed in November and December 1996.
Pro forma net income before extraordinary items, adjusted for the
Compensation Differential, non-recurring pooling costs, and the pro forma
provision for taxes, increased $7.0 million, from $13.5 million in 1995 to $20.5
million in 1996, and represented 4.3% of revenues in 1995 compared to 5.5% of
revenues in 1996.
21
<PAGE>
The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with Coach
USA, partially offset by extraordinary losses related to prepayment penalties on
early retirement of certain debt. Obligations due to certain former stockholders
of the Pooled Companies of $17.2 million were retired in exchange for shares of
Coach USA Common Stock. The transactions resulted in an extraordinary gain on
early extinguishment of debt of approximately $4.2 million, net of taxes,
representing the excess of the recorded value of the obligations exchanged over
the market value of the Coach USA Common Stock. In addition, extraordinary
losses of $1.6 million, net of taxes, for prepayment penalties on certain
retired debt were recorded in 1996.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated financial information represents the operations
of the Pooled Companies for all periods presented, the Immaterial Pooled
Companies from the beginning of the fiscal quarter in which they were acquired,
the Founding Companies and Coach USA for the seven months ended December 31,
1996, and the Purchased Companies since their respective dates of acquisition.
This financial information has been derived from the Consolidated Financial
Statements of Coach USA. Pro forma net income before extraordinary items gives
effect to (i) the Compensation Differential; (ii) certain tax adjustments
related to the taxation of certain Pooled Companies as S Corporations prior to
the consummation of the Mergers; (iii) the elimination of non-recurring pooling
costs associated with the 1996 and 1997 acquisitions, and (iv) the tax impact of
the Compensation Differential in each period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues ......................... $ 178,800 $ 175,643 $ 202,786 $ 325,717 $ 542,790
Gross profit ........................... 37,383 41,651 52,208 80,863 143,845
Operating income ....................... 11,818 10,841 16,898 37,282 77,501
Income before extraordinary
items ............................... 3,156 2,457 4,197 14,140 32,337
PRO FORMA:
Operating income ....................... 14,844 14,811 21,487 44,185 81,816
Income before extraordinary
items ............................... 5,425 4,393 6,686 19,402 35,682
BALANCE SHEET DATA:
Working capital (deficit) .............. $ (14,814) $ (15,328) $ (15,101) $ (22,036) $ (5,311)
Total assets ........................... 114,105 132,244 159,351 366,040 665,870
Total debt, including current
portion ............................. 71,486 89,395 106,052 153,978(1) 320,764(1)
Stockholders' equity ................... 4,267 2,876 6,489 114,270 160,555
</TABLE>
(1) Does not include $22.5 million and $52.3 million of outstanding
convertible subordinated notes outstanding as of December 31, 1996 and
1997, respectively, issued in connection with the acquisitions of the
Purchased Companies.
HISTORICAL RESULTS FOR 1996 COMPARED TO 1997
Total revenues increased $217.1 million, or 66.6%, to $542.8 million for
the year 1997. The increase in revenues was primarily due to: (i) the
acquisition of the Purchased Companies acquired in 1997 with revenues of $106.3
million, (ii) the incremental revenues of the Founding Companies of $51.8
million, as the Founding Companies were reported for only seven months in 1996
as compared to twelve months in 1997, (iii) the incremental revenues of the
Purchased Companies acquired in 1996 of $26.0 million, (iv) additional revenues
of approximately $10.0 million related to the expansion of transit services, and
(v) continued growth in charter, tour and taxicab operations.
Operating expenses increased 62.9% to $398.9 million for 1997. The
increase in operating expenses was primarily due to the acquisition of the
Purchased Companies, incremental costs of the Founding Companies, and an overall
increase in operations throughout the Company, partially offset by savings in
the Company's insurance and parts buying programs.
23
<PAGE>
General and administrative expenses in 1997, after elimination of the
Compensation Differential and non-recurring pooling costs, increased $25.4
million, or 69.1%, from $36.7 million in 1996 to $62.0 million in 1997. The
increase in general and administrative expenses was largely due to the
acquisition of the Purchased Companies, incremental costs of the Founding
Companies, and additional costs of the corporate management group required to
execute the acquisition program and to manage the consolidated group of
companies.
Interest expense increased $10.2 million in 1997 as compared to 1996 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, and additional equipment purchases.
Pro forma net income before extraordinary items, adjusted for the
Compensation Differential, non-recurring pooling costs and the pro forma
provision for taxes, increased during 1997 as compared to 1996 primarily due to
the acquisition of the Purchased Companies, continued revenue growth and the
effects of increased purchasing power.
The extraordinary items recorded in 1997 include extraordinary losses of
$0.9 million, net of taxes, related to prepayment penalties on early retirement
of certain debt.
HISTORICAL RESULTS FOR 1995 COMPARED TO 1996
Total revenues increased $122.9 million, or 60.6%, from $202.8 million in
1995 to $325.7 million in 1996. The increase in revenues was primarily due to:
(i) the acquisition of the Founding Companies with revenues subsequent to the
mergers of $72.9 million, (ii) the acquisition of the Purchased Companies with
revenues of $16.8 million, (iii) an increase in taxicab service revenues of $9.3
million, attributable to internal expansion, (iv) an increase in motorcoach
charter and special destination revenues of $7.9 million, largely attributable
to increased service to Atlantic City and Louisiana casinos, and (v) continued
growth in the charter and tour operations.
Operating expenses increased $94.3 million, or 62.6%, from $150.6 million
in 1995 to $244.9 million in 1996. The increase in operating expenses is
primarily related to additional costs associated with the acquisition of the
Founding and Purchased Companies. The remaining increase is consistent with the
overall increase in operations throughout the Company.
General and administrative expenses, after elimination of the Compensation
Differential and non-recurring pooling costs, increased $6.0 million, or 19.4%,
from $30.7 million in 1995 to $36.7 million in 1996.
Interest expense increased $3.7 million in 1996 as compared to 1995 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, and additional equipment purchases. This increase was
partially offset by the repayment of debt through the use of proceeds of the
Initial Public Offering and a secondary offering of Coach USA Common Stock
completed in November and December 1996.
Pro forma net income before extraordinary items, adjusted for the
Compensation Differential, non-recurring pooling costs and pro forma provision
for taxes, increased $12.7 million, from $6.7 million in 1995 to $19.4 million
in 1996, and represented 3.3% of revenues in 1995 compared to 6.0% of revenues
in 1996.
24
<PAGE>
The extraordinary items recorded in 1996 include an extraordinary gain that
was recognized in connection with the mergers of the Pooled Companies with Coach
USA, partially offset by extraordinary losses related to prepayment penalties on
early retirement of certain debt. Obligations due to certain former stockholders
of the Pooled Companies of $17.2 million were retired in exchange for shares of
Coach USA Common Stock. The transactions resulted in an extraordinary gain on
early extinguishment of debt of approximately $4.2 million, net of taxes,
representing the excess of the recorded value of the obligations exchanged over
the market value of the Coach USA Common Stock. In addition, extraordinary
losses of $1.6 million, net of taxes, for prepayment penalties on certain
retired debt were recorded in 1996.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $15.4 million, $19.9 million and
$38.4 million for 1995, 1996 and 1997, respectively.
Cash used in investing activities was $19.5 million, $73.9 million, and
$134.1 million for 1995, 1996 and 1997, respectively. Cash used in investing
activities was primarily for additions and replacements of motorcoaches and for
expansion of facilities, net of proceeds from sales of property and equipment.
In addition, the Company paid $16.8 million and $64.6 million in cash for the
Purchased Companies, net of cash acquired, in 1996 and 1997, respectively.
Cash provided by financing activities was $6.1 million, $51.4 million, and
$94.6 million for 1995, 1996 and 1997, respectively. Cash provided by financing
activities for 1995 was primarily attributable to the issuance of $6.8 million
of long-term obligations, net of repayments, partially offset by $1.1 million in
dividends paid to former owners of the Pooled Companies. Cash provided by
financing activities of $51.4 million for 1996 was primarily attributable to
$48.1 million in net proceeds from the Initial Public Offering and $48.5 million
from a secondary offering of Common Stock, partially offset by $42.6 million of
net payments on long-term obligations and $2.9 million in dividends paid to
former owners of the Pooled Companies. Cash provided by financing activities of
$94.6 million for 1997 was primarily attributable to increased borrowings under
the credit facility and the private placement of $150.0 million in senior
subordinated notes totaling approximately $212.0 million, net of debt repayments
of $119.1 million.
Cash and cash equivalents decreased $2.6 million and $1.1 million for 1996
and 1997, respectively. For 1995, cash and cash equivalents increased $2.1
million.
Capital expenditures, net of trade-ins and proceeds from sales of property
and equipment, during 1995, 1996 and 1997 were $23.3 million, $43.6 million and
$69.2 million, respectively. These expenditures were primarily for motorcoaches
and other vehicles and were principally financed with debt and cash flows from
operations. As of December 31, 1997, the Company had entered into commitments to
purchase 107 motorcoaches for approximately $32.4 million. The Company intends
to finance additional vehicle purchases primarily through cash flows from
operations, trade-ins of older equipment, supplemented as necessary, with
borrowings under its revolving credit agreement.
Between January 1, 1998 and March 16, 1998, the Company acquired seven
businesses. The consideration paid for these businesses consisted of $16.3
million in cash, 242,000 shares of Common Stock and $4.9 million in subordinated
notes convertible into 122,000 shares of Common Stock.
In August 1997, the Company amended and restated its revolving credit
agreement. The credit agreement, as amended, provides for a revolving credit
facility of $300 million through a bank syndicate, and allows the Company to
have additional borrowings of up to $80 million (in addition to fully
subordinated debt) outside the credit facility. The facility is secured by
substantially all of the assets of the Company and matures in August 2000.
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%, 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 16, 1998, the Company had a total of
$217.5 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 $145.7 million under the revolving and other outside
credit facilities.
26
<PAGE>
In June 1997, the Company completed the sale of $150.0 million of 9 3/8%
senior subordinated notes due 2007. The net proceeds from the offering were used
to repay amounts owed under the credit facility. These notes are subordinated to
all existing and future senior indebtedness of the Company, including amounts
outstanding under the Company's credit facility and are guaranteed by the
domestic subsidiaries of the Company. The notes are redeemable at the option of
the Company at prices decreasing from a premium of 104.7% on July 1, 2002, to
par on July 1, 2005. Interest on the notes is paid semiannually.
Management believes that the Company's revolving credit facility and its
cash flows from operations will provide sufficient liquidity to execute the
Company's acquisition and internal growth plans for the next 12 months. Should
the Company accelerate its acquisition program, the Company may need to seek
additional financing through the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
SEASONALITY
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's quarterly results of operations to fluctuate
significantly. The Company expects to realize higher revenues, operating income
and net income during the second and third quarters and lower revenues,
operating income and net income during the first and fourth quarters.
INFLATION
Inflation has not had a material impact on the Company's results of
operations for the last three years.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this section, including without
limitation (a) statements in paragraph two under "Introduction" regarding the
Company's incremental savings and additional cost related to formation and the
exclusion of these items from the historical pro forma results, (b) the
statements in paragraph five under "Historical results for 1996 compared to
1997" regarding the increase in 1997 pro forma net income, (c) the statements in
paragraph five under "Liquidity and Capital Resources" regarding capital
expenditures in 1995, 1996 and 1997 and the motorcoach purchase commitment, (d)
the statements in paragraph seven under "Liquidity and Capital Resources"
regarding the revolving credit facility and its impact on cash flow, and (e) the
statements under "Seasonality" regarding the factors affecting quarterly results
are all forward looking statements. Although the Company believes that the
expectations reflected in such forward looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in this section
and elsewhere in this Report, including without limitation in conjunction with
the forward looking statements included in this section. All subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.............................29
Consolidated Balance Sheets..........................................30
Consolidated Statements of Income....................................31
Consolidated Statements of Stockholders' Equity......................32
Consolidated Statements of Cash Flows................................33
Notes to Consolidated Financial Statements...........................34
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coach USA, Inc.:
We have audited the accompanying consolidated balance sheets of Coach USA, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coach
USA, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 2, 1998
29
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................................ $ 4,723 $ 3,648
Accounts receivable, net of allowance of $3,476 and $3,663 ........................... 27,295 43,346
Inventories .......................................................................... 14,310 22,490
Notes receivable, current portion .................................................... 2,811 4,138
Prepaid expenses and other current assets ............................................ 12,907 24,219
--------- ---------
Total current assets ............................................................ 62,046 97,841
PROPERTY AND EQUIPMENT, net ................................................................ 255,075 395,800
NOTES RECEIVABLE, net of allowance of $500 and $500 ........................................ 4,231 8,906
GOODWILL, net .............................................................................. 36,110 145,576
OTHER ASSETS, net .......................................................................... 8,578 17,747
--------- ---------
Total assets .................................................................... $ 366,040 $ 665,870
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of convertible subordinated notes ................................. $ 4,000 $ --
Current maturities of long-term obligations .......................................... 20,924 12,012
Accounts payable and accrued liabilities ............................................. 59,158 91,140
--------- ---------
Total current liabilities ....................................................... 84,082 103,152
LONG-TERM OBLIGATIONS, net of current maturities ........................................... 133,054 158,752
SENIOR SUBORDINATED NOTES .................................................................. -- 150,000
CONVERTIBLE SUBORDINATED NOTES, net of current maturities .................................. 18,500 52,300
DEFERRED INCOME TAXES ...................................................................... 16,134 41,111
--------- ---------
Total liabilities ............................................................... 251,770 505,315
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par, 500,000 shares authorized, 0 and 1 share
issued and outstanding, respectively .............................................. -- --
Common Stock, $.01 par, 100,000,000 shares authorized, 20,901,625
and 21,817,918 shares issued and outstanding, respectively ........................ 209 218
Additional paid-in capital ........................................................... 105,576 121,534
Cumulative translation adjustment .................................................... (209) (479)
Retained earnings .................................................................... 8,694 39,282
--------- ---------
Total stockholders' equity ...................................................... 114,270 160,555
--------- ---------
Total liabilities and stockholders' equity ...................................... $ 366,040 $ 665,870
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PRO FORMA
1995 1996 1997 1997
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES ................................................... $202,786 $325,717 $ 542,790 $ 542,790
OPERATING EXPENSES ......................................... 150,578 244,854 398,945 398,945
-------- -------- --------- ---------
Gross profit .................................... 52,208 80,863 143,845 143,845
GENERAL AND ADMINISTRATIVE
EXPENSES ................................................. 35,310 42,480 64,497 62,029
ACQUISITION RELATED COSTS .................................. -- 1,101 1,847 --
-------- -------- --------- ---------
Operating income ................................ 16,898 37,282 77,501 81,816
INTEREST EXPENSE ........................................... 9,219 12,944 23,106 23,106
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS .................................. 7,679 24,338 54,395 58,710
PROVISION FOR INCOME TAXES ................................. 3,482 10,198 22,058 23,028
-------- -------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS .......................... 4,197 14,140 32,337 35,682
EXTRAORDINARY ITEMS, net of income taxes ................... -- 2,648 (929) (929)
-------- -------- --------- ---------
NET INCOME ................................................. $ 4,197 $ 16,788 $ 31,408 $ 34,753
======== ======== ========= =========
BASIC EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY ITEMS .................... $ .60 $ .96 $ 1.51 $ 1.67
EXTRAORDINARY ITEMS .................................. -- .18 (.05) (.05)
-------- -------- --------- ---------
NET INCOME ................................................. $ .60 $ 1.14 $ 1.46 $ 1.62
======== ======== ========= =========
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
INCOME BEFORE EXTRAORDINARY ITEMS .................... $ .60 $ .95 $ 1.46 $ 1.61
EXTRAORDINARY ITEMS .................................. -- .17 (.04) (.04)
-------- -------- --------- ---------
NET INCOME ................................................. $ .60 $ 1.12 $ 1.42 $ 1.57
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED TOTAL
---------------- PAID-IN TRANSLATION EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) EQUITY
------ ---- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 .......................... 6,987 $ 70 $ 8,165 $ (229) $ (5,130) $ 2,876
S Corporation dividends paid by
certain Pooled Companies ..................... -- -- -- -- (1,149) (1,149)
Net income ...................................... -- -- -- -- 4,197 4,197
Other ........................................... -- -- 536 29 -- 565
------ ---- --------- ------- -------- ---------
BALANCE AT DECEMBER 31, 1995 .......................... 6,987 $ 70 $ 8,701 $ (200) $ (2,082) $ 6,489
Issuance of Common Stock:
Proceeds of stock offerings ................... 6,224 62 96,502 -- -- 96,564
Merger with predecessor ....................... 2,166 22 2,055 -- (2,053) 24
Acquisition of Founding Companies ............. 5,099 51 6,323 -- 9,155 15,529
Cash Distribution to Founding
Companies' shareholders ...................... -- -- (23,810) -- -- (23,810)
Reorganization .................................. -- -- 4,402 -- (4,402) --
Conversion from S Corporation to C
Corporation for Founding
Companies .................................... -- -- -- -- (5,426) (5,426)
Conversion of debt to equity .................... 425 4 10,198 -- -- 10,202
S Corporation dividends paid by
certain Pooled Companies ..................... -- -- -- -- (3,356) (3,356)
Adjustment to conform fiscal year
ends of Pooled Companies ..................... -- -- -- -- 70 70
Net income ...................................... -- -- -- -- 16,788 16,788
Capital contributions equal to the
current income taxes of S
Corporations ................................. -- -- 874 -- -- 874
Other ........................................... -- -- 331 (9) -- 322
------ ---- --------- ------- -------- ---------
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
====== ==== ========= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 4,197 $ 16,788 $ 31,408
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization ............................................... 12,693 19,780 35,064
Gain on sale of assets ...................................................... (470) (753) (2,226)
Deferred income tax provision ............................................... 2,421 7,224 12,378
Adjustment to conform fiscal year ends of Pooled Companies .................. -- 70 --
Extraordinary gain .......................................................... -- (7,007) --
Changes in operating assets and liabilities, net of effect of Purchased
Companies --
Accounts receivable, net ............................................... (3,797) (2,271) (6,989)
Inventories ............................................................ (2,832) (5,866) (7,633)
Prepaid expenses and other current assets .............................. (666) (5,564) (5,380)
Accounts payable and accrued liabilities ............................... 4,621 (1,504) (16,455)
Other .................................................................. (752) (999) (1,739)
-------- --------- ---------
Net cash provided by operating activities ......................... 15,415 19,898 38,428
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .............................................. (23,653) (47,389) (97,458)
Proceeds from sales of property and equipment .................................... 6,330 14,054 33,887
Cash consideration paid for the Founding Companies,
net of cash acquired .......................................................... -- (22,112) --
Cash consideration paid for Purchased Companies,
net of cash acquired .......................................................... -- (16,769) (64,624)
Increase in notes receivable ..................................................... (1,828) (1,672) (5,938)
Other ............................................................................ (334) -- --
-------- --------- ---------
Net cash used in investing activities ............................. (19,485) (73,888) (134,133)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations ...................................... (27,519) (140,067) (119,069)
Proceeds from issuance of long-term obligations .................................. 34,295 97,421 211,995
Proceeds from issuance of Common Stock ........................................... -- 96,564 2,510
S Corporation dividends paid by certain Pooled Companies ......................... (1,079) (2,914) (1,216)
Other ............................................................................ 440 414 410
-------- --------- ---------
Net cash provided by financing activities ......................... 6,137 51,418 94,630
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... 2,067 (2,572) (1,075)
CASH AND CASH EQUIVALENTS, beginning of year ........................................... 5,228 7,295 4,723
-------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ................................................. $ 7,295 $ 4,723 $ 3,648
======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest ........................................................... $ 8,250 $ 12,794 $ 16,631
Cash paid for income taxes ....................................................... 686 5,167 822
Assets acquired under capital leases ............................................. 5,943 10,218 5,618
Convertible debt issued for Purchased Companies .................................. -- 22,500 33,800
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BUSINESS AND ORGANIZATION
In September 1995, Coach USA, Inc. (Coach USA), was founded to create a
national company providing motorcoach transportation services, including charter
and tour services, and related passenger ground transportation services.
In May 1996, Coach USA acquired, simultaneous with the closing of its
initial public offering (the Offering), six established businesses.
Consideration for these businesses consisted of a combination of cash and common
stock of Coach USA (the Common Stock). These six businesses are referred to
herein as the "Founding Companies." Subsequent to the Offering, Coach USA
acquired forty-five additional businesses through December 31, 1997 (See Note
3). The acquisition of nineteen of these businesses has been accounted for under
the poolings-of-interests method of accounting (the "Pooled Companies"), three
of these businesses have been accounted for as immaterial poolings-of-interests
(the "Immaterial Pooled Companies"), and twenty-three of these businesses have
been accounted for under the purchase method of accounting (the "Purchased
Companies").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Coach USA and the Founding Companies from June 1, 1996, the effective date used
to account for the acquisitions of the Founding Companies, the Purchased
Companies since their respective dates of acquisition, and give retroactive
effect to the acquisitions of the Pooled Companies. The Pooled Companies, the
Founding Companies subsequent to May 31, 1996, the Immaterial Pooled Companies
from the beginning of the fiscal quarter in which they were acquired, and the
Purchased Companies since date of acquisition, are collectively referred to
herein as the "Company." All significant intercompany transactions and balances
have been eliminated for all periods presented. Certain reclassifications have
been made to the Consolidated Financial Statements to conform with the
presentation used in 1997.
Three of the Pooled Companies previously reported on an October fiscal year
end. As such, the accounts of these companies for their 1995 fiscal year have
been consolidated with the accounts of the Company as of December 31, 1995.
Unaudited revenues and net income for these three companies for the two-month
period ended December 31, 1995, were approximately $6,904,000 and $70,000,
respectively. Accordingly, an adjustment is included in the consolidated
statement of stockholders' equity for the net income attributed to this
two-month period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
34
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist of motorcoach and taxicab replacement parts and
taxicabs held for sale. Inventory cost for replacement parts is accounted for on
the first-in, first-out basis and inventory cost for taxicabs held for sale or
on short-term leases are accounted for on the specific identification basis, and
both are reported at the lower of cost or market. Taxicabs held for sale are
depreciated over their estimated useful lives of three to five years.
Depreciation and amortization expense in the accompanying consolidated financial
statements includes $2,497,000, $2,995,000 and $3,420,000 of depreciation
related to taxicabs held for sale in 1995, 1996 and 1997.
NOTES RECEIVABLE
Notes receivable result from the sale of taxicabs to independent
contractors. The notes bear interest and are due in weekly installments over
periods ranging up to 42 months. Management estimates that the fair value of the
notes receivable approximates the historical value of $13.0 million at December
31, 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs, including replacement of engines and certain other significant
costs, are expensed as costs are incurred.
Depreciation on transportation equipment and other assets, for financial
reporting purposes, is computed on the straight-line basis over the estimated
useful lives of the assets, net of their estimated residual values. Gains or
losses on the sale of equipment are included in operating expenses.
GOODWILL
Goodwill represents the excess of the aggregate price paid by the Company
in acquisitions of businesses accounted for as purchases over the fair market
value of the net tangible assets acquired. Goodwill is amortized using the
straight-line method over a period of 40 years. Goodwill on the accompanying
consolidated balance sheets is presented net of accumulated amortization of
$377,000 and $2,779,000 as of December 31, 1996 and 1997, respectively.
OTHER ASSETS
Taxicab permits are carried at cost, less accumulated amortization. The
permit costs are amortized using the straight-line method over a period of 40
years. Annual renewal fees are charged to expense as incurred. Also included in
other assets are deferred financing costs, primarily related to the Company's
senior subordinated notes. These costs are being amortized using the
straight-line method over the life of the related financing.
The Company applies Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Management continually evaluates whether events or
circumstances have occurred that indicate that the remaining estimated useful
lives of property and equipment, other identifiable intangible assets and
goodwill may warrant revision or that the remaining balances may not be
recoverable.
35
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company provides services to a broad range of geographical regions. The
Company's credit risk primarily consists of receivables from a variety of
customers, including tourism-based companies, governmental units and casinos. In
addition, the Company's accounts and notes receivable include amounts due from
independent taxicab contractors. Management performs ongoing credit evaluations
of its customers and independent taxicab contractors and provides allowances as
deemed necessary.
The activity in the allowance for doubtful accounts is as follows (in
thousands):
<TABLE>
<CAPTION>
BEGINNING
BALANCE OF
BALANCE AT FOUNDING AND CHARGED TO BALANCE AT
BEGINNING PURCHASED COSTS AND END OF
OF PERIOD COMPANIES EXPENSES WRITE-OFFS PERIOD
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995 ..... $1,785 $ -- $1,108 $ (761) $2,132
Year ended December 31, 1996 ..... 2,132 957 1,225 (838) 3,476
Year ended December 31, 1997 ..... 3,476 1,180 880 (1,873) 3,663
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from recreation, excursion, commuter,
transit and taxicab support services and sales to independent taxicab
contractors when such services and sales are performed. The Company recognizes
financing income on notes receivable using the effective interest method over
the term of the notes. Costs associated with the revenues are recorded as
services and sales are performed.
INCOME TAXES
The Company and its U.S. subsidiaries file a consolidated return for
federal income tax purposes. Acquired companies file "short-period" federal
income tax returns through their respective acquisition dates and thereafter are
included in the Company's consolidated return. For purposes of preparing these
consolidated financial statements, federal and state income taxes have been
provided for certain acquired companies which were Subchapter S corporations
prior to their acquisition by the Company as if these companies had filed
corporate tax returns. Income taxes are provided under the liability method
considering the tax effects of transactions reported in the financial statements
which are different from the tax return. The deferred income tax assets and
liabilities represent the future tax consequences of those differences, which
will either be taxable or deductible when the underlying assets or liabilities
are recovered or settled.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
36
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 a separate component of stockholders' equity. Gains
and losses from transactions in foreign currencies are reported in other income
and are not significant.
3. BUSINESS COMBINATIONS:
POOLINGS
During 1996, the Company acquired all of the outstanding stock of six
companies in exchange for 3,284,336 shares of Common Stock. Five of these
companies provide motorcoach transportation services and one provides taxicab
and luxury sedan services. During 1997, the Company acquired all of the
outstanding stock of sixteen companies in exchange for 3,899,982 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 nineteen 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.
Restated consolidated revenues and net income of the Company are summarized
in the table below (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996
---------------------- ---------------------
REVENUES NET INCOME REVENUES NET INCOME
-------- ------ -------- -------
<S> <C> <C> <C> <C>
As previously reported ................ $ 83,925 $2,411 $185,728 $12,915
Subsequent poolings in 1997 ........... 118,861 1,786 139,989 3,873
-------- ------ -------- -------
After subsequent poolings ............. $202,786 $4,197 $325,717 $16,788
======== ====== ======== =======
Diluted net income per share --
After subsequent poolings ....... $ .60 $ 1.12
====== =======
</TABLE>
In connection with the acquisition of one of the Pooled Companies, the
former stockholders of the Pooled Company received shares ("Dividend Access
Shares") of a wholly owned subsidiary of the Company, in lieu of receiving
Common Stock. The Company has agreed to issue shares of Common Stock to the
holders of the Dividend Access Shares upon their redemption to the subsidiary.
These Dividend Access Shares have been treated as outstanding shares of Common
Stock for purposes of these consolidated financial statements. Also in
connection with the acquisition of the Pooled Company, one share of Coach Series
A Voting Preferred Stock was issued by the Company which entitles each holder of
the Dividend Access Shares to vote their shares as if they held an equal number
of shares of Common Stock.
37
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The historical financial statements for 1995 and 1996 include the
operations of the Pooled Companies prior to their acquisition by the Company.
The unaudited combined revenues, income before extraordinary items and net
income of the Pooled Companies for the preacquisition periods in 1997 were $87.4
million, $3.3 million and $3.2 million, respectively.
PURCHASES
During 1996, the Company acquired the businesses of three motorcoach
companies in transactions accounted for as purchases. The aggregate
consideration paid in these transactions was $16.8 million in cash, net of cash
acquired, and $22.5 million in the form of subordinated notes convertible into
750,460 shares of Common Stock. The accompanying consolidated balance sheet as
of December 31, 1996 includes allocations of the respective purchase prices. The
allocations resulted in goodwill recognized of $36.5 million representing the
excess of purchase price over the fair value of the net assets acquired.
During 1996, prior to merging with the Company, two of the Pooled Companies
completed acquisitions of businesses which were accounted for as purchase
transactions. The aggregate consideration paid in these transactions was $4.1
million in cash, net of cash acquired.
During 1997, the Company acquired the businesses of twenty companies 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, 595,364 shares of the Company's Common Stock and $33.8
million in subordinated notes convertible into 905,258 shares of Common Stock.
The accompanying consolidated balance sheet as of December 31, 1997 includes
preliminary allocations of the respective purchase prices and is subject to
final adjustment. The allocations resulted in goodwill recognized of $109.4
million representing the excess of purchase price over the fair value of the net
assets acquired.
In connection with the acquisitions discussed above, liabilities were
assumed as follows for 1996 and 1997 (in thousands):
YEAR ENDED DECEMBER 31,
---------------------
1996 1997
-------- ---------
Fair value of assets acquired, net of cash acquired ... $ 64,286 $ 94,216
Goodwill .............................................. 36,487 109,398
Cash paid, net of cash acquired ....................... (16,769) (64,624)
Issuance of Common Stock .............................. -- (12,391)
Issuance of convertible notes ......................... (22,500) (33,800)
-------- ---------
Liabilities assumed ................................... $ 61,504 $ 92,799
======== =========
The PRO FORMA STATEMENT OF INCOME DATA INCLUDING COMPENSATION DIFFERENTIAL
AND OTHER ADJUSTMENTS below includes the historical financial statement data of
the Founding Companies at historical cost, 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 acquisitions. In addition, the data
below gives effect to (i) certain reductions in salaries and benefits to the
former owners of the Founding Companies and the Pooled Companies which were
agreed to in connection with the mergers of the Founding Companies and the
acquisition of the Pooled Companies, as well as a non-recurring, non-cash charge
recorded by the
38
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company (collectively, the "Compensation Differential"); (ii) certain tax
adjustments related to the taxation of certain Founding Companies and Pooled
Companies as S Corporations prior to the consummation of the mergers of the
Founding Companies and the acquisitions completed through 1997; (iii) the tax
impact of the Compensation Differential in each period; (iv) for 1996, the
conversion of debt to equity at one of the Pooled Companies; and (v) the
elimination of non-recurring pooling costs associated with the 1996 and 1997
acquisitions. The PRO FORMA FOR PURCHASED COMPANIES data below gives effect to
all items above and also gives effect to the acquisitions of the Purchased
Companies as if those acquisitions occurred on January 1, 1996, and gives pro
forma effect to (i) 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
acquisitions of the Purchased Companies, (iv) income tax adjustments
attributable to the above adjustments, and (v) an adjustment to record interest
expense on the senior subordinated notes, amortization of deferred financing
costs and related taxes, as if the notes had been outstanding for the periods
presented (in thousands, except per share data).
PRO FORMA STATEMENT OF INCOME DATA INCLUDING COMPENSATION
DIFFERENTIAL AND OTHER ADJUSTMENTS:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
-------- --------
(UNAUDITED)
Revenues .......................................... $370,781 $542,790
Income before extraordinary items ................. 20,461 35,682
Diluted income per share before extraordinary items 1.12 1.61
PRO FORMA FOR PURCHASED COMPANIES:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
-------- --------
(UNAUDITED)
Revenues .......................................... $571,060 $615,770
Income before extraordinary items ................. 22,679 35,633
Diluted income per share before extraordinary items 1.18 1.57
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, and the Purchased Companies been
combined at the beginning of the periods presented.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
39
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
------------------
1996 1997
-------- -------
Prepaid insurance................................. $ 3,388 $ 5,540
Deferred income tax asset, net.................... 653 1,013
Prepaid licenses, registrations and other taxes... 4,338 6,037
Deposits and other receivables.................... 1,345 7,840
Other............................................. 3,183 3,789
-------- -------
$ 12,907 $24,219
======== =======
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
DECEMBER 31,
ESTIMATED ----------------------
USEFUL LIVES 1996 1997
(YEARS) --------- ---------
Transportation equipment .................. 3-15 $ 295,491 $ 419,322
Buildings and leasehold improvements....... 5-30 17,190 39,114
Other ..................................... 3-10 26,287 34,469
--------- ---------
338,968 492,905
Less-- Accumulated depreciation ........... (83,893) (97,105)
--------- ---------
$ 255,075 $ 395,800
========= =========
Included in transportation equipment at December 31, 1996 and 1997, are
approximately $30.0 million and $33.3 million, respectively, of assets held
under capital leases.
6. OTHER ASSETS:
Other assets consist of the following (in thousands):
DECEMBER 31,
------------------
1996 1997
-------- -------
Taxicab permits, net of accumulated amortization of
$2,298 and $2,451 .................................. $ 4,159 $ 4,586
Deferred financing costs, net of accumulated amortization
of $127 and $1,203 ................................. 748 7,012
Other, net of accumulated amortization of $1,158 and $944 3,671 6,149
-------- -------
$ 8,578 $17,747
======== =======
Amortization expense related to other assets for the years ended December
31, 1996 and 1997 was $416,000 and $1,503,000, respectively.
40
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in
thousands):
DECEMBER 31,
-----------------------
1996 1997
------- -------
Trade accounts payable ......................... $14,688 $16,919
Accrued insurance claims ....................... 18,799 29,846
Accrued compensation ........................... 8,636 11,352
Income taxes and other taxes ................... 3,511 9,616
Accrued interest payable ....................... 904 7,768
Deferred revenue ............................... 1,534 2,863
Other .......................................... 11,086 12,776
------- -------
$59,158 $91,140
======= =======
8. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Revolving credit facility with a bank syndicate, interest at LIBOR plus
1.25% (6.97% at December 31, 1997), secured
by substantially all of the assets of the Company ................ $ 60,110 $ 109,723
Notes payable to finance companies, interest rates ranging
from 6.70% to 14.10%, due in monthly installments of
$484, maturing at various dates through 2011; secured
by certain transportation equipment .............................. 38,451 22,714
Obligations under capital leases of certain transportation
equipment, implicit interest rates ranging from 5.00% to
13.62%, due in monthly installments of $526, maturing
at various dates through 2004 .................................... 26,998 27,495
Other ................................................................. 28,419 10,832
--------- ---------
Total long-term obligations ........................................... 153,978 170,764
Less-- current maturities ............................................. (20,924) (12,012)
--------- ---------
$ 133,054 $ 158,752
========= =========
</TABLE>
41
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, future principal payments of long-term obligations
and minimum lease payments under capital lease obligations are as follows (in
thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS
-------- --------
<S> <C> <C>
Year ending December 31 --
1998 ................................. $ 8,275 $ 5,640
1999 ................................. 4,560 6,135
2000 ................................. 119,720 6,743
2001 ................................. 3,719 4,731
2002 ................................. 2,799 4,920
Thereafter ........................... 4,196 6,010
-------- --------
$143,269 34,179
========
Less-- Amounts representing interest . (6,684)
--------
$ 27,495
========
</TABLE>
REVOLVING CREDIT AGREEMENT
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
December 31, 1997, the Company had a total of $170.8 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 $192.4 million under
the revolving and other outside credit facilities.
SENIOR SUBORDINATED NOTES
In June 1997, the Company completed the sale of $150.0 million of 9 3/8%
senior subordinated notes due 2007. The net proceeds from the offering were used
to repay amounts owed under the credit facility. These notes are subordinated to
all existing and future senior indebtedness of the Company, including amounts
outstanding under the Company's credit facility, and are guaranteed by the
domestic subsidiaries of the Company. The notes are redeemable at the option of
the Company at prices decreasing from a premium of 104.7% on July 1, 2002, to
par on July 1, 2005. Interest on the notes is paid semiannually.
CONVERTIBLE SUBORDINATED NOTES
During 1996 and 1997, the Company issued $56.3 million of convertible
subordinated notes 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 5.15% and are convertible by the
42
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holder into shares of the Company's Common Stock at a weighted average price of
$34.83 per share. The notes are redeemable for cash or the Company's Common
Stock at the option of the Company at any time after one year of issuance. The
terms of the notes require $30.6 million of principal payments in 1999 and $21.7
million in 2000. The Company made scheduled principal payments of $4.0 million
during 1997. Interest on the notes is paid quarterly.
Management estimates that the fair value of its debt obligations
approximates the historical value of $373.1 million at December 31, 1997.
9. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes. The
provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
------- -------- --------
Current --
Federal ............................. $ 888 $ 2,753 $ 9,034
State ............................... 173 346 646
------- -------- --------
1,061 3,099 9,680
------- -------- --------
Deferred --
Federal ............................. 2,059 5,730 9,843
State ............................... 362 1,369 2,535
------- -------- --------
2,421 7,099 12,378
------- -------- --------
Provision for income taxes before
extraordinary items ................. 3,482 10,198 22,058
------- -------- --------
Extraordinary Items --
Current ............................. -- 1,640 (627)
Deferred ............................ -- 125 --
------- -------- --------
-- 1,765 (627)
------- -------- --------
$ 3,482 $ 11,963 $ 21,431
======= ======== ========
Deferred income taxes result from the effect of transactions which are
recognized in different periods for financial and tax reporting purposes.
Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences between the
financial reporting and the tax basis of existing assets and liabilities.
43
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax liabilities and assets are as follows
(in thousands):
DECEMBER 31,
--------------------
1996 1997
-------- --------
Deferred income tax liabilities --
Property and equipment ............................ $ 38,237 $ 59,429
Other ............................................. 902 1,618
-------- --------
Total deferred income tax liabilities ........ 39,139 61,047
-------- --------
Deferred income tax assets --
Accounts receivable/allowance for doubtful accounts (1,330) (1,466)
Accrued liabilities/expenses ...................... (12,309) (11,666)
Net operating losses .............................. (4,463) (4,294)
Other intangibles ................................. (1,989) (1,248)
Tax credits ....................................... (2,821) (2,659)
Other ............................................. (1,650) (520)
-------- --------
Total deferred income tax assets ............. (24,562) (21,853)
Less-- Valuation allowance ............................. 904 904
-------- --------
Net deferred income tax liabilities .......... $ 15,481 $ 40,098
======== ========
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following (in thousands):
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
Tax at federal statutory rate ................... $ 2,684 $10,063 $18,496
Add--
State income taxes, net of
federal benefit .................... 346 1,184 2,012
Nondeductible expenses ................ 316 555 360
Other ................................. 136 161 563
------- ------- -------
$ 3,482 $11,963 $21,431
======= ======= =======
For purposes of the consolidated federal income tax return, the Company
has net operating loss carryforwards available to offset future taxable income
of the Company. The net operating loss carryforwards will expire at various
dates through 2011. The Company also has tax credit carryforwards which have
been partially offset by a valuation allowance. Certain tax credit carryforwards
will expire at various periods through 2002. In connection with the acquisition
of the Pooled Companies, ownership changes occurred resulting in various
limitations on certain tax attributes of the Pooled Companies. However, the
Company expects full utilization of these tax attributes prior to their
expiration. The effect of differences in foreign versus domestic tax rates is
not material for the periods presented.
44
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
As of December 31, 1997, the Company had entered into commitments to
purchase 107 motorcoaches for approximately $32.4 million. The Company intends
to finance these equipment purchases primarily through cash flows from
operations, trade-ins of older equipment and borrowings under the revolving and
other outside credit facilities.
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense for the years ended December 31, 1995, 1996 and
1997 was $6,089,000, $9,951,000, and $16,222,000, respectively. Concurrent with
the acquisitions of certain Founding and Purchased Companies, the Company
entered into various agreements with previous owners to lease land and buildings
used in the Company's operations. The terms of these leases range through
October 2030 and provide for certain escalations in the rent expense each year.
Included in the 1997 rental expense above is approximately $828,000 of rent paid
to these related parties. The following represents future minimum rental
payments under noncancelable operating leases (in thousands):
Year ending December 31 --
1998................................................$ 11,275
1999................................................ 10,047
2000................................................ 8,355
2001................................................ 6,733
2002................................................ 2,831
Thereafter.......................................... 13,210
---------
$ 52,451
=========
CLAIMS AND LAWSUITS
The Company is subject to certain claims and lawsuits arising in the normal
course of business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. The Company
maintains various insurance coverages in order to minimize financial risk
associated with the claims. The Company has provided accruals for certain of
these actions in the accompanying consolidated financial statements. In the
opinion of management, uninsured losses, if any, resulting from the ultimate
resolution of these matters will not have a material effect on the Company's
consolidated 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 March 16, 1998, 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 October 1997. There can be no assurance that
the Company will be able to obtain such approval or exemption with respect to
acquisitions completed after October 1997 or future acquisitions.
45
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 coverages under a program which provides for
deductibles ranging from $100,000 to $250,000. As such, any claim within the
deductible per incident would be the financial obligation of the Company.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policies for claims occurring through December 31, 1997. The
accrual is based on known facts and historical trends. Management believes such
accrual to be adequate.
EMPLOYEE BENEFIT PLANS
The Company maintains certain 401(k) plans which allow eligible employees
to defer a portion of their income through contributions to the plans. The
Company contributed $303,000, $301,000 and $455,000 to these plans during the
years ended December 31, 1995, 1996 and 1997, respectively.
COLLECTIVE BARGAINING AGREEMENTS
The Company is a party to various collective bargaining agreements with
certain of its employees. The agreements require the Company to pay specified
wages and provide certain benefits to its union employees. These agreements will
expire at various times through 2002.
11. 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 1995, 1996 and 1997 is illustrated below (in thousands):
46
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
PRO FORMA
1995 1996 1997 1997
------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income:
Net income for basic earnings per share - income
available to common stockholders ................ $4,197 $16,788 $31,408 $34,753
Effect of convertible subordinated notes under the
"if converted" method - interest expense addback,
net of taxes .................................... -- 229 1,179 1,179
------ ------- ------- -------
Net income for diluted earnings per share - income
available to common stockholders ................ $4,197 $17,017 $32,587 $35,932
====== ======= ======= =======
Weighted average shares:
Weighted average shares outstanding for basic
earnings per share .............................. 6,987 14,742 21,412 21,412
Effect of dilutive stock options and warrants ...... -- 183 402 402
Effect of convertible subordinated notes under the
"if converted" method - weighted convertible
shares issuable ................................. -- 255 1,140 1,140
------ ------- ------- -------
Weighted average shares outstanding for diluted
earnings per share .............................. 6,987 15,180 22,954 22,954
====== ======= ======= =======
</TABLE>
12. 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.
47
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 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 .............. $ -- $ 3,426 $ 222 $ -- $ 3,648
Accounts receivable, net of allowance .. -- 40,049 3,297 -- 43,346
Inventories ............................ -- 21,019 1,471 -- 22,490
Notes receivable, current portion ...... -- 4,138 -- -- 4,138
Prepaid expenses and other current
assets .............................. -- 22,573 1,646 -- 24,219
------------ ------------ ------------ ------------ ------------
Total current assets .............. -- 91,205 6,636 -- 97,841
PROPERTY AND EQUIPMENT, net ............ -- 380,794 15,006 -- 395,800
NOTES RECEIVABLE, net of allowance ..... -- 8,906 -- -- 8,906
GOODWILL, net .......................... -- 136,299 9,277 -- 145,576
INTERCOMPANY & INVESTMENTS
IN SUBSIDIARIES ..................... 420,680 -- -- (420,680) --
OTHER ASSETS, net ...................... 7,162 10,205 380 -- 17,747
------------ ------------ ------------ ------------ ------------
Total assets ...................... $ 427,842 $ 627,409 $ 31,299 $ (420,680) $ 665,870
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations ......................... $ -- $ 4,784 $ 7,228 $ -- $ 12,012
Accounts payable and accrued
liabilities ......................... 7,564 77,676 5,900 -- 91,140
------------ ------------ ------------ ------------ ------------
Total current liabilities ......... 7,564 82,460 13,128 -- 103,152
LONG-TERM OBLIGATIONS, net of
current maturities ........................ 109,723 373,498 10,969 (335,438) 158,752
SENIOR SUBORDINATED NOTES .................... 150,000 -- -- -- 150,000
CONVERTIBLE SUBORDINATED
NOTES ..................................... -- 52,300 -- -- 52,300
DEFERRED INCOME TAXES ........................ -- 38,236 2,875 -- 41,111
------------ ------------ ------------ ------------ ------------
Total liabilities ................. 267,287 546,494 26,972 (335,438) 505,315
STOCKHOLDERS' EQUITY:
Common Stock ........................... 218 78 4 (82) 218
Additional paid-in capital ............. 121,534 51,193 1,668 (52,861) 121,534
Cumulative translation adjustment ...... (479) -- (479) 479 (479)
Retained earnings ...................... 39,282 29,644 3,134 (32,778) 39,282
------------ ------------ ------------ ------------ ------------
Total stockholders' equity ........ 160,555 80,915 4,327 (85,242) 160,555
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity ......................... $ 427,842 $ 627,409 $ 31,299 $ (420,680) $ 665,870
============ ============ ============ ============ ============
</TABLE>
48
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES........................................ $ -- $ 501,867 $ 40,923 $ -- $ 542,790
OPERATING EXPENSES .............................. -- 365,769 33,176 -- 398,945
------------ ------------ ------------ ------------ ------------
Gross profit ......................... -- 136,098 7,747 -- 143,845
GENERAL AND ADMINISTRATIVE
EXPENSES ..................................... 179 60,819 3,499 -- 64,497
ACQUISITION RELATED
COSTS ........................................ -- 1,738 109 -- 1,847
------------ ------------ ------------ ------------ ------------
Operating income ..................... (179) 73,541 4,139 -- 77,501
INTEREST EXPENSE ................................ -- 21,971 1,135 -- 23,106
EQUITY IN INCOME OF
SUBSIDIARIES ................................. 31,587 -- -- (31,587) --
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS ...................... 31,408 51,570 3,004 (31,587) 54,395
PROVISION FOR INCOME TAXES ...................... -- 20,856 1,202 -- 22,058
------------ ------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY
ITEMS ........................................ 31,408 30,714 1,802 (31,587) 32,337
EXTRAORDINARY ITEMS, net of
income taxes ................................. -- (794) (135) -- (929)
------------ ------------ ------------ ------------ ------------
NET INCOME ...................................... $ 31,408 $ 29,920 $ 1,667 $ (31,587) $ 31,408
============ ============ ============ ============ ============
</TABLE>
49
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COACH GUARANTOR NONGUARANTOR
USA, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income ............................. $ 31,408 $ 29,920 $ 1,667 $ (31,587) $ 31,408
Adjustments to reconcile net income--
Depreciation and amortization ....... -- 33,403 1,661 -- 35,064
Equity in income of subsidiaries .... (31,587) -- -- 31,587 --
Gain on sale of assets .............. -- (1,468) (758) -- (2,226)
Deferred income tax provision ....... -- 12,019 359 -- 12,378
Changes in operating assets and
liabilities --
Accounts receivable, net ........ -- (7,667) 678 -- (6,989)
Inventories ..................... -- (7,818) 185 -- (7,633)
Prepaids and other current assets -- (4,700) (680) -- (5,380)
Accounts payable and accrued
liabilities .................. 6,985 (22,545) (895) -- (16,455)
Other ........................... -- (2,581) 842 -- (1,739)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities ..... 6,806 28,563 3,059 -- 38,428
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and equipment .... -- (88,986) (8,472) -- (97,458)
Proceeds from sales of property and
equipment ........................... -- 26,366 7,521 -- 33,887
Cash consideration paid for Purchased
Companies, net ...................... (62,457) -- (2,167) -- (64,624)
Increase in notes receivable, net ...... -- (5,938) -- -- (5,938)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities ..... (62,457) (68,558) (3,118) -- (134,133)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Intercompany ........................... (151,592) 151,592 -- -- --
Principal payments on long-term
obligations ......................... -- (109,478) (9,591) -- (119,069)
Proceeds from issuance of long-term
obligations ......................... 195,113 8,022 8,860 -- 211,995
Proceeds from issuance of Common
Stock ............................... 2,510 -- -- -- 2,510
S Corporation dividends paid by certain
Pooled Companies .................... -- (1,216) -- -- (1,216)
Other .................................. -- 411 (1) -- 410
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities . 46,031 49,331 (732) -- 94,630
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ...................... (9,620) 9,336 (791) -- (1,075)
CASH AND CASH EQUIVALENTS,
beginning of year ........................ -- 3,710 1,013 -- 4,723
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of year ............................... $ (9,620) $ 13,046 $ 222 $ -- $ 3,648
============ ============ ============ ============ ============
</TABLE>
50
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE STOCK OPTION PLAN
The Company's 1996 Long-Term Incentive Plan provides for the granting
of options to key employees to purchase an aggregate of not more than the
greater of 1,500,000 shares or 15% of the total number of shares of the
Company's Common Stock outstanding at the time of grant at fair market value on
the date of grant. One-fifth of granted options generally become exercisable
after one year, and continue to become exercisable in one-fifth increments each
year thereafter. The options expire after ten years from the date of grant if
unexercised. Outstanding options may be canceled and reissued under terms
specified in the plan.
The following table summarizes activity under the Company's stock
option plan as of December 31, 1996 and 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1997
------------------------------- --------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year......................... -- $ -- 1,797 $ 17.83
Granted.......................................................... 1,823 17.79 1,022 28.00
Forfeited........................................................ (26) 14.79 (121) 16.92
Exercised........................................................ -- -- (119) 15.80
------------- ------------- ------------- -------------
Options outstanding at end of year............................... 1,797 $ 17.83 2,579 $ 21.99
============= ============= ============= =============
Options exercisable at year end.................................. -- 245
Weighted-average fair value of options granted
during the year...............................................$ 14.18 $ 13.27
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -----------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
EXERCISE PRICES DECEMBER 31, 1997 LIFE PRICE DECEMBER 31, 1997 PRICE
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$14.00 - $23.75 1,426 8.47 $ 17.22 216 $ 17.49
$26.00 - $28.90 698 9.39 26.65 29 27.11
$29.00 - $30.00 455 9.43 29.81 -- --
------ ------ -------- ----- -------
2,579 8.89 $ 21.99 245 $ 18.64
====== ====== ======== ===== =======
</TABLE>
The Company accounts for its stock-based compensation under Accounting
Principles Board Statement No. 25 "Accounting for Stock Issued to Employees."
Under this accounting method, no compensation expense is recognized in the
consolidated statements of income if no intrinsic value of the option exists at
the date of grant. In October 1995, the Financial Accounting Standards Board
issued SFAS
51
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 encourages
companies to account for stock based compensation awards based on the fair value
of the awards at the date they are granted. The resulting compensation cost
would be shown as an expense in the statement of income. Companies can choose
not to apply the new accounting method and continue to apply current accounting
requirements; however, disclosure is required as to what net income and earnings
per share would have been had the new accounting method been followed. While the
Company did not adopt SFAS No. 123 for accounting purposes, it has implemented
the disclosure requirements below which include annual pro forma disclosures of
its effects on options granted since the initial grant in May 1996. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts (in thousands, except per share data):
1996 1997
-------- --------
Net Earnings As reported....... $ 16,788 $ 31,408
Pro forma......... $ 15,291 $ 28,271
Diluted Earnings Per Share As reported....... $ 1.12 $ 1.42
Pro forma......... $ 1.02 $ 1.28
The effects of applying SFAS No. 123 in the pro forma disclosure may not
be indicative of future amounts as additional awards in future years are
anticipated. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for 1996 and 1997: (i) risk-free interest rates ranging from 5.73%
to 6.96%, (ii) expected life of 10 years in 1996 and 6 years in 1997, (iii)
average volatility of 35%, and (iv) dividend yield of 0.00%.
14. EXTRAORDINARY ITEMS
During 1996, obligations due to stockholders of a Pooled Company of
$17.2 million were retired in exchange for shares of Coach USA Common Stock. The
transactions resulted in an extraordinary gain on early extinguishment of debt
of approximately $4.2 million, net of taxes, representing the excess of the
recorded value of the obligations exchanged over the market value of the Coach
USA Common Stock. This gain was partially offset by extraordinary losses of
approximately $1.6 million, net of taxes, resulting from early extinguishment of
debt at certain other companies.
The extraordinary items recorded in 1997 include extraordinary losses of
$0.9 million, net of taxes, related to prepayment penalties from the early
extinguishment of debt at certain companies.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth the unaudited consolidated operating results
by quarter for the year ended December 31, 1997. All quarters presented have
been restated for subsequent acquisitions accounted for as
poolings-of-interests, except for the Immaterial Pooled Companies (in thousands,
except per share data).
52
<PAGE>
COACH USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED,
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues ................................. $ 96,532 $ 138,712 $ 157,109 $ 150,437
Gross profit ............................. 19,574 38,653 45,212 40,406
Net income before extraordinary items .... 1,678 9,918 12,621 8,120
Net income ............................... 1,559 9,638 12,416 7,795
Basic earnings per share:
Net income before extraordinary items $ .08 $ .47 $ .59 $ .37
Net income .......................... $ .08 $ .44 $ .58 $ .36
Diluted earnings per share:
Net income before extraordinary items $ .08 $ .45 $ .56 $ .36
Net income .......................... $ .07 $ .44 $ .55 $ .35
</TABLE>
Due to rounding, the sum of the quarterly amounts reflected above for net
income per share do not add to the annual net income per share reflected in the
accompanying consolidated statements of income.
16. SUBSEQUENT EVENTS (UNAUDITED)
Through March 16, 1998, the Company acquired seven additional businesses
subsequent to December 31, 1997. These subsequent acquisitions were accounted
for as purchases. The aggregate consideration paid in these transactions was
$16.3 million in cash, $4.9 million of subordinated notes convertible into
122,000 shares of the Company's Common Stock, and 242,000 shares of the
Company's Common Stock.
Subsequent to year end, the Company entered into a swap agreement which
effectively fixes the price the Company will pay for a significant portion of
diesel fuel purchases, the primary fuel consumed in the Company's operations.
The swap agreement utilizes NYMEX No. 2 heating oil, which has a high degree of
correlation to diesel fuel. Under the swap agreement, the Company purchased a
notional quantity of 3.0 million gallons per month at prices ranging from
$0.4825 per gallon to $0.5215 per gallon from March 1 through December 31, 1998.
This notional quantity represents an amount less than the Company's anticipated
average monthly consumption. The swap agreement will be accounted for on a
monthly settlement basis with the net amounts paid or received under the
agreement included in the cost of the commodity. The use of such a commodity
swap effectively protects the Company against an increase in the price of the
commodity or prevents the Company from benefitting in the event of a decrease in
the price of the commodity, to the extent of the notional quantity under
contract.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 TO 13 INCLUSIVE.
These items have been omitted in accordance with the instructions to Form
10-K. The Registrant will file with the Commission in April 1997 a definitive
proxy statement including the information required to be disclosed under these
items. Such information is incorporated into this Annual Report by this
reference.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)The following documents are filed as a part of this report.
(1) and (2) Financial Statements and Financial Statement Schedules - See
Index to Consolidated Financial Statements at Item 8 of this report and Index to
Schedules at S-1.
(3)Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 -- Second Amended and Restated Certificate of
Incorporation of Coach USA (Incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-4
(File No. 333-33755) of the Company)
3.2 -- By-Laws of Coach USA (Incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-1
(File No. 333-2704) of the Company)
4.1 -- Form of certificate evidencing ownership of Common
Stock of Coach USA (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-1 (File No.
333-2704) of the Company)
4.2 -- Indenture dated as of June 24, 1997 between Coach
USA, Inc., the Guarantors named therein, and the Bank of
New York, as Trustee, with respect to the 93/8% Senior
Subordinated Notes due 2007 (including form of 93/8%
Senior Subordinated Note due 2007) (Incorporated by
reference to Exhibit 4.1 to the Registration Statement
on Form S-4 (File No. 333-33215) of the Company)
4.3 -- Certificate of Designation of Series A Voting Preferred
Stock (par value $0.01 per share) of Coach USA, Inc.
10.1 -- Coach USA 1996 Long-Term Incentive Plan (Incorporated by
reference to Exhibit 10.1 to Amendment No. 2 to the
Registration Statement on Form S-1 (File No. 333-2704)
of the Company)
10.2 -- Coach USA 1996 Non-Employee Directors' Stock Option
Plan (Incorporated by reference to Exhibit 10.2 to
Amendment No. 2 to the Registration Statement on Form
S-1 (File No. 333-2704) of the Company)
10.3 -- Employment Agreement between Coach USA and Richard H.
Kristinik (Incorporated by reference to Exhibit 10.3 to
the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
10.4 -- Employment Agreement between Coach USA and Lawrence
K. King (Incorporated by reference to Exhibit 10.4 to
the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
10.5 -- Employment Agreement between Coach USA and Douglas M.
Cerny (Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
10.6 -- Employment Agreement between Coach USA, Cape Transit
Corp. and John Mercadante, Jr. (Incorporated by
reference to Exhibit 10.6 to the Registration Statement
on Form S-1 (File No. 333-6525) of the Company)
10.7 -- Employment Agreement among Coach USA, Community Coach,
Inc. and affiliated entities and Frank P. Gallagher
(Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
55
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.8 -- Employment Agreement among Coach USA, Leisure Time Tours
and Gerald Mercadante (Incorporated by reference to
Exhibit 10.9 to the Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.9 -- Employment Agreement between Grosvenor Bus Lines, Inc.
and Robert K. Werbe (Incorporated by reference to
Exhibit 10.10 to the Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.10 -- Employment Agreement between Arrow Stage Lines, Inc. and
Charles D. Busskohl (Incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1
(File No. 333-6525) of the Company)
10.11 -- Amendment Dated June 24, 1997 to Agreement Between Coach
USA, Inc. and Exel Motorcoach Partners, LLC
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 (File No. 333-33215)
of the Company)
10.12 -- Warrants to Purchase 100,000 Shares of Common Stock
of Coach USA, Inc., held by American Business Partners,
LLC, formerly known as Exel Motorcoach Partners, LLC
10.14 -- Leases by and between Gerdaneu, Inc. and Leisure Time
Tours related to property located in Mahwah and
Pleasantville, New Jersey and Philadelphia, Pennsylvania
(Incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
10.15 -- Lease by and between Liberty Street Corporation and
Community Coach, Inc. and its affiliated entities
related to property located in Passaic, New Jersey
(Incorporated by reference to Exhibit 10.16 to the
Registration Statement on Form S-1 (File No. 333-6525)
of the Company)
10.16 -- Lease and Sublease by and between Tri-County Bus Lines,
Inc. and Community Coach, Inc. and its affiliated
entities related to property located in Passaic, New
Jersey (Incorporated by reference to Exhibit 10.17 to
the Registration Statement on Form S-1 (File No.
333-6525) of the Company)
10.17 -- Lease by and between a stockholder of Arrow Stage Lines,
Inc. and Arrow Stage Lines, Inc. related to property
located in Phoenix, Arizona (Incorporated by reference
to Exhibit 10.19 to the Registration Statement on Form
S-1 (File No. 333-6525) of the Company)
10.18 -- Credit Agreement Among Coach USA, Inc., as Borrower,
The Financial Institutions named in this Credit
Agreement as Banks, and NationsBank Texas, N.A., as
Agent for the Banks, dated August 13, 1997 (Incorporated
by reference to Exhibit 10.1 to the Form 10-Q for the
period ended June 30, 1997 (File No. 001-12939) of the
Company)
11 -- Statement regarding Computation of Net Income Per
Share -- See Note 2 of the Notes to Consolidated
Financial Statements of Coach USA, Inc. and Subsidiaries
contained in Item 8. of this Annual Report on Form 10-K.
21 -- List of subsidiaries of Coach USA
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
None
56
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COACH USA, INC.
By:/s/ RICHARD H. KRISTINIK
Richard H. Kristinik
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C>
/s/ RICHARD H. KRISTINIK Chairman of the Board and March 23, 1998
- ------------------------------------ Chief Executive Officer
Richard H. Kristinik (Principal Executive
Officer)
/s/ LAWRENCE K. KING Senior Vice President, March 23, 1998
- ------------------------------------ Chief Financial Officer
Lawrence K. King and Director (Principal
Financial and Accounting
Officer)
/s/ STEVEN S. HARTER Director March 23, 1998
- ----------------------------------------
Steven S. Harter
/s/ JOHN MERCADANTE, JR. President, Chief Operating March 23, 1998
- ---------------------------------------- Officer and Director
John Mercadante, Jr.
/s/ FRANK P. GALLAGHER Senior Vice President-- March 23, 1998
- ---------------------------------------- Corporate Development
Frank P. Gallagher and Director
/s/ GERALD MERCADANTE Senior Vice President-- March 23, 1998
- ---------------------------------------- Northeast Region
Gerald Mercadante Operations and Director
57
<PAGE>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
/s/ CHARLES D. BUSSKOHL Director March 23, 1998
- ----------------------------------------
Charles D. Busskohl
/s/ WILLIAM J. LYNCH Director March 23, 1998
- ----------------------------------------
William J. Lynch
- ---------------------------------------- Director March ___, 1998
Paul M. Verrochi
</TABLE>
58
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS OF SERIES A
VOTING PREFERRED STOCK
(Par Value $0.01 Per Share)
of
COACH USA, INC.
---------------------------------------------
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
--------------------------------------------
The undersigned does hereby certify that the following resolutions were
duly adopted by the Board of Directors of Coach USA, Inc., a Delaware
corporation (the "Corporation"), in accordance with the provisions of Section
151 of the Delaware General Corporation Law, at a meeting duly convened and held
on June 5, 1997, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Amended and Restated Certificate of Incorporation of
the Corporation, a series of the Corporation's authorized preferred
stock, par value $0.01 per share (the "Preferred Stock"), be, and it
hereby is, established, created and approved, and that the designation
and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional and other rights of
the shares of such series, and the qualifications, limitations and
restrictions thereof, be, and they hereby are, as set forth on Exhibit A
attached hereto and incorporated herein by reference for all purposes;
and
FURTHER RESOLVED, that the proper officers be, and each hereby is,
authorized, empowered and directed, by and on behalf of the Corporation
and in its name, to prepare, execute and deliver, and file with the
Secretary of State of the State of Delaware, a certificate of
designations of the terms, limitations, rights and preferences of the
Preferred Stock (the "Certificate of Designations"), with the
designations, voting and other powers, preferences, relative,
participating, optional and other rights, and the qualifications,
limitations and restrictions, set forth on Exhibit A;
1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed this 11th day of June, 1997.
COACH USA, INC.
By:/s/ DOUGLAS M. CERNY
Senior Vice President
2
<PAGE>
Exhibit A
SERIES A VOTING PREFERRED STOCK
DESIGNATION OF TERMS, LIMITATIONS, RIGHTS AND PREFERENCES
1. AUTHORIZED NUMBER AND DESIGNATION. The preferred stock created
and authorized hereby shall be designated as the "Series A Voting Preferred
Stock" (the "Series A Voting Preferred Stock"). The number of shares of Series A
Voting Preferred Stock shall be one (1). The Series A Voting Preferred Stock is
issuable solely in a single whole share that shall entitle the holder thereof to
exercise the voting rights and to have the benefit of all other rights of a
holder of Series A Voting Preferred Stock as set forth herein and in the
Certificate of Incorporation. The par value of the share of Series A Voting
Preferred Stock shall be $0.01.
2. DIVIDENDS. A holder of Series A Voting Preferred Stock shall
not be entitled to receive any dividends declared and paid by the Corporation.
3. VOTING RIGHTS. A holder of Series A Voting Preferred Stock
shall have the same rights and privileges regarding the voting of such stock as
a holder of the Corporation's Common Stock, par value $0.01 per share (the
"Common Stock"), has. Except as otherwise required by law, the share of Series A
Voting Preferred Stock shall be entitled to cast such number of votes as are
equal to the number of votes that holders of outstanding Dividend Access Shares,
par value $0.01 per share ("Dividend Access Shares") of 3376249 Canada Inc., a
Canadian corporation ("Canada Inc."), would be entitled to if all such Dividend
Access Shares were redeemed by the holders thereof for Common Stock of the
Corporation pursuant to the terms of the Dividend Access Shares. The Series A
Voting Preferred Stock and the Common Stock shall vote as one class except as
otherwise provided by law or this Certificate.
4. PRIORITY OF SERIES A VOTING PREFERRED STOCK IN THE EVENT OF
LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation,
dissolution or winding up of the Corporation, the holder of the Series A Voting
Preferred Stock shall not be entitled to any preference over holders of the
Common Stock and shall be entitled to receive, pro rata with the holders of
Common Stock, all of the remaining assets of the Corporation available for
distribution to its stockholders.
5. OTHER PROVISIONS.
(a) Pursuant to the terms of that certain Stock Purchase
Agreement, dated May 22, 1997, by and among the Corporation, Canada Inc. and all
of the stockholders of Trentway-Wagar (Properties) Inc., a Canadian corporation,
one share of Series A Voting Preferred Stock is being issued to the trustee (the
"Trustee") under the Exchange Trust Agreement, dated June 12, 1997 (the
"Exchange Trust Agreement"), among the Corporation, Canada Inc. and the Trustee.
(b) The holder of the Series A Voting Preferred Stock share is
entitled to exercise the voting rights set forth in Section 3 hereof in such
manner as such holder desires and in accordance with the terms of the Exchange
Trust Agreement.
<PAGE>
(c) For purposes hereof, the number of Dividend Access Shares
outstanding shall exclude Dividend Access Shares owned or held in treasury by
the Corporation, Canada Inc., any of their subsidiaries or any person directly
or indirectly controlled by or under common control of the Corporation. For
purposes hereof, "control" (including the correlative meanings, the terms
"controlled by" and "under common control of") as applied to any person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person through the ownership of
voting securities, by contract or otherwise.
(d) At such time as the share of Series A Voting Preferred Stock
has no votes attached to it because there are no Dividend Access Shares of
Canada Inc. outstanding and there are no shares of stock, debt, options or other
agreements of Canada Inc. which could give rise to the issuance of any Dividend
Access Shares of Canada Inc. to any person (other than the Corporation, Canada
Inc., any of their subsidiaries or any person directly or indirectly controlled
by or under common control of the Corporation), the Series A Voting Preferred
Stock shall be canceled.
EXHIBIT 10.12
DATE: JULY 26, 1997
WARRANTS TO PURCHASE 100,000 SHARES
OF
COMMON STOCK OF COACH USA, INC.
HELD BY
EXEL MOTORCOACH PARTNERS LLC
Pursuant to the Amendment dated June 24, 1997 to Agreement Between Coach
USA, Inc. and Exel Motorcoach Partners LLC (the "Amendment Agreement"), Coach
USA, Inc. ("Coach") hereby grants to Exel Motorcoach Partners LLC ("Exel") the
right to purchase 100,000 shares of common stock of Coach pursuant to the terms
provided for below.
1. WARRANTS. The warrants granted to Exel entitle Exel, or his permitted
assigns, to purchase 100,000 shares of common stock, $.01 par value, of
Coach at an exercise price of $26.00 per share (such warrants to purchase
shares of Coach common stock are hereinafter referred to as the "Warrants").
2. PERMITTED ASSIGNS. Exel (and Exel's members upon distribution of
warrants by Exel to its members) shall have the right to assign any portion
of the Warrants (a) to Paul Verrochi, Dominic Puopolo, Don Glazer and Don
Boyles and (b) to anyone else as permitted by law (which assignment can be
made by any of the persons listed in (a) above). Any person or entity that
owns any Warrants is herein referred to as a "Holder." In the event of the
death of any Holder, then such Warrants shall be exercisable by the heirs of
such Holder pursuant to the terms hereunder. IN THE EVENT OF AN ASSIGNMENT
TO ANYONE OTHER THAN AMERICAN BUSINESS PARTNERS LLC AND THOSE LISTED IN (A)
ABOVE OR THEIR HEIRS, COACH SHALL HAVE THE RIGHT FOR TWENTY BUSINESS DAYS
PRIOR TO SUCH ASSIGNMENT TO ACQUIRE ANY SUCH WARRANTS PROPOSED FOR
ASSIGNMENT UPON THE SAME TERMS AND CONDITIONS AS PROPOSED BY ANY SUCH
TRANSFEREE.
3. EXERCISE PERIOD. The right to exercise any of the Warrants shall begin on
January 26, 1998 and shall expire on July 26, 1999. Coach has no obligation
to remind or otherwise inform Exel or any Holder of a portion or all of the
rights to exercise Warrants of the pending expiration or expiration of the
Warrant exercise period.
4. EXERCISE OF WARRANTS. During the period in which any Warrants can be
exercised the Holder shall deliver written notice to Coach setting forth the
number of shares with respect to which the Warrant is to be exercised,
together with cash, certified check, bank draft, wire transfer, or postal or
express money order payable to the order of Coach for an amount equal to the
exercise price of the shares being purchased.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event that any dividend
or other distribution (whether in the form of cash, common stock or other
property), recapitalization, forward or reverse split, reorganization,
merger, consolidation, spin-off,
<PAGE>
combination, repurchase or exchange of common stock or other securities,
liquidation, dissolution, or other similar corporate transaction or event,
affects the common stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Holders, then the Board of
Directors shall, in such manner as it may deem equitable, adjust any or all
of the number and kind of shares that may be issued in respect of Warrants
and the exercise price of Warrants (or, if deemed appropriate, the Board may
make provision for a cash payment with respect to any Warrants). In
addition, the Board is authorized to make adjustments in the terms and
conditions of Warrants in recognition of unusual of nonrecurring events
(including, without limitation, events described in the preceding sentence)
affecting the Company or any subsidiary or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations, or accounting principles.
6. REGISTRATION UNDER SECURITIES LAWS. Coach shall prepare and file with the
United States Securities and Exchange Commission a registration statement on
Form S-3 in which it registers the sale to the Holders of the shares of
common stock to be issued upon exercise of Warrants. Coach shall use
reasonable efforts to secure and maintain the effectiveness of such
registration statement. Coach shall also list for trading the shares
issuable upon exercise of any Warrants on the New York Stock Exchange or
such other primary exchange on which the shares of Coach common stock are
traded. Coach shall not be obligated to make any other filings with any
other regulatory authorities in connection with making the shares issued
upon exercise of any Warrants available for public resale.
7. ADMINISTRATION. In the event a dispute or interpretation of the
provisions of the Warrants is required then the Board of Directors of Coach
shall be the administrator and ultimate decision maker in connection with
such interpretation.
Coach USA, Inc.
By: /s/ DOUGLAS M. CERNY
Name: Douglas M. Cerny
Date: July 26, 1997
EXHIBIT 21
Coach USA, Inc.
Subsidiaries as of March 16, 1998
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------- -----------------------
159506 Canada, Inc. Canada
d/b/a Gray Line Tours
d/b/a Connaisseur
170861 Canada, Inc. Canada
2948-7238 Quebec, Inc. Canada
d/b/a Gray Line of Quebec City
AAA Auto Leasing, Inc. Florida
ACT Travel, Inc. Tennessee
ASTI, Inc. Florida
d/b/a Gray Line of Orlando
Aircraft Taxi Co. Florida
Airlines Acquisition Company, Inc. Pennsylvania
d/b/a Airlines Transportation Company
Airocar, Inc. Florida
d/b/a Gray Line
d/b/a Gray Line of Fort Lauderdale
d/b/a Gray Line of Fort Myers/Naples
d/b/a Gray Line of Fort Pierce
d/b/a Gray Line of Key West
d/b/a Gray Line of Palm Beach
Airport Limousine Service, Inc. Delaware
d/b/a ALS Paratransit
d/b/a Checker Cab
d/b/a Embassy Coach
d/b/a Pittsburgh Air Bus
d/b/a Pittsburgh Paratransit
Airport Rent-A-Car, Inc. Florida
Air Travel Transportation, Inc. Georgia
d/b/a Atlanta Airport Shuttle
American Bus Lines, Inc. Florida
America Charters, Ltd. North Carolina
American Charters and Tours, Inc. Tennessee
American Coach Lines, Inc. Florida
American Limousine Service, Inc. Florida
American Sightseeing, Inc. Florida
American Sightseeing Tours, Inc. Florida
American Tour Connection, Inc. New Jersey
AmeriCoach Tours, Limited Tennessee
Antelope Nevada, Inc. Nevada
Antelope Valley Bus, Inc. California
Arrow Leasing, Inc. Connecticut
Arrow Stage Lines, Inc. Nebraska
Art-Mar Corporation Florida
Associates Business Credit, LLC Kansas
Atlanta Airport Shuttle, Inc. Georgia
Autocar Connaisseur Inc. Canada
d/b/a Gray Line of Montreal
Automobiles Sabrevois Ltee Canada
Barclay Airport Service, Inc. New Jersey
Barclay Transportation Services, Inc. New Jersey
Bayou City Coaches, Inc. Texas
Blackhawk, Central City Ace Express, Inc. Colorado
d/b/a Ace Express
Blue Bird Coach Lines, Inc. Delaware
Browder Tours, Inc. Tennessee
d/b/a Browder Tours
<PAGE>
Coach USA, Inc. Subsidiaries - (Continued)
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------- -----------------------
d/b/a Browder Tours and Charters
Bus Chicago, Inc. Illinois
Butler Motor Transit, Inc. Pennsylvania
d/b/a Butler Motor Tours
CFT Investments, LLC Kansas
Cab Services, Inc. Texas
d/b/a Towne Car
California Charters, Inc. Texas
d/b/a Texas/California Charter Service
Cape Transit Corp. New Jersey
d/b/a Adventure Trails
Carey Statewide Limousine Service, Inc. Michigan
d/b/a All-Statewide Limousine
d/b/a Carey of Michigan
d/b/a Carey Limousine
d/b/a Statewide Limousine
Central Jersey Transit, Inc. New Jersey
Checker Cab of Pensacola, Inc. Florida
Classic Lines, Inc. Florida
Coach Leasing, Inc. Illinois
Coach USA Administration, Inc. Nevada
Coach USA of New Orleans, Inc. Delaware
Coach XXIII Acquisition, Inc. Delaware
Colorado Springs Airport Transportation Service, Inc. Colorado
Commercial Leasing, LLC Missouri
Commlease, LLC Missouri
Community Bus Lines, Inc. New Jersey
Community Coach, Inc. New Jersey
Community Tours, Inc. New Jersey
Community Transit Lines, Inc. New Jersey
Community Transportation, Inc. New Jersey
Comprehensive Communication Services, Inc. Florida
Connaisseur Parts Distribution, Inc. Canada
Connaisseur Vehicle Agency Inc. Canada
Corporate Car U.S.A., Inc. Florida
Desert Stage Lines California
Douglas Braund Investments Limited Canada
Eagle Executive Transportation Services, Inc. Texas
d/b/a Concorde-Access Transportation
d/b/a Concorde-Access Limousines
d/b/a Greater Houston Charters and Sightseeing Service
d/b/a Houston Medical Limousine and Charter Service
Eagle Paratransit Services, Inc. Louisiana
Eights Cab, Inc. Florida
El Expreso, Inc. Texas
d/b/a El Expreso Bus Company
Falcon Charter Service California
Fiesta Cab Company Texas
Fiesta Cab Company of San Antonio Texas
Friedman Transportation Co., Inc. New Jersey
Gad About Tours, Inc. Ohio
Garden State Leasing Co., Inc. New Jersey
Golden Isles Coaches of Florida, Inc. Florida
d/b/a Golden Isles Coaches of Florida
d/b/a Taylor Made Tours
Golden Vacations, Inc. California
Gray Line Tours of Southern Nevada, Inc. Nevada
d/b/a River Gambler Tours
Greater Austin Transportation Company Texas
d/b/a American Cab Co.
<PAGE>
Coach USA, Inc. Subsidiaries - (Continued)
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------- -----------------------
d/b/a American Yellow Checker Cab Company
d/b/a Towne Car Limousine Service
d/b/a Yellow Cab Company
d/b/a Yellow Check Cab Company
d/b/a Yellow Checker Cab Company
Greater Boulder Transportation Company Colorado
d/b/a American Cab Company of Denver
Greater Colorado Springs Transporation Company Colorado
d/b/a Airport Taxicab of Colorado Springs, Inc.
d/b/a Checker Taxicab, Inc.
d/b/a Colorado Springs Airport Ground Transportation Authority
d/b/a Colorado Springs Taxicab, Inc.
d/b/a El Paso County Taxicab, Inc.
d/b/a Metro Limousine
d/b/a Metro Taxicab of Colorado Springs, Inc.
d/b/a Towne Car, Inc.
d/b/a Towne Car of Colorado Springs, Inc.
d/b/a Towne Car of Denver, Inc.
d/b/a Yellow Cab Company of Colorado Springs, Inc.
d/b/a Yellow Cab Package Xpress
Greater Denver Transportation Company Colorado
d/b/a Towne Car of Denver, Inc.
Greater Houston Transportation Company Texas
d/b/a City Taxi
d/b/a Package Xpress
d/b/a Yellow Cab
d/b/a Yellow Cab Company
d/b/a Yellow Cab Company of Katy
d/b/a Yellow Cab Package Xpress
Greater Indianapolis Transportation, Inc. Indiana
Grosvenor Bus Lines, Inc. California
d/b/a Gray Line of Monterey
d/b/a Gray Line of San Francisco
Grosvenor Limousine Service, Inc. California
Gulf Coast Transportation Company Texas
d/b/a Gray Line of Houston
d/b/a Gray Line Tours of Houston
d/b/a Group N. and S., Incorporated
H.A.M.L. Corporation New Jersey
HealthTrans, Inc. Delaware
High Adventure Tours, Inc. New York
Houston Cab Company Texas
IPD, Inc. Missouri
Indianapolis Checker Cab, Inc. Indiana
Indianapolis Taxi, Inc. Indiana
Indianapolis Yellow Cab, Inc. Indiana
International Express Corp. Minnesota
d/b/a Airport Express
Jul-Al, Inc. Georgia
K.C. Executive Coach, Inc. Missouri
d/b/a Kansas City Executive Coach
KCI Shuttle, Inc. Missouri
K-T Contract Services, Inc. Texas
d/b/a Jetlink
Kansas City Ground Transportation, Inc. Missouri
Keeshin Charter Service, Inc. Illinois
Keeshin Destination Chicago, Inc. Illinois
Keeshin Transportation, LP Delaware
Kerrville Bus Company, Inc. Texas
d/b/a Fort Worth Charters, Inc.
<PAGE>
Coach USA, Inc. Subsidiaries - (Continued)
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------- -----------------------
d/b/a Gray Line of Albuquerque
d/b/a Gray Line of Dallas/Ft. Worth
d/b/a Gray Line of Lafayette
d/b/a Gray Line of San Antonio
d/b/a Vaught Charters, Inc.
L.E.R. Transportation Company New Jersey
LND, Inc. Florida
Le Bus, Inc. Florida
Leisure Time Tours New Jersey
d/b/a Leisure Line
d/b/a Leisure Time Tours of N.J.
Lenzner Tours, Inc. Pennsylvania
Lenzner Tours, Ltd. Pennsylvania
d/b/a Lenzner Tour & Travel
d/b/a Lenzner Coach Lines
Lenzner Transit, Inc. Pennsylvania
Lenzner Transportation Group, Inc. Nevada
Locust Partners, LLC Missouri
MTSI, Inc. Missouri
Metro Cab, Inc. Florida
Metro Cars, Inc. Michigan
Metro Cars Management Corp. Michigan
Metro Diversified Insurance Group, Inc. Florida
Metro Jitney Incorporated Florida
Metro Limo, Inc. Florida
Metro Medical Transportation Services, Inc. Florida
d/b/a HealthTrans of South Florida
Metro Mini-Bus, Inc. Florida
Metro Taxi, Inc. Colorado
Metro Taxi, Inc. Florida
Metro Taxicab Co., Inc. Florida
Metro Transport, LLC Missouri
Metro Transportation Services, Inc. Florida
Midstate Coach Lines, Inc. New York
Midtown Bus Terminal of New York, Inc. New York
Mister Sparkle, Inc. New Jersey
Nevada Corporation, Inc. Nevada
New Delaware Coach, Inc. Delaware
Niagara Scenic Bus Lines, Inc. New York
OSP, Inc. Illinois
P&S Transportation, Inc. Florida
d/b/a Laser Bus Lines
PCSTC, Inc. California
d/b/a Gray Line of Anaheim
d/b/a Gray Line of Los Angeles
d/b/a Pacific Coast Sightseeing Tours & Charters
Parker Tours, Inc. New York
Pawtuxet Valley Bus Lines, Inc. Rhode Island
d/b/a Newport Foxwood Tours
Pennsylvania Transportation Systems, Inc. Delaware
Pittsburgh Transportation Charter Services, Inc. Delaware
Pittsburgh Transportation Company Pennsylvania
Powder River Transporation Services, Inc. Wyoming
d/b/a Pixley Transportation
Progressive Transportation Services, Inc. New York
R&T Leasing, Inc. New Jersey
Red & Tan Charter, Inc. New Jersey
Red & Tan Enterprises, Inc. New Jersey
Red & Tan of Boca, Inc. Florida
Red & Tan Tours, Inc. New Jersey
<PAGE>
Coach USA, Inc. Subsidiaries - (Continued)
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------- -----------------------
Red & Tan Tours of Florida, Inc. Florida
Red & Tan Transportation Systems, Inc. New Jersey
Red & Tan Unlimited, Inc. New Jersey
Red Top Sedan Service, Inc. Florida
Red Top Transportation, Inc. Florida
River Market Conoco, Inc. Missouri
d/b/a River Market Conoco and Food Store
RJR Development Company Texas
Rockland Coaches, Inc. New Jersey
Rockland Transit Corporation New York
S.E.M. Incorporated Florida
Shuttle Services MIA, Inc. Florida
Southfield Cab Company Michigan
Southfield Red & White, Inc. Michigan
Suburban Management Corp. New Jersey
d/b/a Central Jersey Transit
d/b/a Suburban Management Corporation
d/b/a Suburban Tours
Suburban Trails, Inc. New Jersey
Suburban Transit Corp. New Jersey
Syracuse & Oswego Coach Lines, Inc. New York
TFC Investments, LLC Kansas
Terminal Cab, Inc. Missouri
Texas Bus Lines, Inc. Texas
d/b/a Airport Express
Texas Shuttle, Inc. Texas
The Arrow Line, Inc. Connecticut
The B.T.D. Realty Corporation Connecticut
The Hudson Bus Transportation Co., Inc. New Jersey
The Mapleridge Group, Inc. Michigan
Total Vehicle Services, Inc. Florida
TranServ, Inc. Michigan
d/b/a Detroit Limousine
d/b/a TranSedan
d/b/a TranServ Executive Services
Trans-Hudson Express, Inc. New Jersey
Transportation Contractors, Inc. Florida
Transportation Equipment of Pensacola, Inc. Florida
Transportation Management, Inc. Florida
Transportation Management Services, Inc. Pennsylvania
d/b/a Gray Line of Pittsburgh
d/b/a Lenzner Coach Lines
d/b/a North Boroughs Cab
Trentway-Wagar, Inc. Ontario, Canada
Trentway-Wagar (Leasing), Inc. Ontario, Canada
Trentway-Wagar (Properties), Inc. Ontario, Canada
TryKap Airport Services, Inc. Florida
TryKap Transportation Management, Inc. Florida
d/b/a TryKap Management, Inc.
d/b/a World Transportation, Inc.
Tucker Taxi, Inc. Florida
Tucker Transportation Company, Inc. Florida
Tyburn Limited Delaware
d/b/a Yellow Airport Express
Utica Rome Bus Company, Inc. New York
Van Nortwick Bros., Inc. New Jersey
d/b/a Van Nortwick Bros.
d/b/a Van Nortwick Tours
Vertical Market Software, Inc. Washington
West Florida Mobility, Inc. Florida
<PAGE>
Coach USA, Inc. Subsidiaries - (Continued)
NAME OF SUBSIDIARY: STATE OF INCORPORATION:
------------------ ----------------------
Worthen Van Service, Inc. Wyoming
Yellow Cab Company of Houston, Inc. Texas
Yellow Cab Company of Pittsburgh Pennsylvania
Yellow Cab of Pensacola, Inc. Florida
Yellow Cab Service Corporation Delaware
Zone Taxicab of Colorado Springs, Inc. Colorado
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Annual Report on Form 10-K, into the Company's
previously filed registration statements on Form S-3 (File No. 333-27575), on
Form S-3 (File No. 333-33215) on Form S-4 (File No. 333-33755), Form S-8 (File
No. 333-30155) and on Form S-8 (File No. 333-30157).
ARTHUR ANDERSEN LLP
Houston, Texas
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,648
<SECURITIES> 0
<RECEIVABLES> 47,009
<ALLOWANCES> 3,663
<INVENTORY> 22,490
<CURRENT-ASSETS> 97,841
<PP&E> 492,905
<DEPRECIATION> 97,105
<TOTAL-ASSETS> 665,870
<CURRENT-LIABILITIES> 103,152
<BONDS> 373,064
0
0
<COMMON> 218
<OTHER-SE> 160,337
<TOTAL-LIABILITY-AND-EQUITY> 665,870
<SALES> 542,790
<TOTAL-REVENUES> 542,790
<CGS> 398,945
<TOTAL-COSTS> 398,945
<OTHER-EXPENSES> 66,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,106
<INCOME-PRETAX> 54,395
<INCOME-TAX> 22,058
<INCOME-CONTINUING> 32,337
<DISCONTINUED> 0
<EXTRAORDINARY> (929)
<CHANGES> 0
<NET-INCOME> 31,408
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.42
</TABLE>
