================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One )
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1998 or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 0-24247
-------
ATLANTIC EXPRESS TRANSPORTATION CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-392-3467
- ------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7 North Street, Staten Island, New York, 10302-1205
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(718) 442-7000
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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 |_|
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
100 Shares of Common Stock, no par value.
================================================================================
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
Page
-----
ITEM 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1998 (audited) and
December 31, 1998 (unaudited)................................... 1
Consolidated Statements of Operations for the Three Month
and Six Month Periods Ended December 31, 1997 (unaudited)
and 1998 (unaudited)............................................ 2
Consolidated Statements of Comprehensive Income (Loss) for
the Three Months and Six Months Ended December 31, 1997
(unaudited) and 1998 (unaudited)................................ 3
Consolidated Statements of Cash Flows for the Six Month Periods
Ended December 31, 1997 (unaudited) and 1998 (unaudited)........ 4
Notes to Consolidated Financial Statements (unaudited)............ 5-8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9-12
PART II. Other Information 13
Signatures............................................................ 14
Index to Exhibits..................................................... E-1
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
------------ ------------
(audited) (unaudited)
<S> <C> <C>
Assets
Current:
Cash and cash equivalents ......................................................... $ 13,772,537 $ 2,491,118
Current portion of marketable securities .......................................... 850,000 2,700,000
Accounts receivable, net of allowance for doubtful accounts ....................... 37,310,006 40,962,184
Inventories ....................................................................... 10,762,839 9,913,095
Notes receivable .................................................................. 1,182,425 124,839
Prepaid expenses and other current assets ......................................... 5,692,610 6,990,474
------------ ------------
Total current assets .................................................... 69,570,417 63,181,710
------------ ------------
Property, plant and equipment, less accumulated depreciation ........................... 99,887,054 125,345,670
------------ ------------
Other assets:
Goodwill, net ..................................................................... 12,469,422 12,306,468
Notes receivable from affiliates .................................................. 510,000 --
Investments ....................................................................... 229,000 229,000
Marketable securities ............................................................. 7,027,937 7,450,835
Deferred lease expense ............................................................ 334,115 276,811
Transportation contract rights, net ............................................... 3,807,743 8,955,742
Deferred financing and organization costs, net .................................... 8,310,723 7,583,802
Due from affiliates ............................................................... 672,589 831,117
Notes receivable .................................................................. 25,000 22,339
Deposit and other noncurrent assets ............................................... 1,394,301 1,721,051
Deferred tax assets ............................................................... 2,087,000 4,464,809
Covenant not to compete, net ...................................................... 160,000 245,000
------------ ------------
Total other assets ...................................................... 37,027,830 44,086,974
------------ ------------
$206,485,301 $232,614,354
============ ============
Liabilities and Stockholder's Equity
Current:
Current portion of long-term debt ................................................. $ 641,574 $ 1,272,948
Accounts payable .................................................................. 2,250,615 2,924,060
Accrued compensation .............................................................. 4,703,334 4,457,427
Current portion of insurance reserve .............................................. 3,657,442 3,760,000
Accrued interest .................................................................. 6,776,630 6,899,913
Other accrued expenses and current liabilities .................................... 4,158,333 3,592,410
------------ ------------
Total current liabilities ............................................... 22,187,928 22,906,758
------------ ------------
Long-term debt, net of current portion ................................................. 157,284,116 181,246,282
------------ ------------
Premium on bond issuance ............................................................... 1,202,550 1,094,850
------------ ------------
Other long-term liabilities ............................................................ 5,641,135 7,116,526
------------ ------------
Stockholder's equity:
Common stock, no par value - shares authorized 200; issued and outstanding 100 .... 250,000 250,000
Additional paid-in capital ........................................................ 13,188,926 15,898,517
Retained earnings ................................................................. 6,354,353 2,773,750
Accumulated other comprehensive income:
Unrealized gain on marketable securities, net ................................ 376,293 1,327,671
------------ ------------
Total stockholder's equity .............................................. 20,169,572 20,249,938
------------ ------------
$206,485,301 $232,614,354
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues ....................................... $ 68,138,099 $ 84,968,315 $ 127,291,475 $ 156,001,102
------------- ------------- ------------- -------------
Costs and expenses:
Cost of operations ........................ 57,915,037 68,403,973 109,169,121 133,060,046
General and administrative ................ 7,000,890 5,606,220 10,773,210 10,190,642
Depreciation and amortization ............. 3,419,061 3,123,996 6,711,340 5,979,982
------------- ------------- ------------- -------------
68,334,988 77,134,189 126,653,671 149,230,670
------------- ------------- ------------- -------------
Income (loss) from operations ........ (196,889) 7,834,126 637,804 6,770,432
Interest ....................................... (4,919,498) (5,263,970) (9,057,169) (10,081,573)
Other income (expense) ......................... 124,748 (72,999) 232,902 (72,999)
------------- ------------- ------------- -------------
Income (loss) before nonrecurring
item and benefit for income
taxes ............................. (4,991,639) 2,497,157 (8,186,463) (3,384,140)
Nonrecurring item .............................. -- (2,709,591) -- (2,709,591)
------------- ------------- ------------- -------------
Loss before benefit for income
taxes ............................. (4,991,639) (212,434) (8,186,463) (6,093,731)
Benefit for income taxes ....................... (2,342,083) (95,595) (3,683,910) (2,742,178)
------------- ------------- ------------- -------------
Net loss ............................. $ (2,649,556) $ (116,839) $ (4,502,553) $ (3,351,553)
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss ................................... $(2,649,556) $ (116,839) $(4,502,553) $(3,351,553)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable
securities ....................... (168,528) 1,561,228 86,357 951,378
----------- ----------- ----------- -----------
Comprehensive income (loss) ................ $(2,818,084) $ 1,444,389 $(4,416,196) $(2,400,175)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................. $ (4,502,553) $ (3,351,553)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of marketable securities .................................... (232,902) (194,329)
Deferred income taxes .................................................... (3,683,860) (2,742,178)
Depreciation ............................................................. 5,857,519 5,401,850
Amortization ............................................................. 1,835,166 1,205,624
Write-off of accounts receivable ......................................... 480,000 --
Reserve for doubtful accounts receivable ................................. 1,270,000 60,000
Interest accrued on notes receivable ..................................... (157,775) --
Transfer from restricted cash ............................................ 914,408 --
Nonrecurring item ........................................................ -- 2,709,591
Decrease (increase) in:
Accounts receivable and retainage (net of receivables sold) ......... (575,882) (3,092,168)
Inventories ......................................................... 1,557,316 1,014,617
Prepaid expenses and other current assets ........................... (2,646,982) (1,209,744)
Deferred lease expense .............................................. 75,202 57,304
Deposits and other noncurrent assets ................................ (113,901) 200,699
Increase (decrease) in:
Accounts payable .................................................... (388,852) 595,259
Accrued expenses and other current liabilities ...................... 5,429,580 (1,975,650)
Other long-term liabilities ......................................... 752,364 475,390
------------ ------------
Net cash provided (used in) operating activities .................... 5,868,848 (845,288)
------------ ------------
Cash flows from investing activities:
Acquisition of subsidiaries (net of cash acquired of $207,441 and $1,100,009
in 1997 and 1998 respectively) ........................................... (21,519,397) (6,014,361)
Proceeds from sale of fixed assets ............................................ 234,064 33,887
Additions to property, plant and equipment .................................... (15,426,604) (18,745,242)
Purchase of transportation contract rights .................................... (39,665) (70,215)
Due from affiliates ........................................................... (564,422) (158,528)
Notes receivable .............................................................. (643,042) 1,570,247
Marketable securities sold (purchased), net ................................... (2,167,328) (1,127,191)
------------ ------------
Net cash used in investing activities ............................... (40,126,394) (24,511,403)
------------ ------------
Cash flows from financing activities:
Proceeds of additional borrowings ............................................. 45,770,000 19,355,307
Principal payments on borrowings .............................................. (13,252,118) (5,000,991)
Deferred financing and organization costs ..................................... (3,567,213) (49,995)
Other ......................................................................... (379,756) (229,049)
------------ ------------
Net cash provided by financing activities ................................ 28,570,913 14,075,272
------------ ------------
Net decrease in cash and cash equivalents .......................................... (5,686,633) (11,281,419)
Cash and cash equivalents, beginning of period ..................................... 16,818,889 13,772,537
------------ ------------
Cash and cash equivalents, end of period ........................................... $ 11,132,256 $ 2,491,118
============ ============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest ................................................................. $ 6,320,900 $ 9,521,069
Income taxes ............................................................. 331,527 182,068
Supplemental schedule of noncash investing and financing activities:
Loans incurred for purchase of property, plant and equipment .................. $ 6,368,900 $ 5,686,617
Liability incurred for acquisition of contract rights ......................... -- 1,000,000
Additional paid-in capital contributed ........................................ -- 2,709,591
Transfer of bus from inventory to fixed assets ................................ 47,558 --
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Accounting
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's financial statements as of and for the year
ended June 30, 1998 as filed on Form 10-K. In the opinion of management,
all adjustments and accruals (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of operating
results are reflected in the accompanying financial statements.
Certain amounts in the fiscal 1998 financial statements have been
reclassified to conform with current period presentation.
Operating results for the periods presented are not necessarily
indicative of the results for the full fiscal year.
2. New Accounting Pronouncement
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires that all components of comprehensive
income (loss) and total comprehensive income (loss) be reported on one of the
following: a statement of income and comprehensive income (loss), a statement of
comprehensive income (loss) or a statement of stockholder's equity. The Company
is reporting this information on a separate statement of comprehensive income
(loss) which includes all changes to stockholder's equity, except those due to
investments by owners (changes in paid in capital) and distributions to owners
(dividends). This statement did not change the current accounting treatment for
components of comprehensive income.
3. Inventories
Inventories comprised the following:
June 30, December 31,
1998 1998
----------- -----------
Parts and fuel..................... $3,921,237 $4,105,675
Buses.............................. 6,841,602 5,807,420
----------- -----------
$10,762,839 $ 9,913,095
=========== ===========
4. Change of Control of the Company and Nonrecurring Item
On October 27, 1998 the holders of a majority in principal amount of the
Company's 10 3/4% Senior Secured Notes due 2004 (the "Notes") consented to an
amendment to the Indenture relating to the Notes which in substance exempted the
transactions contemplated by a Recapitalization and Stock Purchase Agreement
(the "Recapitalization") from the definition of "Change of Control" under the
Indenture. On November 4, 1998 the Recapitalization was consummated. As a
result, GSCP II Holdings (AE), LLC, an affiliate of Greenwich Street Capital
Partners, Inc., a New York based private equity fund, acquired an approximately
88% equity interest in a recapitalized Atlantic Express Transportation Group,
Inc. ("AETG") which owns all of the issued and outstanding shares of capital
stock of the Company.
$2.7 million of fees and expenses paid by the stockholders of AETG in
connection with the amendment to the Indenture have been recorded as a
nonrecurring charge with a corresponding contribution to additional paid in
capital.
5
<PAGE>
5. Supplemental Financial Information
The following are unaudited condensed consolidating financial statements
regarding the Company (on a stand-alone basis and on a consolidated basis) and
its subsidiaries which are Guarantors and Non-Guarantors of the Notes as of and
for the six months ended December 31, 1998, and a consolidating balance sheet as
of June 30, 1998 and consolidating statements of operations for the three months
ended December 31, 1998 and 1997 and for the six months ended December 31, 1997,
and consolidating statement of cash flows for the six months ended December 31,
1997.
Condensed Consolidating Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantors Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Current assets ......................... $ 2,911,199 $ 58,353,400 $ 6,568,262 $ (4,651,151) $ 63,181,710
Investment in affiliates ............... 68,340,331 -- -- (68,340,331) --
Total assets ........................... 215,736,244 189,048,763 14,788,778 (186,959,431) 232,614,354
Current liabilities .................... 8,035,215 14,878,354 4,685,458 (4,692,269) 22,906,758
Total liabilities ...................... 179,950,126 162,386,314 10,731,984 (140,704,008) 212,364,416
Stockholder's equity ................... 35,786,118 26,662,449 4,056,794 (46,255,423) 20,249,938
</TABLE>
Condensed Consolidating Statement of Operations
Three months ended December 31, 1998
<TABLE>
<CAPTION>
Atlantic
Express
Transportation Guarantor Non- Elimination
Corp. Subsidiaries Guarantors Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................... $ -- $ 84,667,851 $ 2,273,552 $ (1,973,088) $ 84,968,315
Income (loss) from operations .......... (267,415) 7,853,713 247,828 -- 7,834,126
Income (loss) before nonrecurring
item, (provision for) benefit from
income taxes ......................... (267,415) 2,516,744 247,828 -- 2,497,157
Nonrecurring item ...................... (2,709,591) -- -- -- (2,709,591)
Net income of subsidiaries ............. 1,520,514 -- -- (1,520,514) --
Net income (loss) ...................... (116,839) 1,382,786 137,728 (1,520,514) (116,839)
</TABLE>
Condensed Consolidating Statement of Operations
Six months ended December 31, 1998
<TABLE>
<CAPTION>
Atlantic
Express
Transportation Guarantor Non- Elimination
Corp. Subsidiaries Guarantors Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................... $ -- $ 155,644,406 $ 3,442,232 $ (3,085,536) $ 156,001,102
Income (loss) from operations .......... (320,906) 6,829,282 262,056 -- 6,770,432
Income (loss) before nonrecurring
item, (provision for) benefit from
income taxes ......................... (320,906) (3,325,290) 262,056 -- (3,384,140)
Nonrecurring item ...................... (2,709,591) -- -- -- (2,709,591)
Net loss of subsidiaries ............... (1,684,780) -- -- 1,684,780 --
Net income (loss) ...................... (3,351,553) (1,828,911) 144,131 1,684,780 (3,351,553)
</TABLE>
6
<PAGE>
Condensed Consolidating Statement of Cash Flows
Six months ended December 31, 1998
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities .............. $ (18,865,166) $ 15,950,730 $ 2,069,148 $ -- $ (845,288)
Net cash used in investing
activities ........................ (5,842,005) (17,542,207) (1,127,191) -- (24,511,403)
Net cash provided by (used in)
financing activities .............. 19,076,263 (5,000,991) -- -- 14,075,272
Increase (decrease) in cash and
cash equivalents .................. (5,630,908) (6,592,468) 941,957 -- (11,281,419)
Cash and cash equivalents,
beginning of period ............... 6,932,910 4,014,584 2,825,043 -- 13,772,537
------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period ..................... $ 1,302,002 $ (2,577,884) $ 3,767,000 $ -- $ 2,491,118
</TABLE>
Condensed Consolidating Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Current assets ......................... $ 13,459,022 $ 47,736,795 $ 8,374,600 $ -- $ 69,570,417
Investment in affiliates ............... 60,404,818 -- -- (60,404,818) --
Total assets ........................... 193,219,371 165,426,379 15,993,943 (168,154,392) 206,485,301
Current liabilities .................... 7,688,435 6,743,371 7,756,122 -- 22,187,928
Total liabilities ...................... 160,355,739 120,676,905 13,032,657 (107,749,572) 186,315,729
Stockholder's equity ................... 32,863,632 44,749,474 2,961,286 (60,404,820) 20,169,572
</TABLE>
Condensed Consolidating Statement of Operations
Three months ended December 31, 1997
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................... $ -- $ 68,138,099 $ 2,520,904 $ (2,520,904) $ 68,138,099
Income (loss) from operations .......... -- (140,130) (56,759) -- (196,889)
Income (loss) before income taxes ...... -- (5,157,648) 166,009 -- (4,991,639)
Net loss of subsidiaries ............... (2,649,556) -- -- 2,649,556 --
Net income (loss) ...................... (2,649,556) (2,740,861) 91,305 2,649,556 (2,649,556)
</TABLE>
7
<PAGE>
Condensed Consolidating Statement of Operations
Six months ended December 31, 1997
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................... $ -- $ 127,291,475 $ 3,708,814 $ (3,708,814) $ 127,291,475
Income (loss) from operations .......... -- 736,314 (98,510) -- 637,804
Income (loss) before income taxes ...... -- (8,505,199) 318,736 -- (8,186,463)
Net loss of subsidiaries ............... (4,502,553) -- -- 4,502,553 --
Net income (loss) ...................... (4,502,553) (4,677,858) 175,305 4,502,553 (4,502,553)
</TABLE>
Condensed Consolidating Statement of Cash Flows
Six months ended December 31, 1997
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities .............. $ (24,399,331) $ 27,584,225 $ 2,683,954 $ -- $ 5,868,848
Net cash used in investing
activities ........................ (22,223,082) (15,735,984) (2,167,328) -- (40,126,394)
Net cash provided by (used in
financing activities .............. 41,713,031 (13,142,118) -- -- 28,570,913
Increase (decrease) in cash and
cash equivalents .................. (4,909,382) (1,293,877) 516,626 -- (5,686,633)
Cash and cash equivalents,
beginning of period .............. 15,029,114 479,933 1,309,842 -- 16,818,889
------------------------------------------------------------------------------------
Cash and cash equivalents, end of
period ............................ $ 10,119,732 $ (813,944) $ 1,826,468 -- $ 11,132,256
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains forward-looking statements within the
meaning of the federal securities laws and as such involve known and unknown
risks and uncertainties. These statements may use forward-looking words such as
"anticipate", "estimate", "expect", "will" or other similar words. These
statements discuss future expectations or contain projections of future events.
Actual results may differ materially from those expressed or implied by the
forward-looking statements for various reasons, including general economic
conditions, reliance on suppliers, labor relations and other factors, many of
which are beyond the Company's control. Readers are cautioned not to place undue
reliance on such forward-looking statements.
Three months ended December 31, 1998 compared to three months ended December 31,
1997.
Revenues. Revenues from Transportation Operations were $68.5 million for
the three months ended December 31, 1998 compared to $55.8 million for the three
months ended December 31, 1997, an increase of $12.7 million or 22.8%. This
increase was due primarily to (i) an increase in billings on existing contracts
of $5.8 million; (ii) the award of new contracts which added $3.8 million of
revenues; and (iii) $3.1 million from the operations of five newly acquired
subsidiaries. Revenues from Bus Sales Operations were $16.5 million for the
three months ended December 31, 1998 compared to $12.4 million for the three
months ended December 31, 1997, an increase of $4.1 million or 33.1%.
Gross Profit. Gross profit from Transportation Operations was $15.0
million for the three months ended December 31, 1998 compared to $8.6 million
for the three months ended December 31, 1997, an increase of $6.4 million or
73.6%. As a percentage of revenues, gross profit increased to 21.9% in the
second quarter of 1998 from 15.5% in the second quarter of 1997. In the second
quarter of 1997, there was a one time bonus which reduced gross profit by $1.7
million or 3.0%. The increase in gross profit (exclusive of the one time bonus)
of $4.7 million was due primarily to (i) increased revenues (ii) an increase in
gross profit percentage of 2.6% due primarily to a reduction in health and
welfare, fuel and vehicle insurance expenses and (iii) gross profit of $1.2
million generated from operations of newly acquired subsidiaries. Gross Profit
for the Bus Sales Operations was $1.6 million for the three months ended
December 31, 1998 and December 31, 1997. As a percentage of revenues, gross
profit decreased to 9.4% for the three months ended December 31, 1998 from 12.7%
for the three months ended December 31, 1997. The reduction in gross profit
percentage was due primarily to an increase in the current quarter of the
proportion of sales made in the New Jersey market which has had historically
lower gross profit margins than the New York market.
General and administrative expenses. General and administrative expenses
for the Transportation Operations were $4.6 million for the three months ended
December 31, 1998 compared to $6.0 million for the three months ended December
31, 1997, a decrease of $1.4 million or 23.5%. This decrease was primarily due
to a $1.8 million provision for doubtful accounts taken in the second quarter of
1997 partially offset by $0.4 million of general and administrative expenses
incurred by newly acquired subsidiaries. As a percentage of revenues, general
and administrative expenses decreased to 6.7% for the three months ended
December 31, 1998 from 10.8% for the three months ended December 31, 1997.
General and administrative expenses for the Bus Sales Operations were $1.0
million for the three months ended December 31, 1998 and 1997. As a percentage
of revenues, general and administrative expenses decreased to 6.2% for the three
months ended December 31, 1998 from 8.1% for the three months ended December 31,
1997.
Depreciation and amortization expenses. Depreciation and amortization
expenses for the Transportation Operations were $2.9 million for the three
months ended December 31, 1998 compared to $3.1 million for the three months
ended December 31, 1997, a decrease of $0.1 million. This decrease was due to
the Company reassessing (on January 1, 1998) and extending the useful lives of
certain fixed assets which reduced depreciation by approximately $0.9 million,
which was partially offset by increases in depreciation due to the purchase of
new vehicles. Depreciation and amortization of Bus Sales Operations was $0.2
million for the second quarter of 1998 compared to $0.3 million for the second
quarter of 1997.
9
<PAGE>
Income (loss) from operations. Income from operations was $7.8 million for
the three months ended December 31, 1998 compared to a loss from operations of
$0.2 million for the three months ended December 31, 1997, an increase of $8.0
million. This increase was due to the net effect of the items discussed above.
Net interest expense. Net interest expense was $5.3 million for the three
months ended December 31, 1998 compared to $4.9 million for the three months
ended December 31, 1997, an increase of $0.3 million or 7.0%. This increase was
primarily due to increased interest in connection with the Company's revolving
line of credit and equipment financing.
Income (loss) before nonrecurring item and taxes. Income before
nonrecurring item and taxes was $2.5 for the three months ended December 31,
1998 compared to a loss before nonrecurring item and taxes of $5.0 million for
the three months ended December 31, 1997, and increase of $7.5 million.
Nonrecurring item. Nonrecurring item was $2.7 million for the three months
ended December 31, 1998. This represented fees and expenses paid by the
shareholders of Atlantic Express Transportation Group, Inc. (the parent of AETC)
for the benefit of the Company. (See Note 4 of Notes to Consolidated Financial
Statements). There were no nonrecurring items for the three months ended
December 31, 1997.
Net loss. The Company generated a net loss of $0.1 million for the three
months ended December 31, 1998 compared to a net loss of $2.6 million for the
three months ended December 31, 1997, a decrease of $2.5 million due to the net
effect of the items discussed above.
Six months ended December 31, 1998 compared to six months ended December 31,
1997
Revenues. Revenues from Transportation Operations were $104.1 million for
the six months ended December 31, 1998 compared to $87.3 million for the six
months ended December 31, 1997, an increase of $16.8 million or 19.2%. This
increase was due primarily to (i) the award of new contracts which added $8.3
million of revenues; (ii) an increase in billings on existing contracts of $4.3
million; (iii) $3.1 million in revenues from operations of five newly acquired
subsidiaries and (iv) $1.1 million of additional summer revenues. Revenues from
Bus Sales Operations were $51.9 million for the six months ended December 31,
1998 compared to $40.0 million for the six months ended December 31, 1997, an
increase of $11.9 million or 29.8%.
Gross Profit. Gross profit from Transportation Operations was $17.3
million for the six months ended December 31, 1998 compared to $13.0 million for
the six months ended December 31, 1997, an increase of $4.4 million or 33.8%. As
a percentage of revenues, gross profit increased to 16.6% for the six months
ended December 31, 1998 from 14.8% for the six months ended December 31, 1997.
In the second quarter of 1997, there was a one time bonus which reduced gross
profit for the six months ended December 31, 1997 by $1.7 million or 1.9%. The
increase in gross profit (exclusive of the one time bonus) of $2.7 million was
due primarily to (i) increased revenues (ii) gross profit generated by
operations from newly acquired subsidiaries partially offset by a decrease in
gross profit due to a net reduction in revenue days (primarily in New York City)
for the six months ended December 31, 1998. Gross profit for the Bus Sales
Operations was $5.6 million for the six months ended December 31, 1998 compared
to $5.2 million for the six months ended December 31, 1997, an increase of $0.4
million or 8.6%. As a percentage of revenues, gross profit decreased to 10.8%
for the six months ended December 31, 1998 from 12.9% for the six months ended
December 31, 1997. This decrease was due primarily to an increase in the current
six months of the proportion of sales in the New Jersey market which has had
historically lower gross margins then the New York market.
General and administrative expenses. General and administrative expenses
for the Transportation Operations were $8.2 million for the six months ended
December 31, 1998 compared to $9.0 million for the six months ended December
31,1997, a decrease of $0.8 million or 8.8%. This decrease was principally due
to a $1.8 million provision for doubtful accounts taken in the second quarter of
1997 partially offset by increases in professional fees of $0.5 million and $0.4
million of general and administrative expenses incurred by newly acquired
subsidiaries. As a percentage of revenues, general and administrative expenses
decreased to 7.9% for the six months ended December 31, 1998 from 10.3% for
10
<PAGE>
the six months ended December 31, 1997. General and administrative expenses for
the Bus Sales Operations was $2.0 million for the six months ended December 31,
1998 compared to $1.7 million for the six months ended December 31, 1997, an
increase of $0.2 million or 12.2%. As a percentage of revenues, general and
administrative expenses decreased to 3.8% for the six months ended December 31,
1998 from 4.4% for the six months ended December 31, 1997.
Depreciation and amortization expenses. Depreciation and amortization
expenses for the Transportation Operations were $5.6 million for the six months
ended December 31, 1998 compared to $6.0 million for the six months ended
December 31, 1997, a decrease of $0.4 million. This decrease was due to the
Company reassessing (on January 1, 1998) and extending the useful life of
certain fixed assets which reduced depreciation by approximately $1.8 million,
which was partially offset by increases in depreciation due to the purchase of
new vehicles. Depreciation and amortization of Bus Sales Operations were $0.4
million for the six months ended December 31, 1998, compared to $0.7 million for
the six months ended December 31, 1997, a decrease of $0.3 million.
Income (loss) from operations. Income from operations was $6.8 million for
the six months ended December 31, 1998 compared to $0.6 million for the six
months ended December 31, 1997, an increase of $6.1 million. This increase was
due to the net effect of the items discussed above.
Net interest expense. Net interest expense was $10.1 million for the six
months ended December 31, 1998 compared to $9.1 million for the six months ended
December 31, 1997, an increase of $1.0 million. This increase was primarily due
to increased interest in connection with the Company's revolving line of credit
and equipment financing.
Loss before nonrecurring item and taxes. Loss before nonrecurring item and
taxes was $3.4 million for the six months ended December 31, 1998 compared to
$8.2 million for the six months ended December 31, 1997, a decrease of $4.8
million.
Nonrecurring item. Nonrecurring item was $2.7 million for the six months
ended December 31, 1998. This represented fees and expenses paid by the
shareholders of Atlantic Express Transportation Group, Inc. (the parent of AETC)
for the benefit of the Company. (See Note 4 of Notes to Consolidated Financial
Statements). There were no nonrecurring items for the six months ended December
31, 1997.
Net loss. The Company generated a net loss of $3.4 million for the six
months ended December 31, 1998 compared to a net loss of $4.5 million for the
six months ended December 31, 1997, a decrease of $1.2 million due to the net
effect of the items discussed above.
Liquidity and Capital Resources
Management anticipates total capital expenditures of $25.8 million in
fiscal 1999 of which approximately $24.4 million were made by December 31, 1998.
This included approximately $21.3 million for purchase of new vehicles and $3.1
million for other property and equipment.
Net Cash Used In Operating Activities. Net cash used in operating
activities was $0.8 million for the six months ended December 31, 1998 primarily
due to the following: (i) a net loss of $3.4 million plus non cash items of
depreciation and amortization of $6.6 million and a nonrecurring item of $2.7
million less a $2.7 million increase in deferred tax benefit (ii) use of cash
for working capital of $4.7 million and (iii) an increase of $0.6 million in
other items.
Net Cash Used in Investing Activities. For the six months ended December
31, 1998, the Company made $24.4 million of capital expenditures to acquire
additional vehicles and equipment. Of these capital expenditures $5.7 million
were directly financed. Effective October 1, 1998, the Company acquired five new
subsidiaries for $6.0 million (net of $1.1 million cash acquired). These
acquisitions were funded from the Company's revolving line of credit.
11
<PAGE>
Net Cash Provided by Financing Activities. Net cash provided by financing
activities totaled $14.1 million due primarily to $19.4 million net borrowings
under the Company's revolving line of credit, partially offset by principal
payments of $5.0 million on borrowings.
The Company believes that its Revolving Credit Facility of $30.0 million
(of which $9.2 million was undrawn at December 31, 1998) will provide it with
sufficient liquidity to conduct its operations.
At December 31, 1998, the Company's total debt and stockholder's equity
were $182.5 million and $20.2 million respectively.
Impact of Year 2000 on the Company's Systems
The Company has completed its assessment of all of its computerized
systems and has determined what changes, if any, need to be made so that such
systems, which include information and non-information technology systems, will
function properly with respect to dates in the year 2000 and thereafter to
ensure that the Company's financial, information and operational systems are
year 2000 compliant. The Company has developed a program to implement these
changes, which consists of the following phases: (i) developing solutions for
affected technology and systems (ii) modifying or replacing affected technology
and systems, (iii) testing and verifying solutions, (iv) implementing solutions
and (v) developing contingency plans. The Company has completed its year 2000
compliance at 3 of its locations, including its corporate office. The Company
intends to complete its compliance of its remaining locations by the end of the
calendar year.
Costs incurred to date directly related to the year 2000 issue have not
been material to the Company. Having completed its assessment of the changes
required to become year 2000 compliant, the Company expects that the total cost
of meeting the goals of its year 2000 program will not be material and will be
expensed as incurred.
Management is in the process of assessing the potential impact of any year
2000 non-compliant systems of its vendors or customers and has begun
communicating with those vendors and customers with whom the Company does
significant business. A third-party's failure to become year 2000 compliant or
the Company's inability to become compatible with third parties with which the
Company has a material relationship may have an adverse effect on the Company;
however, the Company does not expect its operations to be materially impacted by
any potential systems problems incurred by such vendors or customers.
The Company is in the process of developing its contingency plan for its
facilities to provide for the most reasonable likely worst case scenarios
regarding year 2000 compliance. This contingency plan is expected to be
completed in 1999.
New Accounting Pronouncement
Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which requires that all components of comprehensive
income (loss) and total comprehensive income (loss) be reported on one of the
following: a statement of income and comprehensive (loss), a statement of
comprehensive income (loss) or a statement of stockholder's equity. The Company
is reporting this information on a separate statement of comprehensive income
(loss). Comprehensive income (loss) is comprised of net income (loss) and all
changes to stockholder's equity, except those due to investments by owners
(changes in paid-in capital) and distributions to owners (dividends). This
statement did not change the current accounting treatment for components of
comprehensive income.
12
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
See Exhibit Index on Page E-1 for exhibits filed with this report on
Form 10-Q.
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated November
10, 1998, reporting under Item 1 the consummation of the
Recapitalization of AETG.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
ATLANTIC EXPRESS TRANSPORTATION CORP.
By: /s/ NATHAN SCHLENKER
---------------------------------
Nathan Schlenker
Chief Financial Officer
February 12, 1999
14
<PAGE>
Index to Exhibits
The following documents are exhibits to this Quarterly Report on Form
10-Q. For convenient reference, each exhibit is listed according to the Exhibit
Table of Regulation S-K. The page number, if any, listed opposite an exhibit
indicates the page number in the sequential numbering system on the manually
signed original of this Quarterly Report on Form 10-Q where such exhibit can be
found.
Exhibit Sequential Page
Number Exhibit Number
------ ------- ------
4.1 Third Supplemental Indenture, dated as of
October 29, 1998, by and among Atlantic
Express Transportation Corp., the
Guarantors named therein and The Bank of
New York, as Trustee (incorporated by
reference to Exhibit 1.1 to the Company's
Current Report on Form 8-K filed November
10, 1998).
27.1 Financial Data Schedule
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10-Q at
December 31, 1998 and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,491,118
<SECURITIES> 10,150,835
<RECEIVABLES> 43,520,343
<ALLOWANCES> 1,579,864
<INVENTORY> 9,913,095
<CURRENT-ASSETS> 63,181,170
<PP&E> 225,651,436
<DEPRECIATION> 100,305,766
<TOTAL-ASSETS> 232,614,354
<CURRENT-LIABILITIES> 22,906,758
<BONDS> 182,519,230
0
0
<COMMON> 250,000
<OTHER-SE> 19,999,938
<TOTAL-LIABILITY-AND-EQUITY> 232,614,354
<SALES> 51,903,202
<TOTAL-REVENUES> 156,001,102
<CGS> 46,287,981
<TOTAL-COSTS> 143,250,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 10,081,573
<INCOME-PRETAX> (3,384,140)
<INCOME-TAX> (2,742,178)
<INCOME-CONTINUING> (6,093,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,351,553)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
