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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000 or
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
Securities Registered Pursuant to Section 12(b) of the Act: None
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___
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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 registrant's
classes of common stock, as of the latest practicable date.
As of October 13, 2000, 100 Shares of Common Stock, no par value, were
outstanding; all of which were held by an affiliate
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I.
Item 1. BUSINESS
General
Unless otherwise indicated or the context otherwise requires,
references to the "Company" and "Atlantic" are to Atlantic Express
Transportation Corp. and its subsidiaries, and, for periods prior to February 4,
1997, the subsidiaries of Atlantic Express Transportation Group, Inc. (together
with its predecessors, "AETG") engaged in the transportation business. Atlantic
conducts its business through its subsidiaries. References to fiscal years are
to years ending June 30.
Atlantic, a wholly owned subsidiary of AETG, is one of the largest
providers of school bus transportation in the United States. The Company has
contracts with 74 school districts in New York, Missouri, California,
Pennsylvania, Connecticut and New Jersey. In addition to its school bus
transportation operations (the "School Bus Division"), the Company provides
services to public transit systems for physically and mentally challenged
passengers (the "Paratransit Division"), transportation for pre-kindergarten
children and Medicaid recipients (the "Pre-K/Medicaid Division"), express
commuter line and charter and tour bus services (the "Coach Division")
(collectively the "Transportation Operations") and sells school buses and
commercial vehicles (the "Bus Sales Operations"). Atlantic has a fleet of
approximately 4,800 vehicles operating from 32 facilities and provides bus sales
from four facilities.
Effective July 1, 1997, the Company acquired 100% of the common stock
of Central New York Coach Sales & Service, Inc. ("Coach") and Jersey Bus Sales,
Inc. ("Jersey") and certain related property (together with Coach and Jersey,
collectively "Central") for a total consideration of $26.5 million less
Central's long-term indebtedness as of July 1, 1997 which was $4.8 million.
Central is the leading authorized distributor of school buses manufactured by
Blue Bird Body Company ("Blue Bird") which is the leading manufacturer of school
buses in North America.
Acquisition of AETG. 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 (the "Consent") 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,
("Buyer") 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.
Recent Transactions
Certain of the Recent Transactions discussed below occurred after June
30, 2000, the end of the fiscal year covered by this Form 10-K. Nevertheless,
the discussion has been included to provide a more complete description of the
business of the Company as of the date of the filing of this Form 10-K.
New School Bus Contracts. In September 2000, the New York City Board of
Education (the "Board") extended all of the Company's contracts with the Board
for an additional five years ending June 30, 2005. These contracts represented
approximately 39.4% of the Transportation Operations revenues for the fiscal
year ended June 30, 2000. In April 2000, the Company was awarded an additional
two-year contract for 45 buses by the School District of Philadelphia and was
awarded a five-year contract for up to 10 buses by the Los Angeles Unified
School District. These contracts require capital expenditures of approximately
$3.1 million.
Paratransit Contracts. In February 2000, the Company was awarded a
two-year contract (with three one-year renewal options) to provide Paratransit
services by New Jersey Transit ("NJT"). Pursuant to
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the contract, NJT provided the Company with all of the required vehicles and as
a result, the Company was not required to make significant capital expenditures.
Effective April 30, 2000, the Company and the Regional Transit District of
Denver (Colorado) (the "RTD") agreed to the early termination of the Company's
Paratransit contract. This occurred primarily because of inaccurate information
received by the Company from the RTD, in its original Request for Proposal
("RFP"), in connection with the expected number of trips to be performed during
the life of the contract. RTD reimbursed the Company the value of capital
expenditures incurred and assumed all leases in connection with the Company's
facilities. Additionally, on May 16, 2000, the Company was awarded damages in
the amount of $1.5 million by an arbitrator on its claim against RTD for losses
incurred in performing the contract. Revenues from this contract were
approximately $6.2 million for the year ended June 30, 2000.
Accounts Purchase and Sale Agreement. In July 1999 the Company entered
into an agreement (the "Receivable Agreement") with Congress Financial
Corporation ("Congress"), its revolving credit lender, to sell Congress, without
recourse, up to $15.0 million of accounts receivable of the Company. Under the
Receivable Agreement, Congress purchases receivables at the gross amount of such
accounts (less three and one-quarter percent purchase commission) and
immediately credits 85% of this amount to the Company, with the balance paid to
the Company upon Congress receiving cumulative collections on all receivables
purchased in excess of the purchase price previously credited. In November 1999,
Congress renewed the Receivable Agreement along with the Company's $30.0 million
revolving credit facility (the "Facility") for an additional two years
commencing February 4, 2000.
Litigation Settlement. In April 2000, AETG and the Company settled
their litigation with National Express Group, PLC. In connection therewith, the
Company has recorded a credit of $4.8 million to general and administrative
expenses for the year ended June 30, 2000.
Transportation Operations
School Bus Division. The School Bus Division is the Company's largest division.
The Company has contracts to provide school bus transportation in 74 school
districts in New York, Missouri, California, Pennsylvania, Connecticut and New
Jersey. The Company's revenues from school bus operations have increased at a
compound annual growth rate of 15.6%, from $96.2 million in fiscal 1995 to
$199.0 million in fiscal 2000.
Services. The Company generally provides services for transportation of
open enrollment ("Regular Education") students through the use of standard
school buses, and transportation for physically or mentally challenged ("Special
Education") students through the use of an assortment of vehicles, including
standard school buses, passenger vans and lift-gate vehicles, which are capable
of accommodating wheelchair bound students. In most jurisdictions serviced by
the Company, escorts are required to accompany drivers on Special Education
vehicles.
Contracts. The Company's school bus transportation contracts are
awarded by school districts based on public bidding or request for proposal
("RFP") process. The Company's school bus transportation contracts have provided
a relatively predictable and stable stream of revenues over their terms, which
range from one to five years. Compensation under school bus transportation
contracts is generally based upon a daily rate per vehicle, which is established
either by public bidding or by proposal and negotiation with respect to RFP
contracts. Contracts in New York City provide for the payment of the daily
vehicle rate (which encompasses all costs of the Company, including driver and
escorts) for days of scheduled performance in accordance with the school
calendar and provides for payment of 85% of the daily rate in the event of
school cancellations of any scheduled school day. Daily vehicle rates earned
under contract renewals are generally increased from previous rates by
application of the Consumer Price Index ("CPI"). The Company's costs could
outpace such revenue increases. The number of vehicles required is determined by
the school districts, initially pursuant to its bid specifications and/or RFP,
and is subject to change.
The Company's school bus transportation contracts generally provide for
performance security in one or more of the following forms: performance bonds,
letters of credit and cash retainages. Under current arrangements, the Company
secures the performance of its contracts with the Board through the use
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of performance bonds plus cash retainages of 5% of amounts due to the Company.
In most instances, the Company has opted to satisfy its security performance
requirements by posting performance bonds.
Customers. The Company has longstanding relationships with many of the
school districts which it services. School districts with which the Company does
business generally appoint a business manager and/or transportation supervisor
to oversee school bus transportation operations. Larger school districts have
separate bureaus or divisions, which regulate and supervise the provision of
school bus transportation services. Passenger safety, timeliness and quality of
service are among the factors used by school bus transportation administrators
to evaluate the Company.
In the Company's experience, unless a school district is dissatisfied
with the services of a school bus transportation contractor, school districts
tend to extend existing contracts rather than solicit bids from potential
replacement contractors, unless applicable law or the terms of the contract
otherwise require. Management believes that replacing an existing contractor
through a bidding process generally has resulted in higher prices to districts
than contract extensions because of the significant start-up costs that a
replacement contractor faces. Bidding also exposes a school district to
uncertainty in the quality of service which would be provided by a new
contractor.
Historically, school districts awarded school bus transportation
contracts through a public bidding process by which such contracts were required
to be awarded to the lowest responsible bidder, without regard to quality of
service. However, management believes that due, in part, to the poor performance
of certain low-priced school bus transportation contractors, school districts
will increasingly rely on a RFP process, which enables school administrators to
broaden the factors considered when awarding a contract. Factors such as
passenger safety, timeliness and quality of service, among others, are generally
considered under the RFP process. In 1996, the State of New York (where the
Company has its largest concentration of school bus transportation contracts)
adopted legislation, which, for the first time, permits school districts in the
State of New York to select school bus transportation contractors through a RFP
process. Management believes that because of the reputation it has developed in
the school bus transportation industry, it is well positioned to obtain
contracts which are awarded by the RFP process as well as by public bidding.
The New York Board of Education accounted for 39.4%, 39.5% and 42.9% of
the Company's revenues from Transportation Operations in fiscal 2000, 1999 and
1998, respectively. The Company's 17 contracts with the New York Board of
Education have been extended through June 30, 2005. No other customer
contributed greater than 10% of the Company's revenues from Transportation
Operations during these periods.
Paratransit Division. The Paratransit Division is the second largest and fastest
growing division of the Transportation Operations. The Paratransit Division's
revenues have increased from $6.0 million in fiscal 1995 to $55.0 million in
fiscal 2000. Management believes the demand for paratransit services in the
United States will continue to grow over the next several years. Pursuant to the
Americans with Disabilities Act of 1990 (the "ADA"), certain public transit
systems are required to provide comparable services to disabled persons who are
unable to use standard public transportation. The larger public transit systems
in the United States rely predominantly upon the private sector to perform
paratransit services, while approximately one-half of the small and medium size
systems outsource paratransit transportation services.
Better known national paratransit providers include Laidlaw Transit,
Inc., First Transit, a division of First Group America, Inc. and the Company. In
addition, paratransit services are also provided by several hundred smaller
local paratransit companies and by local municipalities.
To achieve passenger safety and to satisfy paratransit contract
requirements, the Company has instituted a comprehensive driver-training course,
which encompasses defensive driving, passenger sensitivity, first aid and CPR
procedures, passenger assistance techniques and detailed information about the
disabilities of the passengers which the Company transports. The Company has
also developed and implemented complex and comprehensive routing and scheduling
programs in order to provide its
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paratransit services in accordance with rapid response times which are
contractually mandated. Paratransit services are primarily funded by public
transit systems.
Services. The Company's paratransit services are rendered based upon
advance call-in requests for transportation, which are generally scheduled by
the Company or an independent third party. At June 30, 2000, the Company had
approximately 700 vehicles consisting of full-size four-door sedan automobiles
and lift-equipped vans to service its paratransit contracts. The Paratransit
Division has developed a substantial degree of expertise in developing and
providing transportation services required by its physically or mentally
challenged passengers.
Contracts. The terms of the Company's paratransit contracts range from
one to five years. The scope of services and contract requirements vary
considerably from one jurisdiction to another. The three general components of
paratransit transportation services are (i) providing the actual transportation
service; (ii) reserving passenger requests for service; and (iii) sorting and
scheduling passenger requests for service. Some of the Company's customers
require the Company to perform all three components of service while other
customers perform one or more of such functions themselves or through third
parties. Paratransit vehicles are either provided by the transit agency or the
Company depending upon the terms of a particular contract. The Company is
generally entitled to a specified charge per hour of vehicle service together
with other fixed charges. Paratransit users pay the Company a fixed amount per
trip determined by the local transit system governmental entity (which may be
equal to or based upon prevailing public transportation fees in the jurisdiction
in question), which is credited against the monthly contract price due from the
local transit system.
Customers. The Company presently performs paratransit services under
contracts with public transit systems in New York, Kentucky, New Jersey, and
Pennsylvania. Management believes that its New York contract is one of the
largest paratransit contracts awarded to date in the United States.
Pre-K/Medicaid Division. The Company provides transportation for physically or
mentally challenged children between the ages of three and five, to and from
pre-kindergarten facilities located in the New York City metropolitan area
pursuant to contracts with the New York City Department of Transportation. Each
vehicle requires the presence of an escort who is responsible to assist the
children on and off the bus. Escorts are employed and trained by the Company.
The Company is compensated on a per child basis at rates which are determined
pursuant to public bidding. The Company also performs contracts with private,
not-for-profit organizations, which are funded under Medicaid, for the
transportation of physically or mentally challenged passengers to and from
rehabilitation facilities and receives compensation based upon a daily rate per
person transported, which rates of compensation vary based upon ambulatory and
non-ambulatory passengers. At June 30, 2000, the Company utilizes approximately
97 vehicles in the performance of these contracts.
The Company generated approximately 2.3% of its Transportation
Operations revenues in fiscal 2000 from its Pre-K/Medicaid Division.
Coach Division. The Company provides express commuter, charter and tour bus
transportation services with a fleet of 39 luxury motor coaches and 10 mini
coaches.
Charter and tour bus operations include single day and multi-day
charters throughout the continental United States and Canada. In addition, the
Company operates scheduled line services between New York City and Atlantic City
under contractual arrangements with tour operators. Luxury coaches are generally
contracted for individual special events. The Company's contracts for coach
services vary based on duration and length of trip. This division generated 2.5%
of the Company's Transportation Operations revenues in fiscal 2000.
Focus on Passenger Safety and Service. Management has developed a corporate
culture focused on passenger safety and service. Atlantic participates in the
"Safe Bus" program, under which complaints regarding school bus driver's
performances and safety are registered by an independent party and forwarded to
the Company for remedial action. Unlike many of its competitors, the Company
requires its drivers to wear standardized uniforms, thereby reinforcing its
professional image. In addition, all drivers are required to attend periodic
safety workshops and training programs, which emphasize defensive driving
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and courteous behavior. Management believes that its emphasis on passenger
safety and service is a competitive advantage and a major contributor to its
success in winning new contracts.
Fleet Management and Maintenance. At June 30, 2000, the Company had a fleet of
4,795 vehicles and the average age of the Company's fleet, exclusive of vehicles
provided by various transportation authorities, was 6.8 years (7.4 years for
school buses, which account for 64.2% of the Company's fleet). School buses have
an average useful life of approximately 16 years.
At June 30, 2000, the fleet was maintained by the Company's trained
mechanics at its 32 facilities. The Company has a comprehensive preventive
maintenance program for its equipment to minimize equipment down time and
prolong equipment life. Programs implemented by the Company include standard
maintenance, regular safety checks, lubrication, wheel alignments and oil and
filter changes, all of which are performed on a regularly scheduled basis by the
Company's mechanics.
The following is a breakdown of the Company's fleet of owned vehicles
at June 30, 2000 by age:
<TABLE>
<CAPTION>
Lift/ Service
Minivans Ramp and
School And Equipped Support
Buses Cars Vehicles Coaches Vehicles Total
--------- ----------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Less than 2 yrs. old ........... 381 55 74 1 2 513
2-5 yrs. old ................... 843 391 176 7 17 1,434
5-10 yrs old ................... 551 272 119 30 23 995
10-15 yrs. old ................. 906 116 83 15 1,120
Greater than 15 years .......... 37 3 7 47
----- ----- ----- ----- ----- -----
Total .......................... 2,718 837 452 38 64 4,109
===== ===== ===== ===== ===== =====
</TABLE>
The following is a breakdown of the Company's fleet of leased vehicles
at June 30, 2000 by age:
<TABLE>
<CAPTION>
Lift/ Service
Minivans Ramp and
School And Equipped Support
Buses Cars Vehicles Coaches Vehicles Total
--------- ----------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Less than 2 yrs. old............ 1 2 3
2-5 yrs. old.................... 103 51 97 5 21 277
5-10 yrs old.................... 4 1 5
10-15 yrs. old.................. 0
Greater than 15 years........... 0
----- ----- ----- ----- ----- -----
Total 103 52 101 8 21 285
===== ===== ===== ===== ===== =====
</TABLE>
In addition to the vehicles in the tables above, at June 30, 2000 the
Company operated 401 vehicles provided by various transportation authorities
pursuant to their respective contracts.
Employees. At June 30, 2000, the Company had over 7,200 employees to provide
transportation services, consisting of approximately 5,200 drivers, 1,200
escorts, 450 mechanics and 50 other employees. In addition, there were
approximately 400 employees in executive, operations, clerical and sales
functions. The Company's school bus drivers and escorts are required to undergo
background checks, drug and alcohol testing and fingerprinting as a condition
for employment on school buses. All drivers are licensed to drive school buses
and/or motor coaches in accordance with federal and state licensing
requirements.
The Company requires its drivers to complete a thorough and
comprehensive training process in addition to satisfying federal and state
requirements. In some states, such as New York, a special subclass of license is
required for school bus drivers. The Company's paratransit drivers are also
required to complete special training. Drivers undergo a 20-hour basic training
course once a year and a two-hour refresher class twice per year. In addition,
drivers are required to be fingerprinted and pass a defensive driving test, as
well as physical, oral and written tests. Further, all drivers must pass a
pre-employment
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drug test as well as random drug and alcohol tests during the course of each
year. Pursuant to federal and state law, each year the Company is required to
randomly test 50% of its drivers for drug use and 25% for alcohol use.
At June 30, 2000, approximately 73% of the Company's Transportation
Operation employees were members of various labor unions and the Company was a
party to 23 collective bargaining agreements, two of which covering 162
employees expire within less than two years; two of which covering 147 employees
have expired and one collective bargaining agreement covering 170 employees is
subject to a wage renegotiation in October 2000. The Company is currently
negotiating to renew the two agreements which have expired. Management does not
believe that the results of the current negotiations will result in a material
increase in its labor costs, although no assurance can be given as to the
outcome of these negotiations. Management believes that its relations with its
employees are satisfactory. The Company has had no strikes or work stoppages in
the past 11 years.
At June 30, 2000, approximately 37% of the Company's bus drivers,
escorts and mechanics were represented by Local 1181 of the Amalgamated Transit
Union, which primarily represents personnel rendering services on behalf of the
New York Board of Education. Labor agreements with Local 1181 require
contributions to the Local 1181 welfare fund and pension plan on behalf of
drivers, mechanics and certain escorts. All contracts awarded by the New York
Board of Education during the past 22 years contain employee protection
provisions and require continued contributions to the Local 1181 pension plan
and welfare fund for rehired employees opting to remain in such plan and such
fund. Pursuant to a plan amendment approved by the Pension Benefit Guaranty
Corporation, withdrawal liability for contributing employers to the plan, such
as the Company, is essentially eliminated, provided that withdrawal is based
upon the loss of New York Board of Education contracts and that the successor
contractor becomes a contributing employer to the plan.
Competition. The school bus transportation industry and paratransit operations
are highly competitive. The Company competes on the basis of its reputation for
passenger safety, quality of service and price. Management believes it is
competitive in each of these areas. Contracts are generally awarded pursuant to
public bidding, where price is the primary criteria for a contract award. The
Company has many competitors in the school bus and paratransit transportation
business including transportation companies with resources and facilities
substantially greater than those of the Company. The Company competes with
Laidlaw Transit, Inc. a division of Laidlaw, Inc., the largest private
transportation contractor in North America, First Transit and First Student,
divisions of First Group America, Inc., the second largest company, and National
Express Corporation, in addition to other regional and local companies.
Bus Sales Operations
The Company entered the bus sales business in 1997 through the
acquisition of Central. Central, which has non-exclusive distribution contracts,
is the leading authorized distributor of school buses manufactured by Blue Bird
Body Company ("Blue Bird"), which is the leading manufacturer of school buses in
North America. While there are various other distributors of buses in Central's
distribution area, the Company believes that Central has a greater than 45%
market share for sales of school buses in its distribution territory.
The Company's Bus Sales Operations sells school buses and commercial
vehicles within New Jersey and various counties in New York. The majority of
buses purchased by the Company are for pre-existing orders. The Company
generated approximately 24.1%, 25.4% and 22.5% of its total revenues from this
operation in fiscal 2000, 1999 and 1998, respectively.
The Bus Sales Operations are seasonal in nature. Approximately 45% and
42% of the annual sales of Bus Sales Operations occurred in the quarters ended
September 30, 1999 and 1998, respectively. In addition, the working capital
needs of the operation have tended to increase during this quarter in response
to the higher seasonal sales volume and because inventory is at its highest
during July and August prior to seasonal school bus deliveries.
At June 30, 2000, the Company employed approximately 200 people in its
Bus Sales Operations, none of which were members of collective bargaining
groups.
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Risk Management and Insurance
The Company maintains various forms of liability insurance against
claims made by third parties for bodily injury or property damage resulting from
operations. Such insurance consists of (i) general and liability insurance of
$100 million per occurrence with no deductible against claims arising from other
(e.g., non-automobile) liability exposure; (ii) automobile liability insurance
of up to $100 million per occurrence, subject to a $250,000 deductible per
occurrence and an aggregate deductible of $4.6 million; and (iii) statutory
worker's compensation and employers liability insurance, subject to no
deductible. Beyond the occurrence limits mentioned herein, the automobile
liability coverage provides indemnity for an unlimited number of occurrences and
general liability coverage provides $100 million aggregate coverage per
location. The Company's insurance policies generally provide coverage for a one
year term (14 months in the case of the Company's current automobile policy) and
therefore, are generally subject to annual renewal.
The Company self-insures its current automobile insurance deductibles
through Atlantic North Casualty Company ("Atlantic North") a wholly owned
captive insurance company chartered in Vermont. The Company believes it's able
to increase its investment income through the retention and investment of
premium income in excess of amounts paid under claims in any given period.
Atlantic North's total claims liability ($4.6 million) is fully funded by
premiums charged to operating companies.
Prior to January 1, 1999, the Company also self-insured its annual
workers' compensation insurance deductibles. Atlantic North's total claims were
partially funded by premiums charged to operating companies, which, in turn,
were limited to the amount of the combined deductibles on the Company's
automobile and workers' compensation insurance policies ($7.5 million in the
fiscal year ended June 30, 1998).
In addition, the Company maintains catastrophic coverage of $25 million
per occurrence, for an unlimited number of occurrences, subject to a $100,000
deductible per occurrence. This insurance provides replacement cost coverage for
losses on the Company's fleet and insurance against business interruptions
resulting from the occurrence of natural catastrophes. The Company also
maintains property insurance for the replacement cost of all of its real and
personal property.
Environmental Matters
The Company's operations are subject to a broad range of federal, state
and local environmental laws, ordinances and regulations, including those
governing discharges into the air and water, the storage, handling and disposal
of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes, and health
and safety of employees ("Environmental Laws"). In addition, a number of the
Company's facilities are located in metropolitan areas where there is a long
history of industrial and/or commercial use. The Company is taking into account
the requirements of such Environmental Laws in the improvement, modernization,
expansion and start-up of its facilities. As with most transportation companies,
the Company could incur significant costs related to environmental compliance or
remediation; these costs however, most likely would be incurred over a period of
years. Compliance with Environmental Laws or more vigorous enforcement policies
of regulatory agencies, or stricter or different interpretations of such laws
and future regulatory action regarding soil or groundwater, may require material
expenditures by the Company.
Under various Environmental Laws a current or previous owner of real
estate or operations thereon may be liable for the costs of removal or
remediation of certain hazardous substances or petroleum products on, under or
in such property, without regard to whether the owner or operator knew of, or
caused, the presence of contaminants. The presence of (or failure to properly
remediate) such substances may adversely affect the ability to sell or rent such
real estate or to borrow using such real estate as collateral. Persons who
generate, arrange for the disposal or treatment of hazardous substances may be
liable for the costs of investigation, remediation or removal of such hazardous
substances at or from the disposal or treatment facility regardless of whether
such facility is owned or operated by such person. Finally, the owner of a site
may be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
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Certain federal, state and local laws, regulation and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing material
("ACM") when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for the
release of ACM and may provide for third parties to seek recovery from owners or
operators of real estate for personal injury associated with ACM. The Company
has not undertaken an environmental assessment or ACM survey at all of its
facilities. However, based on previous inquires, the Company is aware that ACM
is present at various facilities, some of which may be in a condition requiring
removal or encapsulation at this time.
Underground storage tanks ("USTs") are located at many of the Company's
properties. In the case of USTs operated by previous owner-operators, the
Company has not evaluated whether such USTs were closed in accordance with
applicable legal requirements. In addition, property owned and/or operated by
the Company may be impacted by offsite issues, such as leaking USTs or previous
or current industrial operations. Except in certain instances in connection with
the removal of a UST, the Company has not undertaken an analysis of the
condition of the subsurface soils at its properties.
In connection with its ownership and operation of its properties, the
Company may be potentially liable for costs in connection with the matters
discussed above (including costs of investigation and remediation), which costs
could have a material adverse effect on the Company. With respect to Central's
facilities, the Company has sought to reduce the impact of such costs by
obtaining certain representations and indemnities from the sellers of Central.
The indemnity covers environmental matters to the extent that such matters
exceed $200,000 and involve a maximum of $1,000,000. To be indemnified, the
Company must assert any claims within six years of the consummation of the
Central acquisition. The Company has no assurance that the sellers will perform
their indemnification obligations.
Government Regulation
The Company is subject to a wide variety of federal, state and
municipal laws and regulations concerning (i) vehicle standards and equipment
maintenance; (ii) qualification, training and testing of employees; and (iii)
qualification and maintenance of operating facilities. The Company's vehicles
are subject to federal motor vehicle safety standards established by the
National Highway Traffic Safety Administration ("NHTSA"). Specific standards are
promulgated by the NHTSA with regard to school buses pursuant to the School Bus
Safety Act of 1974. The Company's vehicles are also subject to the laws and
regulations of each state in which it operates, which are often more stringent
than applicable federal requirements. For example, in New York State, in
addition to federal standards, regulations promulgated by the New York State
Department of Motor Vehicles and the New York State Department of Transportation
("NYSDOT") require that school buses be equipped with high back seats,
left-handed emergency door exits, 16 gauge side panels and illuminated school
bus signs. All school buses and paratransit vehicles are required to be
inspected twice annually by NYSDOT inspectors in accordance with a rigorous set
of standards covering each mechanical component of the vehicles.
The Company's employees are subject to various federal and state laws
and regulations pertaining to driver qualifications, and drug, alcohol and
substance abuse testing. The Commercial Motor Vehicle Safety Act of 1986
requires drivers of commercial vehicles, including school buses, motor coaches
and paratransit vehicles, to obtain a commercial driver's license. Many states
have additional licensing requirements for subclasses of drivers such as school
bus drivers and/or paratransit drivers. Under regulations enacted at the state
and/or local levels, the Company's school bus drivers and paratransit drivers
are required to complete certain minimum basic training and follow-up refresher
classes annually. Pursuant to regulations promulgated by the United States
Department of Transportation under the Drug Free Workplace Act of 1988, the
Company's drivers are required to undergo pre-employment drug and alcohol
testing, and the Company is required to conduct random testing for drug and/or
alcohol abuse. Similar drug and alcohol abuse testing is also required under
various state laws. The Company's operating and maintenance facilities for its
Transportation Operations and Bus Sales Operations are also required to be
maintained in accordance with regulations promulgated by various federal and
state agencies including departments including departments of education,
departments of motor vehicles, and state departments of transportation.
8
<PAGE>
Item 2. PROPERTIES
Subsidiaries of the Company provide transportation operation services
from 32 facilities (of which five are owned, 25 are leased and two which are
partially owned and partially leased) in seven states. The facilities are
utilized for bus storage, repair and maintenance and/or administrative purposes.
The Company believes that its facilities are adequate to service its present
business and the currently anticipated expansion of existing operations.
Bus Sales Operations are provided from four facilities (of which two
are owned and two are leased) in two states.
Item 3. LEGAL PROCEEDINGS
The Company is a plaintiff in a multi-party action against the New York
Board of Education. The action, which is pending in the Supreme Court of the
State of New York, New York County, concerns the method of calculation for
increases to the daily rate of compensation paid to the Company under contract
extension agreements. The New York Board of Education has claimed in preliminary
audits that transportation contractors, including the Company, received contract
payments in prior years which exceeded the amount to which the contractors were
entitled in accordance with contract rate adjustment procedures. In the action
the Company claimed that the New York Board of Education (i) improperly changed
the comparison years pursuant to which contractors established their increased
costs for purposes of qualifying for annual rate increases; and (ii) incorrectly
calculated costs associated with transportation contracts which resulted in an
erroneous determination of applicable daily rates of compensation. The first of
the two claims has been dismissed. The second claim is still pending. In
September 2000, the Company entered into a letter agreement with the Board which
provided that (a) upon final resolution of the Company's outstanding claims, the
Company would pay any amount determined to be due the Board over a term of seven
years, and (b) the Company would receive credit against up to 100% of such
amount, equal to the amount paid by the Company for the purchase of school buses
in the period of July 2000 through July 2003 as long as such school buses were
utilized to perform the Company's contracts with the Board. The Company believes
that its purchase of qualifying buses within the above prescribed period will
eliminate any liability that the Company may have to the Board.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
The Company is a wholly owned subsidiary of AETG. There is no public
trading market for the Company's common stock.
The Company has made distributions to AETG of $115,763, $229,049 and
$557,955 in fiscal 2000, 1999 and 1998, respectively.
Item 6. SELECTED FINANCIAL DATA
The selected financial data for each of the years in the four-year
period ended June 30, 2000 were derived from the audited historical Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K. The
information contained in this table should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical Consolidated Financial Statements of the Company,
including the notes thereto, included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended June 30,
($ in millions)
1996 1997 1998 1999 2000
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues ..................................... $142.6 $166.1 $261.9 $321.5 $353.5
Income from operations ....................... 7.3 7.4 11.8 17.7 18.2
Income (loss) before extraordinary items
and cumulative effect of a change in
accounting principle .................... 1.4 (0.6) (7.1) (2.3) (3.5)
Net income (loss) ............................ 1.4 (1.7) (7.1) (2.3) (3.8)
Balance Sheet Data:
Total assets ................................. 104.4 154.4 206.5 231.5 233.8
Long-term debt ............................... 59.7 110.5 157.9 181.3 180.2
Total shareholder's equity ................... 29.5 27.6 20.2 20.9 23.1
</TABLE>
----------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
"Selected Financial Data" and the historical Consolidated Financial Statements
of the Company, including the notes thereto, included elsewhere in this Form
10-K.
General
Atlantic is one of the largest providers of school bus transportation
in the United States. The Company has contracts with 74 school districts in New
York, Missouri, California, Pennsylvania, Connecticut and New Jersey. In
addition to the School Bus Division, the Company provides services to public
transit systems for physically and mentally challenged passengers through the
Paratransit Division, transportation for pre-kindergarten children and Medicaid
recipients through the Pre-K/Medicaid Division, express commuter line and
charter and tour bus services through the Coach Division (collectively the
"Transportation Operations") and sells school buses and commercial vehicles (the
"Bus Sales Operations"). At June 30, 2000, Atlantic had a fleet of approximately
4,800 vehicles operating from 32 facilities and provided bus sales from 4
facilities.
10
<PAGE>
For each of the years in the three year period ended June 30, 2000, the
percentage of revenues from the Company's business segments were as follows:
2000 1999 1998
------ ------- ------
Transportation Operations ......... 75.9% 74.6% 77.5%
Bus Sales Operations .............. 24.1% 25.4% 22.5%
The School Bus Division accounted for 74.1%, 79.3% and 79.1% of the
Company's Transportation Operation revenues for each of fiscal 2000, 1999 and
1998, respectively. The Company's school bus transportation contracts have
provided a relatively predictable and stable stream of revenues over their
terms, which range from one to five years. Since 1979, Atlantic has achieved a
substantial contract renewal, which management believes is due to (i) its
reputation for passenger safety and providing efficient, on-time service; (ii)
its long-standing relationships with the school districts it services; (iii) the
preference of school districts to maintain continuity of service with their
current proven contractor rather than risk the uncertainty associated with a
replacement; and (iv) the disadvantage of prospective competitors, who generally
would have to make substantially greater investments than the Company in new
equipment and who may experience difficulty obtaining suitable parking and
maintenance facilities in the Company's primary markets, especially in the New
York greater metropolitan area.
The daily price charged per vehicle varies, depending upon a wide range
of factors including (i) vehicle type (standard school buses, minivans, or
vehicles with wheelchair lifts); (ii) the nature of service to be provided
(transportation of regular enrollment students or transportation of physically
or mentally challenged students); (iii) special requirements of a particular
school district concerning age of vehicles and/or upgrades on equipment; and
(iv) the cost of labor. Salaries and related labor costs are the most
significant factors in the Company's cost structure. In urban areas,
particularly those with a strong union presence, the cost of providing school
bus transportation is substantially greater than in suburban and rural areas,
where unions are generally less prevalent and salaries are lower. As a result,
prices paid by school districts vary accordingly. School Bus Division revenues
have historically been seasonal, based on the school year and holiday schedules.
During the months of September, through June, the Company's fleet of school
buses has been generally fully utilized. Historically during the summer months,
only a portion of the Company's school buses have been required to fulfill the
Company's summer contracts for school and camp activities and special trips.
The Paratransit Division, which accounted for 20.5%, 15.3% and 14.9% of
the Company's Transportation Operation revenues in fiscal 2000, 1999 and 1998,
respectively, is the second largest and fastest growing division of the
Transportation Operations. The terms of the Company's paratransit contracts
range from one to five years. The contacts are awarded by public transit systems
through a public bidding or RFP process. The Company is generally entitled to a
specified charge per hour of vehicle service together with other fixed charges.
The method of contract compensation also varies. See Item 1 - Business -
Paratransit Division - Contracts.
The Company's Pre-K/Medicaid Division accounted for less than 3% of the
Company's Transportation Operation revenues in each of the last three fiscal
years. Pre-K contracts are generally awarded to the lowest responsible bidder in
a public bidding process. Medicaid contracts are generally awarded through
negotiations with private agencies. The Company generally services specific
Pre-K bus routes during the months of September through June, and services
Medicaid routes throughout the year. Pre-K and Medicaid contracts are generally
paid based on number of passengers per trip.
The Coach Division, which accounted for 2.5%, 2.4 % and 2.6% of the
Company's Transportation Operation revenues in fiscal 2000, 1999 and 1998,
respectively, operates luxury coaches for express commuter services and charter
and tour contracts for individual special events. The Company's contracts for
coach services vary based on term and length of the trip. Coach Division charter
and tour revenues are generally a function of the size and number of coaches
utilized rather than the number of passengers carried.
The Bus Sales Operations, which accounted for 24.1%, 25.4% and 22.5% of
the Company's total revenues in fiscal 2000, 1999 and 1998, respectively, sells
school buses and commercial vehicles primarily
11
<PAGE>
in New Jersey and various counties in New York. The Bus Sales Operations were
acquired effective July 1, 1997.
The principal elements of the Company's Transportation Operations cost
of sales are labor, fuel, parts, vehicle insurance, equipment lease expense and
rent. Historically, cost of sales have varied directly in proportion to
revenues, and approximately 93% of fiscal 2000 cost of sales were variable costs
consisting of direct labor (primarily driver wages and related employment
expenses), fuel costs and maintenance costs. At June 30, 2000, approximately 73%
of the Company's employees were members of various labor unions and the Company
was party to 23 collective bargaining agreements, two of which covering 162
employees expire within less than two years; two of which covering 147 employees
have expired and one collective bargaining agreement, covering 170 employees, is
subject to a wage renegotiation in October 2000. The Company is currently
negotiating to renew the two expired agreements. Management does not believe
that the current negotiations will result in a material increase in its labor
costs, although no assurance can be given as to the outcome of negotiations.
Although the Company believes that historically it has had satisfactory labor
relations with its employees and their unions, the Company's inability to
negotiate acceptable union contracts in the future or a deterioration of labor
relations could result in strikes or work stoppages and increased operating
costs as a result of higher wages or benefits paid to union members, which would
have a material adverse effect on the Company.
General and administrative expenses include costs associated with the
Company's headquarters in Staten Island, New York and terminal office and
managerial salaries. In fiscal 1998, the Company increased the size of its staff
in its corporate headquarters to accommodate the Company's growth. Management
believes that it currently has sufficient staff to support anticipated revenues
levels. Cost increases are anticipated to be offset somewhat as the Company's
business grows and the Company realizes economies of scale by (i) spreading the
cost of the administrative staff and facilities over a larger revenue base; and
(ii) capturing savings in expenses such as vehicle insurance and vehicle parts
and purchases.
Results of Operations
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
($ in millions)
-------------------------------------------------------------------
1998 1999 2000
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................................... $261.9 100.0% $321.5 100.0% $353.5 100.0%
Gross profit ....................................... 44.5 17.0 51.9 16.1 52.5 14.9
General and administrative expenses ................ 21.3 8.1 21.9 6.8 20.3 5.8
Depreciation and amortization ...................... 11.4 4.3 12.4 3.8 13.9 3.9
Income from operations ............................. 11.8 4.5 17.7 5.5 18.2 5.2
Net interest expense ............................... 17.8 6.8 20.3 6.3 22.3 6.3
Non-recurring item ................................. 4.6 1.8 1.2 0.4 -- --
Loss before cumulative effect of a change
In accounting principle ....................... (7.1) (2.7) (2.3) (0.7) (3.5) (1.0)
Net loss ........................................... (7.1) (2.7) (2.3) (0.7) (3.8) (1.1)
</TABLE>
12
<PAGE>
Twelve Months Ended June 30, 2000 Compared to Twelve Months Ended June
30, 1999
Revenues. Revenues from Transportation Operations were $268.4 million
for the twelve months ended June 30, 2000 compared to $239.8 million for the
twelve months ended June 30, 1999, an increase of $28.6 million or 11.9%. This
increase was due primarily to (i) $9.7 million as a result of new contracts
awarded; and (ii) $24.6 million due to contract rate increases and increases in
service requirements of existing contracts partially offset by $5.7 million
decrease due to sale of subsidiaries to an affiliate effective April 1, 1999.
Revenues from Bus Sales Operations were $85.1 million for the twelve months
ended June 30, 2000 compared to $81.7 million for the twelve months ended June
30, 1999, an increase of $3.3 million or 4.1%. This increase was primarily due
to $4.0 million increase in new bus sales partially offset by $0.7 million
decrease in parts and other sales.
Gross profit. Gross profit from Transportation Operations was $44.8
million for the twelve months ended June 30, 2000 compared to $44.0 million for
the twelve months ended June 30, 1999, an increase of $0.8 million or 1.9%. This
increase was due primarily to the increase in revenues described above. As a
percentage of revenues, gross profit decreased to 16.7% for the twelve months
ended June 30, 2000 from 18.4% for the twelve months ended June 30, 1999. This
decrease was primarily due to increases in fuel costs (0.7%) and labor (0.9%)
due to the tight labor market. Gross profit from the Bus Sales Operations was
$7.6 million for the twelve months ended June 30, 2000 compared to $7.9 million
for the twelve months ended June 30, 1999, a decrease of $0.3 million or 3.4%.
As a percentage of revenues, gross profit decreased to 9.0% for the twelve
months ended June 30, 2000 from 9.7% for the twelve months ended June 30, 1999.
This decrease was due primarily to an increase in the current year of the
proportion of sales in the New Jersey market which has had historically lower
gross margins than the New York market and lower margins generated by the sale
of commercial vehicles.
General and administrative expenses. General and administrative
expenses for the Transportation Operations were $16.4 million for the twelve
months ended June 30, 2000 compared to $18.2 million for the twelve months ended
June 30, 1999, a decrease of $1.8 million or 9.7%. This decrease was due
primarily to $4.8 in settlement fees in connection with the National litigation
settlement (see Note 13 to Consolidated Financial Statements) and $0.4 million
in management fees, partially offset by increases in (i) professional fees of
$0.4 million and (ii) advertising and promotion expenses of $1.1 million and
(iii) $1.2 million in administrative payroll and benefits due primarily to new
business. As a percentage of revenues, general and administrative expenses for
the Transportation Operations decreased to 6.0% for the twelve months ended June
30, 2000 from 7.6% for the twelve months ended June 30, 1999. General and
administrative expenses for the Bus Sales Operations were $3.9 million for the
twelve months ended June 30, 2000 compared to $3.7 million for the twelve months
ended June 30, 1999 an increase of $0.2 million or 5.3%. This increase was due
primarily to $0.1 million increases in administrative payroll and benefits and
$0.1 million increases in telephone expenses due to expansion of business. As a
percentage of revenues, general and administrative expenses of the Bus Sales
Operations was 4.6% for the twelve months ended June 30, 2000 and June 30, 1999.
Depreciation and amortization. Depreciation and amortization expense of
Transportation Operations was $ 13.1 million for the twelve months ended June
30, 2000 compared to $11.5 million for the twelve months ended June 30, 1999, an
increase of $1.5 million or 13.4%. This increase was primarily due to increases
in depreciation in connection with the purchase of new vehicles. Depreciation
and amortization expense of the Bus Sales Operations was $0.9 million for the
twelve months ended June 30, 2000 compared to $0.8 million for the twelve months
ended June 30, 1999.
Income from operations. Transportation Operations income from
operations was $15.4 million in fiscal 2000 compared to $14.3 million in fiscal
1999, an increase of $1.0 million or 7.0%. This increase was due to the net
effect of the items discussed above. Bus Sales Operations income from operations
was $2.8 million in fiscal 2000 compared to $3.3 million in fiscal 1999, a
decrease of $0.5 million or 15.2%. This decrease was due to the net effect of
the items discussed above.
Net interest expense. Net interest expense was $22.3 million for the
year ended June 30, 2000 compared to $20.3 million for the year ended June 30,
1999, an increase of $2.0 million or 9.7%. This
13
<PAGE>
increase was due primarily to an increase in the average amount of borrowings in
connection with the Company's revolving line of credit.
Non-recurring item. Non-recurring item was $1.2 million in fiscal 1999
which represented fees and expenses (other than bondholder consent fees), paid
by the shareholders of AETG for the benefit of the Company. There were no
non-recurring items for the year ended June 30, 2000.
Net income (loss). The Company generated a net loss of $3.8 million for
the fiscal year ended June 30, 2000 compared to a net loss of $2.3 million for
the fiscal year ended June 30, 1999, an increase of $1.5 million.
Twelve Months Ended June 30, 1999 Compared to Twelve Months Ended June
30, 1998
Revenues. Revenues from Transportation Operations were $239.8 million
for the twelve months ended June 30, 1999 compared to $203.1 million for the
twelve months ended June 30, 1998, an increase of $36.7 million or 18.1%. This
increase was due primarily to (i) $18.4 million as a result of new contracts
awarded; (ii) $12.6 million due to contract rate increases and increases in
service requirements of existing contracts; and (iii) $5.7 million from
operations of five newly acquired subsidiaries. These subsidiaries were sold to
an affiliate effective April 1, 1999 (see Note 16 to Consolidated Financial
Statements). Revenues from Bus Sales Operations were $81.7 million for the
twelve months ended June 30, 1999 compared to $58.8 million for the twelve
months ended June 30, 1998, an increase of $22.9 million or 38.9%. This increase
was primarily due to (i) $15.2 million increase in sales of school buses; and
(ii) $7.7 million increase in sales of commercial vehicles.
Gross profit. Gross profit from Transportation Operations was $44.0
million for the twelve months ended June 30, 1999 compared to $37.0 million for
the twelve months ended June 30, 1998, an increase of $7.1 million or 19.1%.
This increase was due primarily to the increase in revenues described above. As
a percentage of revenues, gross profit increased to 18.4% for the twelve months
ended June 30, 1999 from 18.2% for the twelve months ended June 30, 1998. This
increase was primarily due to the acquired subsidiaries which had gross profit
margins higher than the Company's. Gross profit from the Bus Sales Operations
was $7.9 million for the twelve months ended June 30, 1999 compared to $7.6
million for the twelve months ended June 30, 1998, an increase of $0.3 million
or 4.2%. As a percentage of revenues, gross profit decreased to 9.7% for the
twelve months ended June 30, 1999 from 12.9% for the twelve months ended June
30, 1998. This decrease was due primarily to an increase in the current year of
the proportion of sales in the New Jersey market which has had historically
lower gross margins than the New York market and lower margins generated by the
sale of commercial vehicles.
General and administrative expenses. General and administrative
expenses for the Transportation Operations were $18.2 million for the twelve
months ended June 30, 1999 compared to $18.0 million for the twelve months ended
June 30, 1998, an increase of $0.1 million or 0.8%. This increase was due
primarily to increases in professional fees of $1.6 million and advertising and
promotion expenses of $0.5 million partially offset by a reduction of $2.1
million provision for doubtful accounts ($2.2 million provision in fiscal 1998
compared to $0.1 million in fiscal 1999). As a percentage of revenues, general
and administrative expenses for the Transportation Operations decreased to 7.6%
for the twelve months ended June 30, 1999 from 8.9% for the twelve months ended
June 30, 1998. General and administrative expenses for the Bus Sales Operations
were $3.7 million for the twelve months ended June 30, 1999 compared to $3.3
million for the twelve months ended June 30, 1998 an increase of $0.4 million or
12.7%. This increase was due primarily to $0.2 million increases in
administrative payroll and benefits and $0.2 million increases in promotion and
telephone expenses due to expansion of business. As a percentage of revenues,
general and administrative expenses of the Bus Sales Operations decreased to
4.6% for the twelve months ended June 30, 1999 from 5.6% for the twelve months
ended June 30, 1998.
Depreciation and amortization. Depreciation and amortization expense of
Transportation Operations was $11.5 million for the twelve months ended June 30,
1999 compared to $10.4 million for the twelve months ended June 30, 1998, an
increase of $1.1 million or 10.9%. This increase was primarily due to increases
in depreciation in connection with the purchase of new vehicles partially offset
due to the Company reassessing (on January 1, 1998) and extending the useful
life of certain fixed assets which
14
<PAGE>
reduced depreciation by approximately $1.8 million for the year ended June 30,
1999. Depreciation and amortization expense of the Bus Sales Operations was $0.8
million for the twelve months ended June 30, 1999 compared to $1.0 million for
the twelve months ended June 30, 1998, a decrease of $0.2 million.
Income from operations. Transportation Operations income from
operations was $14.3 million in fiscal 1999 compared to $8.5 million in fiscal
1998, an increase of $5.8 million or 67.8%. This increase was due to the net
effect of the items discussed above. Bus Sales Operations income from operations
was $3.3 million in fiscal 1999 and 1998.
Net interest expense. Net interest expense was $20.3 million for the
year ended June 30, 1999 compared to $17.8 million for the year ended June 30,
1998, an increase of $2.6 million or 14.5%. This increase was due primarily to
an increase in the amount of borrowings in connection with the Company's
revolving line of credit.
Non-recurring item. Non-recurring item was $1.2 million in fiscal 1999
which represented fees and expenses (other than bondholder consent fees), paid
by the shareholders of AETG for the benefit of the Company. Non-recurring item
was $4.6 million in fiscal 1998 due to the write down of a note receivable from
affiliates.
Net income (loss). The Company generated a net loss of $2.3 million for
the fiscal year ended June 30, 1999 compared to a net loss of $7.1 million for
the fiscal year ended June 30, 1998, a decrease of $4.9 million.
Liquidity and Capital Resources
In December 1999 AETG contributed an additional equity contribution of
$6.2 million to AETC.
In November 1999, Congress renewed the Company's $30.0 million
revolving credit facility (the "Facility") and the Receivable Agreement (see
Item 1 - Recent Transactions - Accounts Purchase and Sale Agreement) for an
additional two years commencing February 4, 2000 at interest rates of
one-quarter percent less than under the previous agreements.
Capital expenditures for the fiscal years ended June 30, 2000 and June
30, 1999 totaled $20.1 million and $29.9 million, respectively. Management
anticipates total demographic growth, and capital expenditures of approximately
$22.0 million in fiscal 2001 in connection with new contracts, normal
replacement of vehicles and maintenance capital expenditures.
The majority of these capital expenditures will be incurred in the
Company's first quarter which is its seasonal low period. The Company believes
that the Receivable Agreement, along with its $30.0 million Facility (of which
$11.3 million was undrawn at June 30, 2000) will provide it with sufficient
liquidity to conduct its operations for the coming fiscal year.
The Company intends to seek to continue to acquire additional
businesses and contracts to the extent that it is able to finance these from
operating cash flows and/or additional equity contributions from AETG.
The statements regarding the Company's anticipated capital expenditures
and service requirements are "forward looking" statements which involve unknown
risks and uncertainties, such as the Company's ability to meet or exceed its
growth plans and/or available financing, which may cause actual capital
expenditures to differ materially from currently anticipated amounts.
Net Cash Provided By (Used in) Operating Activities. Net cash provided
by operating activities was $13.3 million for fiscal 2000 primarily due to $5.0
million of funds provided by working capital, plus non-cash items of $15.5
million of depreciation and amortization partially offset by a $3.8 million net
loss, $1.3 million increase in deferred tax assets, $1.2 million decrease in
other long-term liabilities, and $0.9 million other net uses of funds. Net cash
used in operating activities was $7.8 million for fiscal 1999, primarily due to
a $2.3 million net loss, $12.5 million of funds used for working capital, $2.6
million
15
<PAGE>
decrease in other long-term liabilities, a $1.8 million increase in deferred tax
assets, $1.9 million increase in deposits and other non-current assets and $1.0
million other net uses of funds partially offset by non-cash items of $14.3
million ($13.1 million depreciation and amortization and $1.2 million
non-recurring charge).
Net Cash Provided by (Used in) Investing Activities. For the fiscal
year ended June 30, 2000, the Company made $20.1 million of capital expenditures
to acquire additional vehicles, property and equipment. Of these capital
expenditures $1.2 million were directly financed and the balance were financed
from operating cash flows. In addition the Company made $2.7 million net
dispositions of marketable securities, which securities were held by Atlantic
North. For the fiscal year ended June 30, 1999 the Company made $29.9 million of
capital expenditures to acquire additional vehicles, property and equipment. Of
these capital expenditures $6.1 million were directly financed and the balance
were financed from operating cash flows.
In September 2000, the New York City Board of Education (the "Board")
extended all of the Company's contracts with the Board for an additional five
years ending June 30, 2005. These contracts represented approximately 39.4% of
the Transportation Operations revenues for the fiscal year ended June 30, 2000.
In April 2000, the Company was awarded an additional two-year contract for 45
buses by the School District of Philadelphia and was awarded a five-year
contract for up to 10 buses by the Los Angeles Unified School District. In
February 2000, the Company was awarded a two-year (with three one-year options)
contract to provide Paratransit services by New Jersey Transit ("NJT"). Pursuant
to the contract, NJT provided the Company with all of the required vehicles and
as a result, the Company was not required to make significant capital
expenditures.
Net Cash Provided by (Used in) Financing Activities. Net cash provided
by financing activities totaled $3.2 million for the year ended June 30, 2000,
due primarily to a $6.2 million capital contribution from AETG partially offset
by $1.5 million debt amortization requirements and $1.3 million reduction in
borrowings under the Company's revolving line of credit. In addition, the
Company incurred $1.2 million of indebtedness to directly finance capital
expenditures for the year ended June 30, 2000. In fiscal 1999 net cash provided
by financing activities totaled $17.1 million due primarily from $18.6 million
increase in net borrowings under the Company's revolving line of credit,
partially offset by $1.2 million principal and debt amortization requirements.
In addition, the Company incurred $6.1 million of indebtedness to directly
finance capital expenditures for the year ended June 30, 1999.
At June 30, 2000, the Company's total debt and stockholder's equity
were $180.2 million and $23.1 million, respectively. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will
depend upon its future performance, which will be subject to general economic
conditions, its ability to achieve cost savings and other financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. If the Company cannot generate sufficient cash flow from
operations in the future to service its debt, it may be required to refinance
all or a portion of such debt (including the Notes), sell assets or obtain
additional financing. There can be no assurance that any such refinancing or
asset sales would be possible or that any additional financing could be
obtained.
Quarterly Financial Information; Seasonality
The table below sets forth unaudited summary financial information for
the Company for the last 12 quarters. This information has been prepared by the
Company on a basis consistent with its audited Consolidated Financial Statements
and includes all adjustments that management considers necessary for a fair
presentation of the results for such quarters.
The Company's operations are seasonal in nature. Historically, the
first quarter of the Company's fiscal year has generated operating losses due to
significantly reduced revenues of the Transportation Operations (primarily the
School Bus Division) during the summer months. The Company's school bus
contracts generally resume in late August and early September. The Company's
quarterly operating results also fluctuate due to a variety of factors,
including variation in the number of school days in each quarter (which is
affected by the timing of the first and last days of the school year, holidays,
the month in which spring break occurs and adverse weather conditions, which can
close schools) and the profitability of the
16
<PAGE>
Company's other divisions. Consequently, interim results are not necessarily
indicative of the full year and quarterly results may vary substantially, both
within a fiscal year and between comparable fiscal years.
The Bus Sales Operations are also seasonal in nature. Approximately 45%
and 42% of the annual sales of Bus Sales Operations occurred in the quarters
ended September 30, 1999 and 1998, respectively. In addition, the working
capital needs of the operation have tended to increase during that quarter in
response to the higher seasonal sales volume and because inventory is at its
highest during July and August prior to heavy seasonal school bus deliveries.
<TABLE>
<CAPTION>
($ in millions)
----------------------------------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1999 Fiscal 2000
---------------------------------- ---------------------------------- ----------------------------------
Sept. Dec. Mar. June Sept. Dec. Mar. June Sept. Dec. Mar. June
30, 31, 31, 30, 30, 31, 31, 30, 30, 31, 31, 30,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999 2000 2000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $59.2 $68.1 $67.5 $67.1 $71.0 $85.0 $77.3 $88.2 $82.4 $90.7 $89.4 $91.0
Income (loss) from
operations....... 0.8 (0.2) 5.1 6.1 (1.1) 7.8 5.7 5.3 (2.1) 6.5 8.3 5.5
Net income (loss)
before extra-
ordinary item
and cumulative
effect of a
change in
accounting
principle....... (1.9) (2.6) 0.6 (3.2) (3.2) 0.6 0.3 0.0 (4.7) 0.3 1.4 (0.5)
EBITDA (1)......... 4.1 3.2 7.4 8.5 1.8 11.0 8.8 8.4 1.4 9.9 11.8 9.0
Cash flows from:
Operating
activities....... (2.9) 8.7 4.2 6.6 (10.3) 9.5 5.2 (12.2) 0.4 11.3 (5.5) 7.1
Investing
activities....... (34.6) (5.6) (2.1) (2.3) (16.2) (8.3) (1.3) 3.6 (7.2) (1.3) (4.3) (2.0)
Financing
activities....... 26.9 1.6 (3.6) 0.1 18.5 (4.4) (2.0) 5.0 6.3 (2.8) 4.2 (4.5)
</TABLE>
----------
(1) EBITDA represents income from operations before depreciation and
amortization. EBITDA is used in certain financial covenants in the
indenture relating to the Notes and is frequently used by securities
analysts and is presented here to provide additional information about
the Company's operations. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles. EBITDA should
not be considered in isolation; as a substitute for net income, cash
flow provided by operating activities or other income or cash flow data
prepared in accordance with generally accepted accounting principles;
or as a measure of the Company's profitability or liquidity. EBITDA as
used in this Form 10-K may not be comparable to "EBITDA" as reported by
other companies.
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements, which appears on Page
F-1 hereof.
17
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 14, 1999, the Company dismissed its former independent
accountants BDO Seidman LLP ("BDO") and engaged Arthur Andersen LLP to audit the
Company's consolidated financial statements. The decision to change the
independent accountants was recommended and approved by the Company's board of
directors.
BDO served as the Company's independent public accountants for the
years ended June 30, 1998 and 1997. The report of BDO on the Company's
consolidated financial statements for those years contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with its audit for the year
ended June 30, 1998 and during the fiscal year 1999 prior to BDO's dismissal,
the Company had no disagreements with BDO on matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of BDO would have caused them
to make reference thereto in their report on the consolidated financial
statements for such years.
18
<PAGE>
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
members of the Board of Directors and executive officers of the Company as of
September , 2000. Directors serve for a term of one year or until their
successors are elected and qualified.
Name Age Position
---- --- --------
Domenic Gatto.......... 51 Director, President and Chief Executive Officer
Nathan Schlenker....... 62 Chief Financial Officer, Executive Vice President,
Secretary and Treasurer
Jerome Dente........... 54 Chief Operating Officer
Noel Cabrera........... 40 Executive Vice President
David Kessler.......... 60 Vice President and Director of the Paratransit
Division
Douglas Danforth....... 78 Director
Sanjay Patel........... 39 Chairman of the Board
Thomas Inglesby........ 43 Director
Domenic Gatto, Director, President and Chief Executive Officer. Mr.
Gatto has been President, Chief Executive Officer and a Director of the Company
and AETG since their formations. Mr. Gatto, a Vietnam veteran, began his career
in the school bus business as a bus driver and has been responsible for the
development of all facets of the business of the Company and AETG.
Nathan Schlenker, Chief Financial Officer, Executive Vice President,
Secretary and Treasurer. Mr. Schlenker has been Chief Financial Officer of the
Company since its formation, and has held such position at AETG since 1991. In
November 1998, Mr. Schlenker was elected to serve as an Executive Vice
President, Secretary and Treasurer of the Company and AETG. Prior to 1991 Mr.
Schlenker was the Vice President of Finance of Feuer Leather Corporation, an
international leather manufacturer and marketing firm. From 1973 until 1985, Mr.
Schlenker was a partner of Ekstein, Ekstein & Schlenker, a firm of certified
public accountants.
Jerome Dente, Chief Operating Officer. Mr. Dente has been Chief
Operating Officer since December 1997 and was Director of New York School Bus
Operations for the Company from 1994 through 1997. Prior to 1994 Mr. Dente
served 28 years as a Transportation Officer in the United States Army, achieving
the rank of Colonel. Mr. Dente received a Master of Science in Transportation
Management from Florida Institute of Technology, a Master of Arts in Strategic
Studies from the U.S. Naval War College and a Bachelors of Science from Widener
University.
Noel Cabrera, Executive Vice President. Mr. Cabrera has been Executive
Vice President of the Company since its formation, a Vice President of AETG
since 1994 and Executive Vice President of AETG since July 1996. Mr. Cabrera
joined AETG in 1990 as a management analyst. He was previously employed as a
consultant for Manasia Enterprises, a New York based consulting firm, and as a
project manager for the Office of the President of the Republic of the
Philippines with respect to financing of industrial projects.
David Kessler, Vice President and Director of the Paratransit Division.
Mr. Kessler has been Vice President and Director of the Paratransit Division
since 1994. He has been employed by AETG since 1989. Mr. Kessler received a
Master of Public Affairs/Master of Science in Engineering from Princeton
University and a Bachelors of Science in Engineering from Cornell University.
Douglas Danforth, Director. Mr. Danforth has been a Director of the
Company and AETG since November 1998. He was Chairman of the Board and Chief
Executive Officer of Westinghouse Electric Corporation from December 1983 until
December 1987. From January 1988 to May 1998 he served as
19
<PAGE>
Chairman and Chief Executive Officer of the Pittsburgh Pirates Baseball Club. He
is a Director of Sola International, Inc. Dal-Tile Corporation and Greenwich
Street Capital Partners.
Sanjay Patel, Chairman of the Board. Mr. Patel has been Chairman of the
Board since November 1998. He has been Senior Managing Director of GSCP, Inc., a
merchant banking firm, since April 1998. Prior thereto he was a Managing
Director of Goldman, Sachs & Co. from November 1996 to January 1998. He is a
Director of Recovery Engineering, Inc.
Thomas Inglesby, Director. Mr. Inglesby has been a Director of AETG and
the Company since November 1998. Since 1997, Mr. Inglesby has been a Director of
GSPC, Inc. He is Chairman of the Board of Teknekron Infoswitch Corporation as
well as Check Printers, Inc. From 1994-1997, Mr. Inglesby was a Managing
Director with Harbour Group in St. Louis, Missouri, an investment firm
specializing in the acquisition of manufacturing companies in fragmented
industries. Prior thereto he was an officer with The South Street Funds for
three years.
There are no family relationships between any of the aforementioned
persons.
Item 11. EXECUTIVE COMPENSATION
Directors who are employees of the Company or one of its subsidiaries
or employees of the majority stockholder or its affiliates do not receive
additional compensation for serving as directors. For his services as a
Director, Mr. Danforth receives attendance fees (which shall not be less than
$10,000 in the aggregate for any given fiscal year) of $2,500 for each meeting
of the Board of Directors he attends in person or for telephone meetings of the
Board of Directors for which substantial time is required and $500 for each
other telephone meeting of the Board of Directors.
The Company and AETG have entered into an employment agreement with
Domenic Gatto which provides for his continued employment with the Company as
President and Chief Executive Officer and to serve upon the Board of Directors
of the Company until November 3, 2002, unless earlier terminated, subject to
extension by the Board of Directors for up to three years. The employment term
may be terminated with or without cause. The agreement provides for an annual
base salary of $350,000 commencing November 4, 1998 ("Effective Date") subject
to annual increases by a percentage equal to the percentage increase in the
Regional CPI, provided that such increase shall in no event be more than 5% or
less than 3% of the base salary. In addition the agreement provided for bonuses
of $260,000 each on the six month and 12 month anniversary of the Effective
Date. Upon the sale of 66% of the stock of AETG owned by the majority
shareholder, an initial public offering of AETG or a merger, recapitalization or
other similar event. Mr. Gatto is entitled to a bonus of up to $1,500,000. The
agreement also contains covenants for non-competition, non-solicitation and
confidentiality upon the termination of the employment.
The Company and AETG entered into an employment agreement with Nathan
Schlenker ("Schlenker") which provides for his continued employment with the
Company as Chief Financial Officer, commencing on the Effective Date and
expiring on November 3, 2000, (as extended). On July 19, 2000 the Company and
AETG entered into a new employment agreement with Schlenker expiring on November
3, 2001, unless earlier terminated, subject to extension by Board of Directors
for one year. This agreement provides for an annual base salary of $240,000,
subject to the same annual increases as Domenic Gatto. The agreement also
contains covenants for non-competition, non-solicitation and confidentiality
upon the termination of the employment.
20
<PAGE>
Summary Compensation Table
Annual Compensation (1)
<TABLE>
<CAPTION>
Fiscal Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Domenic Gatto ...................................... 1998 $519,884 $ 7,500 $105,774(2) $ --
President and Chief Executive Officer 1999 $433,122 $ -- $106,353(2) $260,000(3)
2000 $374,588 $ 55,000 $ 68,116(2) $260,000(3)
Nathan Schlenker ................................... 1998 $205,393 $ 16,000 $ -- $ --
Chief Financial Officer, Executive 1999 $208,487 $ 3,500 $ -- $ --
Vice President, Secretary and Treasurer 2000 $231,275 $ 49,000 $ -- $ --
Jerry Dente(4) ..................................... 1999 $116,154 $ 8,000 $ -- $ --
Chief Operating Officer 2000 $134,529 $ 18,500 $ -- $ --
Noel Cabrera(4) .................................... 1999 $103,731 $ 3,000 $ -- $ --
Executive Vice President 2000 $111,257 $ 18,500
</TABLE>
----------
(1) There is no non-cash compensation in lieu of salary or bonus or
other long-term compensation awards or payouts or any other
compensation payable to the individuals named in the table. There is
no applicable defined benefit plan under which benefits are
determined other than 401(k) and deferred compensation contributions
made.
(2) Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life
insurance allowance; (iii) $7,316, $7,095 and $6,516 for disability
insurance allowance in 2000, 1999 and 1998, respectively; and (iv)
$38,458 for vacation time not taken in 1998 and 1999, respectively.
(3) Bonus in relation to change of control (see Note 3 to Consolidated
Financial Statements).
(4) For 1998, this executive's compensation has been omitted in
accordance with Securities and Exchange Commission rules.
21
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AETG owns all of the Company's issued and outstanding capital stock.
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of AETG as of September 28, 2000 by (i)
each person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock; (ii) each director of AETG; (iii) AETG's
Chief Executive Officer and the other executive officers listed in the Summary
Compensation Table above; and (iv) all current directors and executive officers
of AETG as a group.
Percentage of
Number all Outstanding
Name(1) of Shares Shares Owned(10)
------- --------- ---------------
Domenic Gatto ........................ 67,030.97(5) 6.05%
Nathan Schlenker ..................... 1509.95(6) 0.14%
Jerry Dente .......................... -- --
Noel Cabrera ......................... 1009.95(7) 0.09%
Douglas Danforth(2) .................. 1250.00(8) 0.11%
Sanjay Patel(3) ...................... -- --
Thomas Inglesby(3) ................... -- --
GSCP II Holdings (AE), LLC(4) ........ 1,002,673.60(9) 91.15%
All directors and executive
officers of AETG as a group
(8 persons) ........................ 70,800.87 6.37%
(5)(6)(7)(8)
(1) Unless otherwise indicated, the business address of each beneficial
owner is c/o Atlantic Express Transportation Group, Inc., 7 North
Street, Staten Island, New York 10302-1205 and each beneficial owner
has sole voting power and investment power (or shares such power with
his spouse) with respect to all shares of capital stock listed as owned
by such beneficial owner.
(2) The business address of Mr. Danforth is c/o Executive Associates, One
PPG Place, Suite 2210, Pittsburgh, Pennsylvania 15222.
(3) The business address of Messrs. Patel and Inglesby is c/o Greenwich
Street Capital Partners, Inc. 500 Campus Drive, Suite 220, Florham
Park, New Jersey 07932.
(4) The business address of GSCP II Holdings (AE), LLC is 12 East 49th
Street, Suite 3200, New York, New York 10017.
(5) Includes (i) 8079.6 shares of Common Stock of AETG issuable upon
exercise of options at a price of $100.00 per share and (ii) 1,500
shares of Series A Convertible Preferred Stock of AETG convertible into
1,500 shares of Common Stock of AETG.
(6) Includes (i) 1009.95 shares of Common Stock of AETG issuable upon
exercise of options at a price of $100.00 per share and (ii) 500 shares
of Series A Convertible Preferred Stock of AETG convertible into 500
shares of Common Stock of AETG.
(7) Shares of Common Stock of AETG issuable upon exercise of options at a
price of $100.00 per share.
(8) Shares of Common Stock of AETG issuable upon exercise of warrants at a
price of $100.00 per share.
(9) Includes (i) 70,000 shares of Series A Convertible Preferred Stock of
AETG convertible into 70,000 shares of Common Stock of AETG and (ii)
62,000 shares of Series B Convertible Preferred Stock of AETG
convertible into 62,000 shares of Common Stock of AETG.
22
<PAGE>
(10) Each beneficial owner's percentage ownership is determined by assuming
that convertible securities, options and warrants that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days of the date hereof have been exercised.
Acquisition of AETG. On October 27, 1998, the holders of a majority in
principal amount of the Company's 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 so that the Company would not be required as a result of the
Recapitalization to offer to purchase all of the Notes then outstanding at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued interest to the date of repurchase. On November 4, 1998 the
Recapitalization was consummated. As a result, Buyer acquired an approximately
88% equity interest in a recaptalized AETG.
The Recapitalization, including the related transaction costs and
expenses, incurred by the Buyer, Wafra Acquisition Fund 4, LP. ("Wafra"),
Domenic, Michael and Patrick Gatto (the "Gatto's") (except for costs relating to
the Consent) were funded by equity capital provided to AETG by the Buyer. 50% of
the costs associated with the Consent were funded by equity capital provided to
AETG by the Buyer and the balance of such costs were funded by equity capital
provided to AETG by Domenic Gatto and Wafra.
In connection with the Recapitalization, AETG's authorized stock was
amended to consist of a single class of common stock. Previously, AETG was
authorized to issue 228 shares of Common Stock with no par value of which 88
shares with no par value were issued and outstanding and 72 shares of Preferred
Stock with a per share $.01 par value of which 72 shares were issued and
outstanding. On November 4, 1998, AETG amended its Certificate of Incorporation
to authorize the issuance of 1,650,000 shares of Common Stock with a per share
$.001 par value and to eliminate all authorized Preferred Shares. Each share of
Common Stock and Preferred Stock were exchanged for 7954.545 shares of Common
Stock. Buyer acquired approximately 88% of the Common Stock of the recapitalized
AETG, and AETG repurchased all of the shares of AETG held by Michael and Patrick
Gatto and a portion of shares held by Domenic Gatto and Wafra, which left them
approximately 8% and 4% of the Common Stock, respectively.
At the closing of the Recapitalization Agreement, Domenic Gatto, the
founder, a Director, President and Chief Executive Officer of the Company, and
Nathan Schlenker, Chief Financial Officer, Executive Vice President, Secretary
and Treasurer of the Company, entered into new employment agreements with the
Company and AETG and option agreements with AETG. Domenic Gatto's brother,
Michael Gatto resigned as a Director, Executive Vice President and Secretary of
the Company, and his brother, Patrick Gatto, resigned as a Director, Executive
Vice President and Treasurer of the Company.
As part of the Recapitalization, the Stockholders' Agreement dated as
of February 28, 1994 among AETG, the Gatto's and Wafra was terminated. The Buyer
and the other stockholders of AETG, including Domenic Gatto and Wafra, entered
into a new Stockholders' Agreement (the New Stockholders Agreement") dated as of
November 4, 1998.
The Stockholders Agreement provides for, among other things (i)
election of five directors, a majority of whom would be designated by the Buyer
and which would include Domenic Gatto for so long as he is employed by AETG;
(ii) removal of any director, with or without cause, upon notification by the
Buyer of its desire for such removal; and (iii) replacement of any director
designated by the Buyer who ceases to serve on the board of directors with
another designee of the Buyer.
The Stockholders Agreement also contains provisions that, among other
things and subject to certain exceptions, including any restrictions imposed by
applicable law or by AETG's or the Company's debt agreements (i) provide for put
and call rights in the event Domenic Gatto or a Management Stockholder (as
defined in the Stockholders Agreement) is no longer employed by the Company;
(ii) provide for put rights for Wafra upon the sixth anniversary of the
Stockholders Agreement or upon the sale by Domenic Gatto of all his shares of
common stock of AETG; (iii) restrict the ability of Domenic Gatto and the
Management Stockholders to transfer their respective ownership interests, other
than in certain limited circumstances or by transfers to Permitted Transferees
(as defined in the Stockholders Agreement); (iv) restrict the ability of Wafra
and a certain other stockholder to transfer their respective ownership
23
<PAGE>
interests other than in certain limited circumstances; (v) provide in certain
circumstances for demand and piggyback registration rights for the Buyer and its
affiliates that own Common Stock of AETG and for demand registration rights for
Wafra, the costs of such registrations to be borne by AETG; (vi) provide
tag-along rights to the remaining stockholders to participate in certain sales
by the Buyer of common stock of AETG; and (vii) provide drag along rights
pursuant to which the stockholders would agree to sell their shares of common
stock to an independent third party if the Buyer approves such a sale.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to and in contemplation of the Recapitalization, AETG sold its
wholly owned subsidiary G. Entertainment, Inc. along with its wholly owned
subsidiaries (collectively "G. Entertainment"), which made up AETG's
entertainment business, to the Gatto's. Three subsidiaries of G. Entertainment
were collectively indebted to the Company in the amount of $4.8 million as of
June 30, 1997 pursuant to the Entertainment Note. Such indebtedness resulted
from numerous intercompany loans among the various subsidiaries of AETG prior to
the formation of the Company. During the last quarter of fiscal 1998, two of
these subsidiaries suffered a precipitous decline and the Company took a $4.6
million non-recurring charge and wrote the Entertainment Note down to $510,000.
On November 4, 1998, after receiving a fairness opinion issued by an investment
bank of national standing, the Company sold the Entertainment Note to the
Gatto's. The sale price was $510,000 (the book value of the note), plus an
amount equal to one-half of the net proceeds received from any sale of assets of
two of these subsidiaries within a 12 month period from the date of closing.
There was no sale of assets within the prescribed period.
The Company's Coach Division is operated through its wholly owned
subsidiary, Atlantic Express Coachways, Inc. ("Coachways"), which leases "Park &
Ride" and administrative facilities from Showplace Bowling Center, Inc.
("Showplace"), a wholly owned subsidiary of G. Entertainment. The administrative
facilities consist of an office and ticket sales facilities. The lease also
provides for use of parking facilities for commuters who purchase express
tickets on Coachways' express bus service between Staten Island and Manhattan in
New York City. The lease, which is for a term of 10 years, with two five year
renewal options, commenced July 1, 1995 for an annual base rental of $180,000
(increased to $200,520 effective May 1, 2000). The Company believes that the
rental reflects the reasonable market value for the lease.
Staten Island Bus, Inc., a wholly owned subsidiary of the Company,
leases a facility from Dom-Rich Associates, Inc. a wholly owned subsidiary of G.
Entertainment. The lease, which is for a term of five years, with two five-year
renewal options, commenced January 1, 1997 for an annual base rental of $48,000.
The Company believes that the rental reflects the reasonable market value for
the lease.
GSCP, Inc. ("GSCP"), an affiliate of Buyer, AETG and the Company
entered into a Financial Services Agreement (the "FSA") dated as of November 4,
1998. Under the FSA, AETG and the Company engaged GSCP as financial advisor to,
among other things, provide assistance to each of AETG and the Company in
connection with its financial and business affairs, its banking and other
business relationships, and the operating and expansion of its business. The FSA
expires in 2008, subject to early termination by GSCP upon 15 days notice to
AETG and the Company or termination upon certain events after which the Buyer no
longer retains voting control of AETG and the Company. AETG and the Company pay
GSCP an annual advisory fee of $500,000 throughout the term of the FSA.
On February 23, 1999, the Company entered into an agreement with
Atlantic Transit, Corp. ("ATC"), a wholly owned subsidiary of AETG, whereby the
Company agreed to provide general administrative services such as payroll,
accounts payable, bookkeeping and accounting services in exchange for a monthly
fee equal to the product of $30.00 times the total number of revenue vehicles
maintained by ATC and its wholly owned subsidiaries. In fiscal 2000, the Company
generated approximately $500,000 in fees for these services.
On March 1, 1999 the Company entered into a tax sharing agreement with
ATC and AETG whereby each of the parties agreed to file consolidated tax returns
and contribute their portion of income tax liability based upon each of their
respective taxable income.
24
<PAGE>
At June 30, 2000, the Company had a non-interest bearing receivable
from AETG of $816,117. Such amount arose as a result of advances to AETG.
Commencing August 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central entered into an agreement with
Atlantic Bus Distributors, Inc. ("ABD"), a wholly owned subsidiary of AETG, to
order certain buses through ABD. Central is required to deposit from fifteen to
thirty percent of the cost of these vehicles simultaneously with ABD's receipt
of these vehicles from the manufacturers and pay the balance to ABD upon
Central's delivery of these vehicles to its customers or within one hundred and
twenty days, whichever comes first. The purchase price of each bus equals the
price at which ABD purchased such bus together with any costs incurred by ABD in
connection with the purchases of any such vehicles. During the year ended June
30, 2000, total payments made by Central were $29.3 million. The amount to be
paid in fiscal 2001 will depend upon the number of buses that Central purchases
under this arrangement.
In August 1997, in connection with the acquisition of Central, the
Company purchased the real property, which serves as the primary operating
facilities of Central, from Mr. Denney, a former shareholder of Central for a
purchase price of $2.2 million and issued mortgage notes. The notes are being
amortized over fifteen years with a five year balloon payment. Mr. Denney
continues to be employed by the Company as President of Central.
25
<PAGE>
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
See Index to Consolidated Financial Statements, which appears on page
F-1 hereof.
(b) Reports on Form 8-K
(c) Exhibits
The exhibits listed on the Exhibit Index following the signature page
hereof are filed herewith (or incorporated by reference) in response to this
Item.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on behalf by the undersigned, thereunto duly authorized.
ATLANTIC EXPRESS TRANSPORTATION CORP.
By: /s/ DOMENIC GATTO
---------------------------------------
Domenic Gatto
Director, President and Chief Executive
Officer
Date: October 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ DOMENIC GATTO Director, President and October 13, 2000
----------------------- Chief Executive Officer
Domenic Gatto
/s/ NATHAN SCHLENKER Chief Financial Officer, October 13, 2000
----------------------- Executive Vice President,
Nathan Schlenker Secretary and Treasurer
/s/ DOUGLAS DANFORTH Director October 13, 2000
-----------------------
Douglas Danforth
/s/ SANJAY PATEL Chairman of the Board October 13, 2000
-----------------------
Sanjay Patel
/s/ THOMAS INGLESBY Director October 13, 2000
-----------------------
Thomas Inglesby
27
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Index to Consolidated Financial Statements
PAGE
----
Report of Independent Public Accountants ............................ F-2
Report of Independent Certified Public Accountants .................. F-3
Consolidated Balance Sheets as of June 30, 1999 and 2000 ............ F-4
Consolidated Statements of Operations for the Years Ended
June 30, 1998, 1999 and ........................................... F-5
Consolidated Statements of Stockholder's Equity for the Years Ended
June 30, 1998, 1999 and 2000 ...................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998, 1999 and 2000 ...................................... F-7-F-8
Notes to Consolidated Financial Statements .......................... F-9-F-22
Schedule II - Valuation and Qualifying Accounts for the Years Ended
June 30, 1998, 1999 and 2000 ...................................... F-23
F-1
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholder of
Atlantic Express Transportation Corp.
We have audited the accompanying consolidated balance sheets of
Atlantic Express Transportation Corp. and subsidiaries as of June 30, 1999 and
2000, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the years then ended. These 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit also 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
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Atlantic
Express Transportation Corp. and subsidiaries as of June 30, 1999 and 2000, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements for the year ended June 30, 2000, is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
September 29, 2000
F-2
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholder of
Atlantic Express Transportation Corp.
We have audited the accompanying statements of operations, changes in
stockholder's equity, and cash flows of Atlantic Express Transportation Corp.
for the year ended June 30, 1998. We have also audited the financial statement
schedule listed in the accompanying index for the year ended June 30, 1998.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Atlantic Express Transportation Corp. for the year ended June 30, 1998 in
conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
New York, New York
September 18, 1998
F-3
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 2000
------------- --------------
Assets
<S> <C> <C>
Current:
Cash and cash equivalents ................................................................ $ 855,983 $ 2,502,575
Current portion of marketable securities ................................................. 3,842,000 1,461,000
Accounts receivable, net of allowance for doubtful accounts of $1,640,000 and
$1,709,000 in 1999 and 2000, respectively .............................................. 48,468,255 50,962,057
Inventories .............................................................................. 15,215,018 10,279,483
Notes receivable ......................................................................... 31,964 15,901
Prepaid expenses and other current assets ................................................ 6,190,766 6,165,109
------------- -------------
Total current assets ........................................................... 74,603,986 71,386,125
------------- -------------
Property, plant and equipment, at cost, less accumulated depreciation ......................... 119,138,827 124,934,071
------------- -------------
Other assets:
Goodwill, net ............................................................................ 12,143,514 11,817,606
Investments .............................................................................. 35,000 35,000
Marketable securities .................................................................... 5,869,380 6,691,661
Deferred lease expense ................................................................... 148,155 --
Transportation contract rights, net ...................................................... 3,408,096 3,329,311
Deferred financing and organization costs, net ........................................... 8,018,053 6,248,073
Due from parent company .................................................................. 831,117 816,117
Notes receivable ......................................................................... 11,494 --
Deposits and other noncurrent assets ..................................................... 3,248,336 3,205,594
Deferred tax assets ...................................................................... 3,935,981 5,268,606
Covenant not to compete, net ............................................................. 120,000 80,000
------------- -------------
Total other assets ............................................................. 37,769,126 37,491,968
============= =============
$ 231,511,939 $ 233,812,164
============= =============
Liabilities and Stockholder's Equity
Current:
Current portion of long-term debt ........................................................ $ 21,411,180 $ 1,907,563
Accounts payable ......................................................................... 2,453,411 1,952,700
Accrued compensation ..................................................................... 7,392,071 6,516,830
Current portion of insurance reserve ..................................................... 4,500,000 3,200,000
Accrued interest ......................................................................... 6,890,810 7,017,741
Other accrued expenses and current liabilities ........................................... 3,992,443 9,254,623
------------- -------------
Total current liabilities ...................................................... 46,639,915 29,849,457
------------- -------------
Long-term debt, net of current portion ........................................................ 159,921,440 178,270,878
------------- -------------
Premium on bond issuance ...................................................................... 987,150 771,750
------------- -------------
Other long-term liabilities ................................................................... 3,023,529 1,802,517
------------- -------------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, authorized shares 200; issued and
outstanding 100 ........................................................................ 250,000 250,000
Additional paid-in capital ............................................................... 15,898,517 22,048,517
Retained earnings (accumulated deficit) .................................................. 3,865,438 (29,254)
Accumulated other comprehensive income ................................................... 925,950 848,299
------------- -------------
Total stockholder's equity ..................................................... 20,939,905 23,117,562
------------- -------------
$ 231,511,939 $ 233,812,164
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Transportation Operations ................................................ $ 203,073,256 $ 239,784,127 $ 268,402,709
Bus Sales Operations ..................................................... 58,844,938 81,739,086 85,078,295
------------- ------------- -------------
Total revenues ............................................................ 261,918,194 321,523,213 353,481,004
------------- ------------- -------------
Costs and expenses:
Cost of Operations- Transportation Operations ............................ 166,120,186 195,760,472 223,558,726
Cost of Operations- Bus Sales Operations ................................. 51,268,341 73,845,585 77,454,772
General and administrative ............................................... 21,337,867 21,901,559 20,339,351
Depreciation and amortization ............................................ 11,378,390 12,354,728 13,915,400
------------- ------------- -------------
Total operating costs and expenses ........................................ 250,104,784 303,862,344 335,268,249
------------- ------------- -------------
Income from operations ................................................... 11,813,410 17,660,869 18,212,755
Interest expense, net ..................................................... (17,751,883) (20,322,279) (22,290,373)
Other income (expense) .................................................... 207,686 (224,276) (487,552)
------------- ------------- -------------
Loss before other nonrecurring, benefit from
income taxes and cumulative effect of a change
in accounting principle ................................................. (5,730,787) (2,885,686) (4,565,170)
Nonrecurring items:
Write-down of note receivable from affiliates ............................ 4,614,597 -- --
Recapitalization expense ................................................. -- 1,223,161 --
------------- ------------- -------------
Loss before benefit from income taxes and
cumulative effect of a change in accounting
principle ............................................................... (10,345,384) (4,108,847) (4,565,170)
Benefit from income taxes ................................................. 3,224,453 1,848,981 1,086,752
------------- ------------- -------------
Loss before cumulative effect of a change in accounting principle ........ (7,120,931) (2,259,866) (3,478,418)
Cumulative effect of a change in accounting principle,
net of benefit from income taxes of $245,875 ............................ -- -- (300,511)
------------- ------------- -------------
Net loss ................................................................. $ (7,120,931) $ (2,259,866) $ (3,778,929)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Stockholder's Equity
Years ended June 30, 1998, 1999 and 2000
<TABLE>
<CAPTION>
Retained Accumulated
Additional earnings other Comprehensive
Common stock paid-in (accumulated comprehensive income
No par value capital deficit) income (loss) Total
------------ ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 ................... $ 250,000 $ 13,188,926 $ 14,033,239 $ 142,032 $27,614,197
Net loss ................................. -- -- (7,120,931) -- $ (7,120,931) (7,120,931)
Distributions to parent company .......... -- -- (557,955) -- -- (557,955)
Unrealized gain on marketable securities . -- -- -- 234,261 234,261 234,261
------------
Comprehensive loss ....................... -- -- -- -- $ (6,886,670) --
--------- ------------ ------------ --------- ============ -----------
Balance, June 30, 1998 ................... 250,000 13,188,926 6,354,353 376,293 20,169,572
Contribution for recapitalization expense -- 2,709,591 -- -- $ -- 2,709,591
Net loss ................................. -- -- (2,259,866) -- (2,259,866) (2,259,866)
Distributions to parent company .......... -- -- (229,049) -- -- (229,049)
Unrealized gain on marketable securities . -- -- -- 549,657 549,657 549,657
------------
Comprehensive loss ....................... -- -- -- -- $ (1,710,209) --
--------- ------------ ------------ --------- ============ -----------
Balance, June 30, 1999 ................... 250,000 15,898,517 3,865,438 925,950 20,939,905
Contribution from parent company ......... -- 6,150,000 -- -- $ -- 6,150,000
Net loss ................................. -- -- (3,778,929) -- (3,778,929) (3,778,929)
Distributions to parent company .......... -- -- (115,763) -- -- (115,763)
Unrealized loss on marketable securities -- -- -- (77,651) (77,651) (77,651)
------------
Comprehensive loss ....................... -- -- -- -- $ (3,856,580) --
--------- ------------ ------------ --------- ============ -----------
Balance, June 30, 2000 ................... $ 250,000 $ 22,048,517 $ (29,254) $ 848,299 $23,117,562
========= ============ ============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (7,120,931) $ (2,259,866) $ (3,778,929)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on sale of marketable securities and
investments ................................................... (675,398) (1,274,138) (1,220,620)
Deferred income taxes ........................................... (2,487,000) (1,848,981) (1,332,625)
Depreciation .................................................... 10,040,403 10,611,931 12,959,447
Amortization .................................................... 2,808,394 2,431,548 2,539,608
Write-off of doubtful accounts receivable ....................... 973,810 -- 51,000
Reserve for doubtful accounts receivable ........................ 1,270,000 120,000 120,000
Interest accrued on note receivable ............................. (326,287) -- --
Write down of note receivable from affiliates ................... 4,614,597 -- --
Recapitalization expense ........................................ -- 1,223,161 --
Transfer from restricted cash ................................... 2,314,408 -- --
Decrease (increase) in:
Accounts receivable ........................................ (3,572,192) (11,278,249) (2,664,802)
Inventories ................................................ (132,564) (4,452,179) 4,935,535
Prepaid expenses and other current assets .................. (339,873) (498,156) 25,657
Deferred lease expense 154,097 185,960 148,155
Deposits and other noncurrent assets ....................... (5,882) (1,854,035) 42,742
Increase (decrease) in:
Accounts payable ........................................... (237,588) 202,796 (500,711)
Accrued expenses and other current liabilities ............. 6,635,557 3,479,585 3,213,870
Other long-term liabilities ................................ 2,644,117 (2,617,606) (1,221,012)
------------ ------------ ------------
Net cash provided by (used in) operating activities ........ 16,557,668 (7,828,229) 13,317,315
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------
1998 1999 2000
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisition of subsidiaries (net of cash acquired
of $207,441) ..................................................... $(21,278,334) $ -- $ --
Proceeds from sale of fixed assets ................................. 842,751 -- 1,366,466
Additions to property, plant and equipment ......................... (21,318,994) (23,808,346) (18,896,005)
Purchase of transportation contract rights ......................... (1,660) (80,532) (49,667)
Due from affiliates ................................................ (697,925) (158,528) 15,000
Notes receivable ................................................... (314,515) 1,673,967 27,557
Marketable securities and investments .............................. (1,789,879) 184,352 2,701,688
------------ ------------ ------------
Net cash used in investing activities ......................... (44,558,556) (22,189,087) (14,834,961)
------------ ------------ ------------
Cash flows from financing activities:
Capital contributed from parent company ............................ -- -- 6,150,000
Proceeds of additional borrowings .................................. 42,864,754 18,564,608 --
Principal payments on borrowings ................................... (13,532,291) (1,213,037) (2,794,651)
Deferred financing and organization costs .......................... (3,819,973) (21,760) (75,348)
Other .............................................................. (557,954) (229,049) (115,763)
------------ ------------ ------------
Net cash provided by financing activities ..................... 24,954,536 17,100,762 3,164,238
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ......................... (3,046,352) (12,916,554) 1,646,592
Cash and cash equivalents, beginning of year ................................. 16,818,889 13,772,537 855,983
============ ============ ============
Cash and cash equivalents, end of year ....................................... $ 13,772,537 $ 855,983 $ 2,502,575
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ...................................................... $ 15,485,695 $ 18,936,487 $ 20,182,403
Income taxes .................................................. 408,542 187,292 153,434
============ ============ ============
Supplemental schedule of noncash investing and
financing activities:
Loans incurred for purchase of property, plant and equipment ....... $ 6,368,900 $ 6,055,359 $ 1,225,152
Liability incurred for contract rights ............................. -- -- 415,320
Transfer of bus from inventory to fixed assets ..................... 47,558 -- --
Additional paid-in capital contributed for
bondholder consent fees and expenses ............................. -- 2,709,591 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Atlantic Express Transportation Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. Business
Atlantic Express Transportation Corp. ("AETC" or the "Company"), a
wholly owned subsidiary of Atlantic Express Transportation Group, Inc. ("AETG"),
is one of the largest providers of school bus transportation in the United
States, providing services to various municipalities in New York City, Nassau
County, Suffolk County, Westchester County, Connecticut, Pennsylvania, Missouri,
California and New Jersey. In addition to its school bus transportation
operations, AETC also provides services to public transit systems for physically
or mentally challenged passengers, express commuter line and charter and tour
services, transportation for pre-kindergarten children and Medicaid recipients
and sales of school buses and commercial vehicles in New Jersey and various
counties in New York.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of AETC and
its subsidiaries. All material intercompany transactions and balances have been
eliminated.
Revenue Recognition
Transportation Operations- Revenues are recognized when services are
performed.
Bus Sales Operations- Revenues are recognized when vehicles are
delivered to customers.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated
utilizing the straight-line method over the lives of the related assets. The
useful lives of property, plant and equipment for purposes of computing
depreciation are as follows:
Years
-----
Building and improvements...................... 15-31.5
Transportation equipment....................... 5-15
Other.......................................... 3-7
Marketable Securities
In accordance with Financial Accounting Standards Board Statement No.
115, AETC determines the classification of securities as held-to-maturity or
available-for-sale at the time of purchase, and reevaluates such designation as
of each balance sheet date. Securities are classified as held-to-maturity when
AETC has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premiums and discounts to maturity. Marketable securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, reported
as a separate component of stockholder's equity. The cost of securities sold is
based on the specific identification method.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments which
are readily convertible into cash.
F-9
<PAGE>
Inventories
Inventories primarily consist of new and used buses held for resale,
fuel, parts and supplies which are valued at the lower of cost or market value.
Cost is determined by specific identification for new and used buses and on a
first-in, first-out ("FIFO") basis on the balance.
Transportation Contract Rights
Transportation contract rights primarily represent the value the
Company assigns to the excess of cost of investments in school bus companies in
excess of the book value of these companies. In addition, AETC has purchased
from unrelated third parties certain transportation contract rights with respect
to revenue contracts and travel routes. These costs are amortized over the
lesser of the expected life of the contracts or 12 years. The Company reviews
the value assigned to transportation contract rights annually to determine if
they have been impaired in value. The amount of any impairment would be charged
against income. Accumulated amortization at June 30, 1999 and 2000 was
$2,589,848 and $3,111,186, respectively.
Deferred Financing, Goodwill and Other Costs
Deferred financing costs are amortized over the life of the related
debt. Goodwill is amortized over 40 years and all other costs are amortized on a
straight-line basis over five years. The Company reviews the value assigned to
the above mentioned assets annually to determine if they have been impaired in
value. The amount of any impairment would be charged against income. Accumulated
amortization at June 30, 1999 and 2000 was $4,703,403 and $6,791,040,
respectively.
Insurance Reserves
Insurance reserves of $7,523,529 and $5,001,336 as of June 30, 1999 and
2000, respectively, represents claim reserves liabilities for the Company's
self-insurance programs. Until December 31, 1998, the Company maintained
self-insurance programs for auto liability and workers compensation claims for
the first $250,000 of any one occurrence. In addition, the Company purchased
aggregate and specific stop loss insurance. On December 29, 1999, the Company
re-instated its self-insurance program for auto liability claims for the first
$250,000 of any one occurrence through Atlantic North Casualty Company
("Atlantic North") its wholly owned captive insurance subsidiary. For this
policy, Atlantic North's total maximum claims liability ($4.6 million) is fully
funded by premiums charged to operating subsidiaries. The current portion of
these liabilities represents the payments expected to be made during the next
fiscal year.
Income Taxes
AETC follows the liability method under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". The
primary objectives of accounting for taxes under SFAS No. 109 are to (a)
recognize the amount of tax payable for the current year and (b) recognize the
amount of deferred tax liability or asset for the future tax consequences of
events that have been reflected in AETC's financial statements or tax returns.
AETC files consolidated federal and state income tax returns with its
parent, affiliates and fellow subsidiaries. The income tax charge or benefits
allocated to AETC is based upon the proportion of AETC's income or loss to that
of the consolidated group.
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,
disclosures of contingent assets and liabilities at the date of the financial
statements
F-10
<PAGE>
and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents, accounts receivable including retainage, notes receivable, and
accounts payable approximated fair value as of June 30, 1999 and 2000 due to
either their short maturity or terms similar to those available to similar
companies in the open market. Marketable securities, classified as
available-for-sale, are valued at quoted market value. The fair value of the
Company's 10 3/4% Senior Secured Notes is approximately $133 million as compared
to the book carrying value of $150 million. The fair value is calculated using
the quoted market price on June 30, 2000. Although fair value is less than
carrying value, settlement at the fair value may not be possible.
Long-Lived Assets
Long-lived assets, such as intangible assets and property, plant and
equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable through
the estimated undiscounted future cash flows from the use of these assets. When
any such impairment exists, the related assets will be written down to their
fair value. No write-downs have been necessary through June 30, 2000.
New Accounting Pronouncement
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. On July 1, 1999,
the Company adopted SOP 98-5 "Reporting on the Costs of Start-Up Activities",
and recorded a $0.3 million charge the for cumulative effect of a change in
accounting principle, net of, benefit from income taxes, for the year ended June
30, 2000.
3. Acquisition of AETG
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 (the "Consent") 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, ("Buyer") 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
4. Retainage
Pursuant to certain municipal school bus contracts and paratransit
contracts, certain contractual amounts (retainage) are withheld from billings as
a guarantee of performance by AETC. At June 30, 1999 and 2000 retainage of
$3,906,908 and $4,774,817, respectively, is classified as current and is
included in accounts receivable in the accompanying consolidated balance sheets.
In addition, $1,058,559 of retainage is classified as non-current for the fiscal
years ended June 30, 1999 and 2000.
F-11
<PAGE>
5. Inventories
Inventories are comprised of the following:
June 30,
-------------------------
1999 2000
----------- -----------
Parts and fuel...................... $ 3,919,018 $ 5,339,198
Buses held for sale ................ 11,296,000 4,940,285
----------- -----------
$15,215,018 $10,279,483
=========== ===========
On August 11, 1999, after receiving a fairness opinion issued by an
investment bank of national standing, Central New York Coach Sales and Service,
Inc. and Jersey Bus Sales, Inc., both wholly owned subsidiaries of the Company
(collectively "Central") entered into an agreement with Atlantic Bus
Distributors, Inc. ("ABD"), a wholly owned subsidiary of AETG, to order certain
buses through ABD. Central is required to deposit from fifteen to thirty percent
of the cost of these vehicles simultaneously with ABD's receipt of these
vehicles from the manufacturers and pay the balance to ABD upon Central's
delivery of these vehicles to its customers or within one hundred and twenty
days, whichever comes first. The purchase price of each bus equals the price at
which ABD purchased such bus together with any costs incurred by ABD in
connection with the purchase of any such vehicles. During the year ended June
30, 2000, total payments made by Central were $29,281,254. In addition, as of
June 30, 2000, Central was obligated to purchase $11,189,109 of vehicles from
ABD.
As of June 30, 2000, $866,916 of deposits is classified as prepaid
expenses.
6. Cash and Cash Equivalents
Included in cash and cash equivalents is $658,001 and $1,739,235 at
June 30, 1999 and 2000, respectively, which represents cash equivalents of a
captive insurance company subsidiary which are only available for use by that
subsidiary.
7. Property, Plant and Equipment
Property, plant and equipment consists of the following:
June 30,
----------------------------
1999 2000
------------ ------------
Land ................................ $ 9,824,758 $ 9,824,758
Building and improvements ........... 23,332,818 24,026,731
Transportation equipment ............ 162,802,019 174,995,208
Machinery and equipment ............. 17,711,814 22,019,888
Furniture and fixtures .............. 3,468,240 3,774,107
------------ ------------
217,139,649 234,640,692
Less: Accumulated depreciation ...... 98,000,822 109,706,621
------------ ------------
$119,138,827 $124,934,071
============ ============
F-12
<PAGE>
8. Marketable Securities
The amortized cost and estimated fair value of the marketable
securities are as follows:
June 30, 2000
-------------------------------------
Gross
Unrealized
Cost gain (loss) Fair value
----------- ---------- ----------
Available-for-sale:
Equity securities .................... $4,657,718 $ 936,390 $5,594,108
U.S. Treasury and other
government debt
securities ................... 2,646,644 (88,091) 2,558,553
---------- ---------- ----------
Total marketable securities .. $7,304,362 $ 848,299 $8,152,661
========== ========== ==========
June 30, 2000
-------------------------------------
Gross
Unrealized
Cost gain (loss) Fair value
----------- ---------- ----------
Available-for-sale:
Equity securities .................... $5,711,536 $ 974,597 $6,686,133
U.S. Treasury and other
government debt
securities ................... 3,073,894 (48,647) 3,025,247
---------- ---------- ----------
Total marketable securities .. $8,785,430 $ 925,950 $9,711,380
========== ========== ==========
The above marketable securities are held by a captive insurance
subsidiary and are available for use only by that company. At June 30, 2000
marketable securities of approximately $6.0 million are pledged as collateral
for $3.4 million of letters of credit issued by the captive insurance company.
While all of the marketable securities are available for use in the
ordinary course of business of the captive insurance company subsidiary,
$1,461,000 has been classified as current in accordance with that subsidiary's
cash on hand and expected payments of claims in the next fiscal year.
Contractual maturity dates of the above securities are as follows:
Cost Fair Value
---------- ----------
2001 ..................................... $ 150,877 $ 149,695
2002 ..................................... 387,421 381,394
2004-2008 ................................ 685,839 653,284
2013-2029 ................................ 1,422,507 1,374,180
No maturity date (equity securities) ..... 4,657,718 5,594,108
---------- ----------
$7,304,362 $8,152,661
========== ==========
Net realized gains on marketable securities for the years ended June
30, 1998, 1999 and 2000 amounted to $675,000, $1,213,000 and $1,221,000
respectively, and are included in revenues of the captive insurance company.
F-13
<PAGE>
9. Debt
The following represents the debt outstanding at June 30, 1999 and
2000.
<TABLE>
<CAPTION>
June 30,
----------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
10 3/4% Senior Secured Notes, due February 2004, with
interest payable on February 1 and August 1
annually (a).............................................. $ 150,000,000 $ 150,000,000
8% mortgage on real estate located in Chittenango, New
York, due July 1, 2002 (b)................................ 681,463 650,694
8% mortgage on real estate located in Bordentown, New
Jersey, due July 1, 2002 (b).............................. 1,376,853 1,314,686
Revolving line of credit (c)........................................ 20,029,362 18,744,362
Various notes payable primarily secured by
transportation equipment, with interest rates
ranging from 8%-9.3%...................................... 9,244,942 9,468,699
-------------- --------------
181,332,620 180,178,441
Less: Current portion............................................... 21,411,180 1,907,563
-------------- --------------
$ 159,921,440 $ 178,270,878
-------------- --------------
</TABLE>
----------
(a) On February 4, 1997, AETC issued $110,000,000 of 10 3/4% Senior Secured
Notes due 2004 (the "Original Notes"). The net proceeds from the sale
of the Original Notes were used to repay its existing indebtedness,
buy-out certain leases and for certain other corporate purposes. Such
notes contain various covenants, including limitations on payments of
dividends.
In August 1997, AETC issued $40,000,000 aggregate principal amount of
10 3/4% Senior Secured Notes due 2004 (the "Additional Notes"). The
Additional Notes were issued at a premium of $1.4 million, which is
being amortized over the term of the Additional Notes.
The Original Notes were required to be registered with the Securities
and Exchange Commission by July 3, 1997. Such registration along with
the registration of the Additional Notes did not occur until January
21, 1998 and AETC was required to pay $308,572 of liquidated damages,
which was charged to interest expense in the year ended June 30, 1998.
(b) In connection with the acquisition of Central New York Coach Sales and
Services, Inc. and Jersey Bus Sales, Inc. and related real property
(collectively "Central"), AETC purchased from Mr. Denney, a former
shareholder of Central, the real properties of Central which served as
their primary operating facilities in New York and New Jersey. The
mortgage notes are amortized over 15 years with a five-year balloon
payment due July 2002. Mr. Denney remains employed as President of
Central.
(c) On February 4, 1997, concurrent with the refinancing referred to in
(a), AETC entered into a $30 million revolving credit facility with
Congress Financial Corporation. Borrowings under the revolving credit
facility are available for working capital and general corporate
purposes, including letters of credit, subject to the borrowing
conditions contained therein.
The revolving credit facility is secured by first priority liens on the
cash, accounts receivable, inventory, general intangibles and documents
and instruments related thereto of AETC and all of its subsidiaries
with the exception of the captive insurance subsidiary.
In November 1999, the revolving credit facility, scheduled to expire
February 3, 2000, was extended for an additional two years until
February 3, 2002. The interest rate per annum applicable to the
revolving credit facility is either the prime rate, as announced by
CoreStates
F-14
<PAGE>
Bank N.A., (8.0% and 9.5% at June 30, 1999 and 2000, respectively) plus
0.75% and 0.50% as of June 30, 1999 and 2000, respectively, or, at
AETC's option, the adjusted Eurodollar rate (as defined) plus 2.7% and
2.5% as of June 30, 1999 and 2000, respectively. AETC is required to
pay certain fees in connection with the revolving credit facility
including but not limited to an unused line fee of 0.375% on the
undrawn portion of the first $22 million of the revolving credit
commitment.
The revolving credit facility contains negative covenants similar to
those contained in the senior notes referred to in (a) and customary
events of default.
Aggregate yearly maturities of long-term debt as of June 30, 2000, are
as follows:
Total
------------
2001 .................................. $ 1,907,563
2002 .................................. 21,342,920
2003 .................................. 3,067,526
2004 .................................. 151,786,245
2005 .................................. 1,191,773
Thereafter ............................ 882,414
------------
Total ......................... $180,178,441
============
10. Income Taxes
The provisions (benefits) for income taxes consist of the following:
Years ended June 30,
-----------------------------------------
1998 1999 2000
----------- ----------- -----------
Current:
Federal ....... $ (900,000) $ -- $ --
State and local 163,000 -- --
----------- ----------- -----------
(737,000) -- --
Deferred taxes ..... (2,487,000) (1,848,981) (1,332,625)
----------- ----------- -----------
$(3,224,000) $(1,848,981) $(1,625,625)
=========== =========== ===========
Deferred tax assets/(liabilities) are comprised of the following:
June 30,
----------------------------
1999 2000
------------ ------------
Deferred tax assets:
Allowance for doubtful receivables $ 737,939 $ 769,050
Loss and tax credit carryforwards . 21,256,033 30,976,365
Contract rights and other ......... 770,754 1,019,555
------------ ------------
22,764,726 32,764,970
------------ ------------
Deferred tax liabilities:
Depreciation ...................... (18,351,223) (26,750,255)
Goodwill amortization ............. (477,522) (746,109)
------------ ------------
(18,828,745) (27,496,364)
------------ ------------
Deferred tax assets (net) .............. $ 3,935,981 $ 5,268,606
============ ============
The actual tax expense (benefit) differs from the tax expense computed
by applying the U.S. corporate rate of 34% as follows:
F-15
<PAGE>
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at statutory rate ....................... $(3,517,000) $(1,397,008) $(1,737,929)
Write-down of note receivable from Affiliate ........ 1,569,000 -- --
State and local tax benefit ......................... (1,293,000) (451,973) (562,271)
Valuation reserve for tax credit carryforward Amounts -- --
967,575
Other ............................................... 17,000 -- --
----------- ----------- -----------
Actual tax benefit .................................. $(3,224,000) $(1,848,981) $(1,332,625)
=========== =========== ===========
</TABLE>
For tax purposes, the Company had available, at June 30, 2000, net
operating loss ("NOL") carryforwards for regular federal and state income tax
purposes of approximately $66 million, which expire during the years 2011
through 2020. In conjunction with the Alternate Minimum Tax ("AMT") rules, the
Company had available AMT credit carryforwards for tax purposes of approximately
$1.3 million, which may be used indefinitely to reduce regular federal income
taxes.
At June 30, 1999 and 2000, net future tax deductions and NOL
carryforwards comprised the federal and state net deferred tax asset. The
Company believes that it is more likely than not that all of the NOL
carryforwards will be utilized prior to their expiration. This belief is based
upon the Company's estimate of future earnings, the inclusion with the
consolidated return of its parent and the expected timing of temporary
difference reversal.
11. Nonrecurring Charges
In November 1998, the stockholders of AETG paid $2.7 million of fees
and expenses in connection with the Amendment to the Indenture (see Note 3) of
which approximately $1.5 million of bondholder consent fees have been recorded
as deferred financing expenses and approximately $1.2 million has been recorded
as a non-recurring charge with a corresponding $2.7 million contribution to
additional paid-in capital.
Certain of the subsidiaries of AETG which comprise its entertainment
business were collectively indebted to AETC in the amount of $4,772,974 at June
30, 1997. Such indebtedness, which was evidenced by a note accruing interest,
payable at maturity (July 1, 2004) at 6.8%, resulted from numerous intercompany
loans made to the various subsidiaries of AETG prior to the formation of AETC as
a separate entity. During the last quarter of fiscal 1998, certain affiliates of
AETG engaged in the entertainment business suffered a precipitous decline and
AETC recorded a $4.6 million non-recurring charge and wrote the note down to
$510,000 (which balance was collected in full in November 1998).
12. Related Party Transactions
AETC had amounts due from AETG of $831,117 and $816,117 at June 30,
1999 and 2000, respectively. During the years ended June 30, 1999 and 2000, AETC
received management fee income from affiliated companies of $44,010 and
$459,900, respectively, and paid advisory fees to an affiliate of the major
stockholder of $328,333 and $458,000, respectively. No management fees or
advisory fees were charged or received from related parties for the year ended
June 30, 1998. AETC incurred rent expense of $228,000 for each of the years
ended June 30, 1998 and 1999 and $232,200 for the year ended June 30, 2000 in
connection with leases of real property from affiliate companies.
13. Commitments and Contingencies
Leases
Minimum rental commitments as of June 30, 2000 for noncancellable
equipment and real property operating leases are as follows:
F-16
<PAGE>
Year ended June 30, 1999
---------------------------------------------
Transportation
and other
Real property equipment Total
------------- -------------- -----------
2001 .................. $ 2,606,672 $ 1,886,376 $ 4,493,048
2002 .................. 1,811,614 1,684,228 3,495,842
2003 .................. 1,468,228 1,148,105 2,616,333
2004 .................. 1,203,281 441,024 1,644,305
2005 .................. 916,619 353,199 1,269,818
Thereafter ............ 3,430,443 134,380 3,564,823
----------- ----------- -----------
$11,436,857 $ 5,647,312 $17,084,169
=========== =========== ===========
During the year ended June 30, 2000, as part of its normal course of
business, AETC entered into various rental and purchase agreements for
replacement vehicles and additional vehicles to satisfy new transportation
contracts.
Total rental charges included in cost of operations were $4,932,881,
$5,034,230 and $4,913,801 for the years ended June 30, 1998, 1999 and 2000,
respectively.
Litigation
In April 2000, AETG and the Company settled their litigation with
National Express Group, PLC. In connection therewith, the Company has recorded a
credit of $4.8 million to general and administrative expenses during the year
ended June 30, 2000.
AETC is a defendant with respect to various claims involving accidents
and other issues arising in the normal conduct of its business. Management and
counsel believe the ultimate resolution of these claims will not have a material
impact on the financial position or results of operations of AETC.
Outstanding Letters of Credit
Letters of credit totaling approximately $3,690,000 and $3,620,000
(including $3.4 million issued by the captive insurance company) (see Note 8)
were outstanding as of June 30, 1999 and 2000, respectively. The letters of
credit serve primarily as security in connection with financial obligations.
Performance Security
AETC's transportation contracts generally provide for performance
security in one or more of the following forms: performance bonds, letters of
credit and cash retainages. Under current arrangements, AETC secures the
performance of its New York Board of Education contracts through the use of
performance bonds plus cash retainages of 5% of amounts due to AETC. In most
instances, AETC has opted to satisfy its security performance requirements by
posting performance bonds. At June 30, 2000, AETC has provided performance bonds
aggregating approximately $60 million.
14. Retirement Plans
AETC sponsors a tax qualified 401(k) plan whereby eligible employees
can invest up to 15% of base earnings subject to a specified maximum among
several investment alternatives. An employer matching contribution up to a
maximum of 2.5% of the employee's compensation is also invested. AETC's
contribution was approximately $96,000, $164,000 and $282,000 for the years
ended June 30, 1998, 1999 and 2000, respectively.
AETC has a qualified Profit Sharing Plan for eligible employees
(primarily drivers, mechanics and escorts not covered by union deferred
compensation plans). AETC's contributions are based upon hours worked.
Participants are not allowed to make deferred contributions. AETC's contribution
was
F-17
<PAGE>
approximately $150,000, $108,000 and $95,000 for the years ended June 30, 1998,
1999 and 2000, respectively.
In fiscal 1998, AETC instituted a Deferred Compensation Plan providing
deferred compensation to its highly compensated employees. AETC contributes 5%
of the participant's compensation to the Deferred Compensation Plan. AETC's
contribution was approximately $100,000 for the years ended June 30, 1998, 1999,
respectively and $130,000 for the year ended June 30, 2000.
15. Major Customer and Concentration of Credit Risk
For the years ended June 30, 1998, 1999 and 2000 revenues derived from
the New York Board of Education were approximately 42.9%, 39.5% and 39.4% of
total Transportation Operations revenues, respectively. As of June 30, 1999 and
2000, AETC had accounts receivable including retainage from this customer of
$12,173,087and $13,893,354, respectively.
At June 30, 1999 and 2000, substantially all cash and cash equivalents
were on deposit with one major financial institution.
16. Sale of Subsidiaries
Effective April 1, 1999, the Company sold five subsidiaries, acquired
during the second quarter of fiscal 1999, to an affiliate for a price equal to
its original investment in these subsidiaries plus their net earnings since the
dates of acquisition. In addition to the sales price of $7.5 million, the
Company was repaid $2.8 million of inter-company advances made to these
subsidiaries. The gross proceeds ($10.3 million) were received on April 28, 1999
and used to reduce borrowings under the Company's Revolving Line of Credit.
17. Subsequent Event
In September 2000, the New York City Board of Education (the "Board")
extended all of the Company's contracts with the Board for an additional five
years ending June 30, 2005. These contracts represented approximately 39.4% of
the Transportation Operations revenues for the fiscal year ended June 30, 2000.
F-18
<PAGE>
18. Segment Information
AETC's business is comprised of Transportation Operations and Bus Sales
Operations conducted in various states throughout the U.S. The summarized
segment information, as of and for the years ended June 30, 2000, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
Year ended June 30, 2000
-----------------------------------------------
Transportation Bus Sales
Operations Operations Total
-------------- ------------ -------------
<S> <C> <C> <C>
Revenues................................................. $ 268,402,709 $ 85,078,295 $ 353,481,004
Cost of operations ...................................... 223,558,726 77,454,772 301,013,498
Income from operations .................................. 15,380,385 2,832,370 18,212,755
Loss before non-recurring items,
benefit from income taxes and cumulative
effect of a change in accounting
principle ....................................... (4,367,179) (197,991) (4,565,170)
Total assets ............................................ 199,372,247 34,439,917 233,812,164
Capital Expenditures .................................... 19,774,321 346,836 20,121,157
Depreciation and amortization ........................... 13,060,602 854,798 13,915,400
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1999
-----------------------------------------------
Transportation Bus Sales
Operations Operations Total
-------------- ------------ -------------
<S> <C> <C> <C>
Revenues................................................. $ 239,784,127 $ 81,739,086 $ 321,523,213
Cost of operations....................................... 195,760,472 73,845,585 269,606,057
Income from operations................................... 14,344,445 3,316,424 17,660,869
Income (loss) before non-recurring
items, benefit from income taxes
and cumulative effect of a change in
accounting principle............................. (3,779,985) 894,299 (2,885,686)
Total assets............................................. 191,119,124 40,392,815 231,511,939
Capital Expenditures..................................... 29,248,258 615,447 29,863,705
Depreciation and amortization............................ 11,517,323 837,405 12,354,728
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1998
-----------------------------------------------
Transportation Bus Sales
Operations Operations Total
-------------- ------------ -------------
<S> <C> <C> <C>
Revenues ................................................ $ 203,073,256 $ 58,844,938 261,918,194
Cost of operations ...................................... 166,120,186 51,268,341 217,388,527
Income from operations .................................. 8,546,455 3,266,955 11,813,410
Income (loss) before non-recurring
items and (provision for)
benefit from income taxes ....................... (5,685,211) (45,576) (5,730,787)
Total Assets as at June 30, 1998 ........................ 174,223,642 32,261,659 206,485,301
Capital Expenditures .................................... 25,081,536 2,606,358 27,687,894
Depreciation and amortization ........................... 10,387,066 991,324 11,378,390
</TABLE>
F-19
<PAGE>
19. Supplemental Financial Information
The following are condensed consolidating financial statements as of
June 30, 2000, 1999 and 1998 regarding AETC (on a stand-alone basis and on a
consolidated basis) and Guarantors and Non-Guarantors of the Senior Secured
Notes (see Note 9(a)).
Condensed Consolidating Balance Sheet
June 30, 2000
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
--------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Current assets .................... $ 5,460,699 $ 62,668,334 $ 3,257,092 $ -- $ 71,386,125
Investment in affiliates .......... 55,601,639 -- -- (55,601,639) --
Total assets ...................... 216,113,405 206,708,073 10,209,264 (199,218,578) 233,812,164
Current liabilities ............... 6,949,572 19,691,884 3,208,001 -- 29,849,457
Total liabilities ................. 182,396,073 168,566,252 5,819,797 (146,087,520) 210,694,602
Stockholder's equity .............. 33,717,332 38,141,821 4,389,467 (53,131,058) 23,117,562
</TABLE>
Condensed Consolidating Statement of Operations
Year ended June 30, 2000
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net revenues .............................. $ -- $ 352,028,432 $ 3,452,288 $ (1,999,716) $ 353,481,004
Income from operations .................... 3,345,000 14,066,602 801,153 -- 18,212,755
Income (loss) before nonrecurring
items, benefit from income
taxes and cumulative effect of
a change in accounting
principle ............................ 3,345,000 (8,711,323) 801,153 -- (4,565,170)
Cumulative effect of a change in
accounting principle, net of
benefit from income taxes ............ -- (300,511) -- -- (300,511)
Net income (loss) of subsidiaries ......... 4,651,104 -- -- (4,651,104) --
Net income (loss) ......................... (3,778,929) (5,091,738) 440,634 4,651,104 (3,778,929)
</TABLE>
Condensed Consolidating Statement of Cash Flows
Year ended June 30, 2000
<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 .................. $ (3,422,794) $ 18,360,797 $ (1,620,688) $ -- $ 13,317,315
Net cash provided by (used in)
investing activities .................. (852,309) (16,684,340) 2,701,688 -- (14,834,961)
Net cash provided by (used in)
financing activities .................. 4,749,237 (1,584,999) -- -- 3,164,238
Increase in cash and cash
equivalents ........................... 474,134 91,458 1,081,000 -- 1,646,592
Cash and cash equivalents,
beginning of period ................... (324,134) 522,117 658,000 -- 855,983
------------ ------------ ------------ ------- ------------
Cash and cash equivalents,
end of period ......................... 150,000 613,575 1,739,000 -- $ 2,502,575
</TABLE>
F-20
<PAGE>
Condensed Consolidating Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Current assets ..................... $ 1,220,437 $ 68,829,160 $ 4,554,389 $ -- $ 74,603,986
Investment in affiliates ........... 60,330,394 -- -- (60,330,394) --
Total assets ....................... 208,820,247 204,637,409 12,596,989 (194,542,706) 231,511,939
Current liabilities ................ 22,655,804 18,583,172 5,400,939 -- 46,639,915
Total liabilities .................. 171,016,512 161,403,850 8,570,505 (130,418,833) 210,572,034
Stockholder's equity ............... 37,803,735 43,233,559 4,026,484 (64,123,873) 20,939,905
</TABLE>
Condensed Consolidating Statement of Operations
Year ended June 30, 1999
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues .............................. $ -- $ 319,991,879 $ 4,616,870 $ (3,085,536) $ 321,523,213
Income (loss) from operations ............. (1,010,769) 17,726,397 945,241 -- 17,660,869
Income (loss) before nonrecurring
items, benefit from income
taxes and cumulative effect of
a change in accounting
principle ............................ (1,367,762) (2,425,273) 937,349 -- (2,885,686)
Recapitalization expense .................. (1,223,161) -- -- -- (1,223,161)
Net loss of subsidiaries .................. (1,000,374) -- -- 1,000,374 --
Net income (loss) ......................... (2,259,866) (1,515,916) 515,542 1,000,374 (2,259,866)
</TABLE>
Condensed Consolidating Statement of Cash Flows
Year ended June 30, 1999
<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 ................ $(25,481,355) $ 19,749,641 $ (2,096,515) $ -- (7,828,229)
Net cash provided by (used in)
investing activities ................ (89,488) (22,029,071) (70,528) -- (22,189,087)
Net cash provided by (used in)
financing activities ................ 18,313,799 (1,213,037) -- -- 17,100,762
Decrease in cash and cash
equivalents ......................... (7,257,044) (3,492,467) (2,167,043) -- (12,916,554)
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 ....................... (324,134) 522,117 658,000 -- 855,983
</TABLE>
F-21
<PAGE>
Condensed Consolidating Statement of Operations
Year ended June 30, 1998
<TABLE>
<CAPTION>
Atlantic
Express Non-
Transportation Guarantor Guarantor Elimination
Corp. Subsidiaries Subsidiaries Entries Consolidated
-------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues ........................ $ -- $261,060,717 $6,865,533 $(6,008,056) $ 261,918,194
Income (loss) from operations ....... -- 11,937,838 (124,428) -- 11,813,410
Income (loss) before non-
recurring items, benefit
from income taxes and
cumulative effect of a
change in accounting principle.. -- (5,606,359) (124,428) -- (5,730,787)
Write down of note receivable
from affiliates ................ (4,614,597) -- -- -- (4,614,597)
Net loss of subsidiaries ............ (3,786,052) -- -- 3,786,052 --
Net income (loss) ................... (7,120,931) (3,700,197) (85,855) 3,786,052 (7,120,931)
</TABLE>
Condensed Consolidating Statement of Cash Flows
Year ended June 30, 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 .................... $(24,725,157) $ 37,752,699 $ 3,530,126 $ -- $ 16,557,668
Net cash used in investing
activities .............................. (21,857,874) (20,685,757) (2,014,925) -- (44,558,556)
Net cash provided by (used in)
financing activities .................... 38,486,827 (13,532,291) -- -- 24,954,536
Increase (decrease) in cash and
cash equivalents ........................ (8,096,204) 3,534,651 1,515,201 -- (3,046,352)
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 .................................. $ 6,932,910 $ 4,014,584 $ 2,825,043 $ -- $ 13,772,537
</TABLE>
F-22
<PAGE>
Atlantic Express Transportation Corp.
Schedule II - - Valuation and Qualifying Accounts
For the Years ended June 30, 1998, 1999 and 2000
<TABLE>
<CAPTION>
Net
Balance at Write-offs Balance at
Beginning Charges Charged to End of
of Period to Income Allowance Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1998:
allowance for doubtful accounts ........... $ 250,000 $2,244,000 $974,000 $1,520,000
Year ended June 30, 1999:
allowance for doubtful accounts ........... 1,520,000 120,000 -- 1,640,000
Year ended June 30, 2000:
allowance for doubtful accounts ........... 1,640,000 120,000 51,000 1,709,000
</TABLE>
F-23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
3.1 Restated Certificate of Incorporation of the Company
(filed as exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference).........................
3.2 By-laws of the Company (filed as exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1997 and incorporated herein by reference).......
10.1 Registration Rights Agreement dated February 4, 1997
between the Company, the Guarantors (as defined therein)
and the Initial Purchaser (as defined therein) (filed as
exhibit 10.1 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997 and incorporated herein
by reference).............................................
10.2 Loan and Security Agreement dated February 4, 1997 by and
between Congress Financial Corporation, certain
subsidiaries of the Company as borrowers and the Company
as guarantor (filed as exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1997 and incorporated herein by reference)................
10.2.1 Amendment dated as of May 18, 1998 to Loan and Security
Agreement by and among Congress Financial Corporation,
certain subsidiaries of the Company as borrowers and the
Company as guarantor (filed as exhibit 10.2.1 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1998 and incorporated herein by reference).......
10.2.2 Second Amendment dated as of May 28, 1999 to Loan and
Security Agreement by and among Congress Financial
Corporation, certain subsidiaries of the Company as
borrowers and the Company as guarantor (filed as exhibit
10.2.2 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1999 and incorporated herein by
reference)................................................
10.3 General Security Agreement dated February 4, 1997 by and
among the Company and the Guarantors (as defined therein)
in favor of Congress Financial Corporation (filed as
exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year then ended June 30, 1997 and incorporated
herein by reference)......................................
10.4 Collateral Assignment of Trademarks (Security Agreement)
dated as of February 7, 1997 between the Company and
Congress Financial (filed as exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1997 and incorporated herein by reference)................
10.5 Amended and Restated Employment Agreement dated as of
November 4, 1998 among the Company, AETG and Domenic Gatto
(filed as exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1999 and
incorporated herein by reference).........................
10.8 Amended and Restated Employment Agreement dated as of
November 4, 1998 among the Company, AETG and Nathan
Schlenker (filed as exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1999 and
incorporated herein by reference).........................
10.9 Lease dated August 5, 1986 between Bonnie Heights Realty
Corp. and Amboy Bus Co., Inc. and Notices of Opinion to
Renew dated December 26, 1989 and May 10, 1996
respectively, by Amboy Bus Co., Inc. for the facility at
1752 Shore Parkway, Brooklyn, New York (filed as exhibit
10.9 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by
reference)................................................
10.11 Lease dated August 1, 1995 between Stamar Realty Corp. and
180 Jamaica Corp. for the facility at 107-10 180th Street,
Jamaica, New York (filed as exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1997 and incorporated herein by reference.................
<PAGE>
Exhibit
Number Description Page
------ ----------- ----
10.12 The Board of Education of the City of New York, serial no.
0070, dated July 19, 1978 (filed as exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1997 and incorporated herein by reference).......
10.13 The Board of Education of the City of New York, serial no.
8108 (filed as exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference).........................
10.14 Extension and Eighth Amendment of Contract for Special
Education Pupil Transportation Services, dated June 19,
1996 by and between The Board of Education of the City of
New York, Amboy Bus Co., Inc. and Staten Island Bus Co.
(filed as exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference).........................
10.15 The Board of Education of the City of New York, serial no.
9888 (filed as exhibit 10.15 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 and
incorporated herein by reference).........................
10.16 Extension and Sixth Amendment of the Contract for Regular
Education Pupil Transportation Services, dated January 2,
1996 by and between The Board of Education of the City of
New York and Amboy Bus Co., Inc. (filed as exhibit 10.16
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997 and incorporated herein by
reference)................................................
10.17 New York City Transit Authority Contract #94E5461B, Five
Borough Paratransit Carrier Service: Part I Contract Terms
and Conditions and Attachment I: Price Schedule (filed as
exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997 and incorporated herein
by reference) ............................................
10.18 Indenture dated as of February 4, 1997, including Note,
between the Company, the Guarantors (as defined therein)
and The Bank of New York, as trustee (filed as exhibit
10.18 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by
reference)................................................
10.19 First Amendment to the Security Agreement, dated as of
August 14, 1997 among the Company, the Guarantors (as
defined therein) and in favor of Congress Financial
Corporation (filed as exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1997 and incorporated herein by reference)................
10.20 First Supplemental Indenture, dated as of August 14, 1997,
between the Company, the Guarantors (as defined therein)
and The Bank of New York, as trustee) (filed as exhibit
10.20 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997 and incorporated herein by
reference)................................................
10.21 Second Supplemental Indenture, dated as of December 12,
1997, among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee (filed as
exhibit 10.21 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 and incorporated herein
by reference).............................................
10.22 Second Amendment to the Security Agreement, dated as of
December 12, 1997 among the Company, the Guarantors (as
defined therein) and in favor of Congress Financial
Corporation (filed as exhibit 10.22 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1999 and incorporated herein by reference)................
10.23 Third Supplemental Indenture, dated as of October 28,
1998, among the Company, the Guarantors (as defined
therein) and The Bank of New York, as trustee (filed as
exhibit 1.1 to the Company's Current Report on Form 8-K
filed November 10, 1998 and incorporated herein by
reference)................................................
<PAGE>
Exhibit
Number Description Page
------ ----------- ----
10.24 Fourth Supplemental Indenture, dated as of April 28, 1999,
among the Company, the Guarantors (as defined therein) and
The Bank of New York, as trustee (filed as exhibit 10.24
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1999 and incorporated herein by
reference)................................................
10.25 Third Amendment to the Security Agreement, dated as of
April 28, 1999 among the Company, the Guarantors (as
defined therein) and in favor of Congress Financial
Corporation (filed as exhibit 10.25 to the Company's
Annual Report on Form 10-K for the year ended June 30,
1999 and incorporated herein by reference)...............
10.26 Note Purchase Agreement dated October 2, 1998 among the
Company, Domenic Gatto, Michael Gatto and Patrick Gatto
(filed as exhibit 10.26 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1999 and
incorporated herein by reference).........................
10.27 Accounts Purchase and Sale Agreement dated June 8, 1999
among the Company, the Sellers (as defined therein) and
Congress Financial Corporation (filed as Exhibit 10.27 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1999 and incorporated herein by
reference)................................................
10.28 Third Amendment dated January 25, 2000 to Loan and
Security Agreement by and among Congress Financial
Corporation, certain subsidiaries of the Company as
borrowers and the Company as Guarantor (filed as exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 1999 and incorporated herein
by reference).............................................
10.29 First Amendment dated as of January 25, 2000 to Accounts
Purchase and Sales Agreement among Congress Financial
Corporation, the Company and certain subsidiaries of the
Company as sellers (filed as exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
December 31, 1999 and incorporated herein by
reference)................................................
10.30* Extension and Ninth Amendment of Contract of General
Education Pupils, dated September 7, 2000 by and between
The Board of Education of the City of New York and Amboy
Bus Co., Inc..............................................
10.31* Extension and Eleventh Amendment of Contract of Special
Education Pupil Transportation Services, dated as of
September 7, 2000 by and between The Board of Education of
the City of New York, Amboy Bus Co., Inc and Staten Island
Bus Co., Inc..............................................
10.32* Employment Agreement dated as of July 19, 2000 among the
Company, AETG and Nathan Schlenker........................
16 Letter from BDO Seidman LLP, the Company's former
independent accountants, dated as of June 17, 1999 (filed
as exhibit 16 to the Company's Current Report of Form 8-K
filed June 28, 1999, and incorporated herein by
reference)................................................
21 Subsidiaries of the Company (filed as exhibit 21 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1999 and incorporated herein by reference).......
27* Financial Data Schedule...................................
*Filed with this Form 10K
