10-Q 1 file001.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 or |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file number 0-24247 ATLANTIC EXPRESS TRANSPORTATION CORP. -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) New York 13-392-3467 ------------------------------- -------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 7 North Street, Staten Island, New York, 10302-1205 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (718) 442-7000 -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes |_| No |_| APPLICABLE ONLY TO CORPORATE REGISTRANTS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 100 Shares of Common Stock, no par value. ================================================================================ TABLE OF CONTENTS PART I. Financial Information Page ---- ITEM 1. Financial Statements: Consolidated Balance Sheets at September 30, 2001 (unaudited) and June 30, 2001 (audited) ........................... 1 Consolidated Statements of Operations for the Three Month Periods Ended September 30, 2001 (unaudited) and 2000 (unaudited) .................................. 2 Consolidated Statements of Stockholder's Equity for the Three Months Ended September 30, 2001 (unaudited) ......... 3 Consolidated Statements of Cash Flows for the Three Month Periods Ended September 30, 2001 (unaudited) and 2000 (unaudited) .................................. 4 Notes to Consolidated Financial Statements (unaudited) ............... 5-7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................... 8-9 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ....................................................... 9-10 PART II. Other Information 11 Signatures ................................................................ 12 Index to Exhibits ......................................................... E-1 Atlantic Express Transportation Corp. and Subsidiaries Consolidated Balance Sheets September 30, June 30, 2001 2001 ------------ ---------- (unaudited) (audited) Assets Current: Cash and cash equivalents .................... $ 1,046,820 $ 1,909,719 Current portion of marketable securities ..... 5,920,000 5,282,000 Accounts receivable, net of allowance for doubtful accounts ...................... 60,911,450 69,699,369 Inventories .................................. 11,078,259 14,484,980 Notes receivable ............................. 40,337 33,459 Prepaid expenses and other current assets .... 22,425,197 17,067,262 ------------ ------------ Total current assets ..................... 101,422,063 108,476,789 ------------ ------------ Property, plant and equipment, at cost, less accumulated depreciation ................ 181,694,399 175,655,190 ------------ ------------ Other assets: Goodwill, net ................................ 11,410,221 11,491,698 Investments .................................. 488,150 488,150 Marketable securities, net of current portion 4,520,822 6,697,337 Transportation contract rights, net .......... 19,031,533 19,577,871 Deferred financing and organization costs, net 7,937,739 8,791,385 Due from parent company ...................... 735,937 805,540 Notes receivable ............................. 155,982 166,541 Deposits and other noncurrent assets ......... 3,594,079 3,540,280 Deferred tax assets .......................... 16,969,249 10,045,465 Covenant not to compete, net ................. 351,000 395,000 ------------ ------------ Total other assets ....................... 65,194,712 61,999,267 ------------ ------------ $348,311,174 $346,131,246 ============ ============ Liabilities and Stockholder's Equity Current: Current portion of long-term debt ............ $ 3,543,356 $ 1,795,144 Insurance financing payable .................. 14,501,736 9,724,226 Accounts payable ............................. 5,951,149 4,607,497 Accrued compensation ......................... 10,708,792 10,114,488 Current portion of insurance reserve ......... 6,340,000 6,330,000 Accrued interest ............................. 3,644,328 6,841,781 Other accrued expenses and current liabilities 15,863,428 11,809,590 ------------ ------------ Total current liabilities ................ 60,552,789 51,222,726 ------------ ------------ Long-term debt, net of current portion .......... 241,030,672 244,637,001 ------------ ------------ Premium on bond issuance ........................ 424,620 470,115 ------------ ------------ Other long-term liabilities ..................... 2,668,968 1,873,272 ------------ ------------ 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 ................... 62,198,517 56,698,517 Accumulated deficit .......................... (15,913,646) (7,487,911) Accumulated other comprehensive loss ......... (2,900,746) (1,532,474) ------------ ------------ Total stockholder's equity ............... 43,634,125 47,928,132 ------------ ------------ $348,311,174 $346,131,246 ============ ============ The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 1 Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Operations Three Months Ended September 30, -------------------------------- 2001 2000 ------------- ------------- (unaudited) Revenues: Transportation Operations ............... $ 59,825,490 $ 61,241,364 Bus Sales Operations .................... 35,702,096 39,062,804 ------------- ------------- Total revenues ............................. 95,527,586 100,304,168 ------------- ------------- Costs and expenses: Cost of operations - Transportation Operations ............................ 57,443,947 55,422,503 Cost of operations - Bus Sales Operations ............................ 32,572,649 35,716,354 General and administrative .............. 7,280,035 7,055,299 Depreciation and amortization ........... 6,382,418 5,903,103 ------------- ------------- Total operating costs and expenses ......... 103,679,049 104,097,259 ------------- ------------- Loss from operations ................ (8,151,463) (3,793,091) Interest expense (net) ..................... (7,071,451) (6,889,580) Other expense .............................. (96,605) (125,001) ------------- ------------- Loss before benefit from income taxes ...................... (15,319,519) (10,807,672) Benefit from income taxes .................. 6,893,784 4,863,453 ------------- ------------- Net loss ................................... $ (8,425,735) $ (5,944,219) ============= ============= The accompanying notes to consolidated financial statements are an integral part of these statements. 2 Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Stockholder's Equity Three months ended September 30, 2001
Accumulated Additional other Common stock paid-in Accumulated comprehensive Comprehensive no par value capital deficit loss loss Total ------------ ---------- ----------- ------------- ------------- ----------- Balance, June 30, 2001 .... $250,000 $56,698,517 $ (7,487,911) $(1,532,474) $47,928,132 Contribution from parent company ................ -- 5,500,000 -- -- $ -- 5,500,000 Net loss .................. -- -- (8,425,735) -- (8,425,735) (8,425,735) Unrealized loss on marketable securities .. -- -- -- (1,368,272) (1,368,272) (1,368,272) ----------- Comprehensive loss ........ -- -- -- -- $(9,794,007) -- -------- ----------- ------------ ----------- =========== ----------- Balance, September 30, 2001 $250,000 $62,198,517 $(15,913,646) $(2,900,746) $43,634,125 ======== =========== ============ =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 Atlantic Express Transportation Corp. and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended September 30, ----------------------------- 2001 2000 ------------ ------------ (unaudited) Cash flows from operating activities: Net loss .................................. $ (8,425,735) $ (5,944,219) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: (Gain) loss on sale of marketable securities and investments ................ 117,994 (86,560) Loss on sale of fixed assets ................ 11 -- Deferred income taxes ....................... (6,923,784) (4,863,453) Depreciation ................................ 5,681,378 5,238,874 Amortization ................................ 1,501,750 1,137,528 Reserve for doubtful accounts receivable ................................ 30,000 30,000 Decrease (increase) in: Accounts receivable ..................... 8,757,919 1,275,055 Inventories ............................. 3,406,721 365,732 Prepaid expenses and other current assets ........................ (5,357,935) (106,250) Deposits and other noncurrent assets .... (53,799) 631,896 Increase (decrease) in: Accounts payable ........................ 1,343,652 1,712,201 Accrued expenses and other current liabilities ........................... 1,470,689 3,749,659 Other long-term liabilities ............. 795,696 (766,156) ------------ ------------ Net cash provided by (used in) operating activities ...................... 2,344,557 2,374,307 ------------ ------------ Cash flows from investing activities: Proceeds from sale of fixed assets .......... 1,750 185,012 Additions to property, plant and equipment ............................. (11,732,346) (16,019,754) Purchase of transportation contract rights ........................... (21,786) (38,626) Due from parent company ..................... 69,603 70,912 Notes receivable ............................ 3,681 15,901 Marketable securities and investments ....... 52,249 (877,655) ------------ ------------ Net cash used in investing activities ... (11,626,849) (16,664,210) ------------ ------------ Cash flows from financing activities: Capital contributed from parent company ..... 5,500,000 -- Revolving lines of credit ................... (1,600,739) 11,753,000 Principal payments on long-term debt, net ... (257,378) (311,326) Insurance financing payable ................. 4,777,510 -- Deferred financing and organization costs ... -- (105,111) ------------ ------------ Net cash provided by financing activities ............................ 8,419,393 11,336,563 ------------ ------------ Net increase (decrease) in cash and cash equivalents ............................. (862,899) (2,953,340) Cash and cash equivalents, beginning of period .................................... 1,909,719 5,585,901 ------------ ------------ Cash and cash equivalents, end of period ....... $ 1,046,820 $ 2,632,561 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ................................ $ 9,482,261 $ 10,094,192 Income taxes ............................ 147,766 140,791 ============ ============ Supplemental schedule of noncash investing and financing activities: Loans incurred for purchase of property, plant and equipment ............. $ -- $ 88,500 The accompanying notes to consolidated financial statements are an integral part of these statements. 4 Atlantic Express Transportation Corp. and Subsidiaries Notes to Consolidated Financial Statements 1. Basis of Accounting These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's financial statements as of and for the year ended June 30, 2001 as filed on Form 10-K. In the opinion of management, all adjustments and accruals (consisting only of normal recurring adjustments) which are necessary for a fair presentation of operating results are reflected in the accompanying financial statements. Operating results for the periods presented are not necessarily indicative of the results for the full fiscal year. 2. Inventories Inventories comprised the following: September 30, June 30, 2001 2001 ------------ ----------- Parts and fuel ................. $ 5,177,288 $ 5,235,312 Buses held for sale ............ 5,900,971 9,249,668 ----------- ----------- $11,078,259 $14,484,980 =========== =========== 3. Receivable Agreement In July 2001 the Company entered into an agreement (the "Receivable Agreement") with Congress Financial Corp. ("Congress"), to sell Congress, without recourse, up to approximately $5.9 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. This Agreement which was to expire on October 31, 2001, was extended to May 31, 2002. 4. Equity Contribution In September 2001, Atlantic Express Transportation Group, Inc. ("AETG") made an additional capital contribution to the Company of $5.5 million. 5. Paratransit Agreement In August 2001, the Company signed an Assignment, Assumption and Subcontract of Paratransit Services (the "Paratransit Agreement") with the Southeastern Pennsylvania Transportation Authority ("SEPTA") and Anderson Travel, Inc. (the "Assignee") whereby the Company granted the Assignee all of its rights, obligation and interest to and under a paratransit contract with SEPTA which was due to expire on March 15, 2002 and in addition retained the Assignee to perform all of its obligations under a second paratransit contract between the Company and SEPTA which was due to expire in October 2001. The Company negotiated the Paratransit Agreement when SEPTA declined to reimburse the Company for material amounts of automobile liability insurance costs for the paratransit operations in Pennsylvania which would have caused the Company to incur significant losses in the operations of these two contracts. Revenues for these contracts totaled approximately $12.7 million and $13.0 million for the fiscal years ended June 30, 2001 and June 30, 2000, respectively. 6. Supplemental Financial Information The following are unaudited condensed consolidating financial statements regarding the Company (on a stand-alone basis and on a consolidated basis) and its subsidiaries which are guarantors and non-guarantors of the Company's 10 3/4% Senior Secured Notes due 2004 as of and for the three months ended 5 September 30, 2001, and a consolidating balance sheet as of June 30, 2001 and consolidating statements of operations and cash flows for the three months ended September 30, 2000. Condensed Consolidating Balance Sheet September 30, 2001
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Current assets ..................... $ 5,674,230 $ 90,951,131 $ 6,434,952 $ (1,638,250) $ 101,422,063 Investment in affiliates ........... 82,856,673 -- -- (82,856,673) -- Total assets ....................... 291,851,154 303,001,581 11,663,868 (258,205,429) 348,311,174 Current liabilities ................ 3,400,796 50,774,603 8,015,640 (1,638,250) 60,552,789 Total liabilities .................. 239,009,471 255,772,489 10,440,783 (200,545,694) 304,677,049 Stockholder's equity ............... 52,841,683 47,229,092 1,223,085 (57,659,735) 43,634,125
Condensed Consolidating Statement of Operations Three months ended September 30, 2001
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Net revenues ........................ $ -- $ 95,552,691 $ 1,613,145 $ (1,638,250) $ 95,527,586 Loss from operations ................ -- (8,075,274) (76,189) -- (8,151,463) Loss before income taxes ............ -- (15,243,330) (76,189) -- (15,319,519) Net loss of subsidiaries ............ (8,425,735) -- -- 8,425,735 -- Net loss ............................ (8,425,735) (8,383,831) (41,904) 8,425,735 (8,425,735)
Condensed Consolidating Statement of Cash Flows Three months ended September 30, 2001
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Net cash provided by (used in) operating activities .............. $ 7,476,492 $ (4,451,686) $ (680,249) $ -- $ 2,344,557 Net cash provided by (used in) investing activities .............. (9,415,744) (2,263,354) 52,249 -- (11,626,849) Net cash provided by (used in) financing activities .............. 1,899,261 6,520,132 -- -- 8,419,393 Increase (decrease) in cash and cash equivalents .................. (39,991) (194,908) (628,000) -- (862,899) Cash and cash equivalents, beginning of period ............... 86,000 775,719 1,048,000 -- 1,909,719 ---------------------------------------------------------------------------------- Cash and cash equivalents, end of period ..................... 46,009 580,811 420,000 -- 1,046,820
6 Condensed Consolidating Balance Sheet June 30, 2001
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Current assets ..................... $ 4,725,601 $ 100,566,814 $ 6,460,874 $ (3,276,500) $ 108,476,789 Investment in affiliates ........... 92,492,921 -- -- (92,492,921) -- Total assets ....................... 301,839,696 307,402,943 13,832,020 (276,943,413) 346,131,246 Current liabilities ................ 15,963,375 28,912,128 9,623,723 (3,276,500) 51,222,726 Total liabilities .................. 253,271,435 251,790,020 11,198,759 (218,057,100) 298,203,114 Stockholder's equity ............... 48,568,261 55,612,923 2,633,261 (58,886,313) 47,928,132
Condensed Consolidating Statement of Operations Three months ended September 30, 2000
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Net revenues ......................... $ -- $ 100,153,947 $ 1,150,079 $ (999,858) $ 100,304,168 Income (loss) from operations ........ -- (3,892,316) 99,225 -- (3,793,091) Income (loss) before income taxes .............................. -- (10,906,897) 99,225 -- (10,807,672) Net loss of subsidiaries ............. (5,944,219) -- -- 5,944,219 -- Net income (loss) .................... (5,944,219) (5,998,793) 54,574 5,944,219 (5,944,219)
Condensed Consolidating Statement of Cash Flows Three months ended September 30, 2000
Atlantic Express Non- Transportation Guarantor Guarantor Elimination Corp. Subsidiaries Subsidiaries Entries Consolidated -------------- ------------ ------------ ----------- ------------ Net cash provided by (used in) operating activities .............. $ (9,514,939) $ 11,890,591 $ (1,345) $ -- $ 2,374,307 Net cash provided by (used in) investing activities .............. (342,061) (15,444,494) (877,655) -- (16,664,210) Net cash provided by (used in) financing activities .............. 9,753,000 1,583,563 -- -- 11,336,563 Increase (decrease) in cash and cash equivalents .............. (104,000) (1,970,340) (879,000) -- (2,953,340) Cash and cash equivalents, beginning of period ............... 150,000 3,696,901 1,739,000 -- 5,585,901 -------------------------------------------------------------------------------------- Cash and cash equivalents, end of period ..................... 46,000 1,726,561 860,000 -- 2,632,561
7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company believes that this report contains forward-looking statements within the meaning of the federal securities laws and as such involve known and unknown risks and uncertainties. These statements may use forward-looking words such as "anticipate", "estimate", "expect", "will" or other similar words. These statements discuss future expectations or contain projections of future events. Actual results may differ materially from those expressed or implied by the forward-looking statements for various reasons, including general economic conditions, reliance on suppliers, labor relations and other factors, many of which are beyond the Company's control. Readers are cautioned not to place undue reliance on such forward-looking statements. Three months ended September 30, 2001 compared to three months ended September 30, 2000. Revenues. Revenues from Transportation Operations were $59.8 million for the three months ended September 30, 2001 compared to $61.2 million for the three months ended September 30, 2000, a decrease of $1.4 million or 2.3%. This decrease was due primarily to the Paratransit Agreement (see Note 5 to consolidated financial statements) which reduced revenues by $2.3 million and a $1.2 million decrease due to exit from an under-performing contract partially offset by a $0.6 million net increase in other new contracts, a $1.4 million increase in summer revenues and $0.1 million in contract rate increases and service requirements of existing contracts. Revenues from Bus Sales Operations were $35.7 million for the three months ended September 30, 2001 compared to $39.1 million for the three months ended September 30, 2000, a decrease of $3.4 million or 8.6%. This decrease was primarily due to decreases in new bus sales occurring primarily in the month of September. Gross Profit. Gross profit from Transportation Operations was $2.4 million for the three months ended September 30, 2001 compared to $5.8 million for the three months ended September 30, 2000, a decrease of $3.4 million or 59.1%. As a percentage of revenues, gross profit decreased to 4.0% for the three months ended September 30, 2001 from 9.5% for the three months ended September 30, 2000. This decrease was primarily due to increased automobile liability insurance costs (3.0%) and labor costs (2.5%) partially offset by reduced vehicle maintenance costs (1.0%). Labor costs increases resulted primarily from a reduction of two revenue days in New York City in September 2001 compared to September 2000 with no reduction in driver and escort payroll days. Gross profit from Bus Sales Operations was $3.1 million for the three months ended September 30, 2001 compared to $3.3 million for the three months ended September 30, 2000, a decrease of $0.2 million or 6.5%. As a percentage of revenues, gross profit increased to 8.8 % for the three months ended September 30, 2001 from 8.6% for the three months ended September 30, 2000. This increase was primarily due to an increase in proportion of sales made in the New York market which has historically higher margins than the New Jersey market and a decrease in proportion of sales of commercial vehicles which have lower margins than school buses. General and administrative expenses. General and administrative expenses for the Transportation Operations were $6.2 million for the three months ended September 30, 2001 compared to $6.1 million for the three months ended September 30, 2000, an increase of $0.1 million or 2.4%. This increase was primarily due to an increase of $0.3 million in professional fees partially offset by a $0.2 million decrease in advertising and recruitment expenses. As a percentage of revenues, general and administrative expenses increased to 10.4% for the three months ended September 30, 2001 from 9.9% for the three months ended September 30, 2000. General and administrative expenses for the Bus Sales Operations for the three months ended September 30, 2001 were $1.1 million compared to $1.0 million for the three months ended September 30, 2000, an increase of $0.1 million or 7.8%. As a percentage of revenues, general and administrative expenses increased to 3.0% for the three months ended September 30, 2001 from 2.5% for the three months ended September 30, 2000. Depreciation and amortization expenses. Depreciation and amortization expenses for the Transportation Operations were $6.2 million for the three months ended September 30, 2001 compared to $5.7 million for the three months ended September 30, 2000, an increase of $0.5 million or 8.5%. This increase was primarily due to (i) a $0.2 million increase in depreciation relating to purchase of new vehicles; and (ii) a $0.3 million increase in amortization of deferred financing costs. Depreciation and 8 amortization expenses for the Bus Sales Operations were $0.2 million for the three months ended September 30, 2001 and September 30, 2000, respectively. Loss from operations. Loss from operations was $8.2 million for the three months ended September 30, 2001 compared to $3.8 million for the three months ended September 30, 2000, an increase of $4.4 million. This increase was due to the net effect of the items discussed above. Net interest expense. Net interest expense was $7.1 million for the three months ended September 30, 2001 compared to $6.9 million for the three months ended September 30, 2000, an increase of $0.2 million or 2.6%. This increase was due primarily to higher average indebtedness outstanding during the three months ended September 30, 2001, partially offset by reductions in interest rates. Net loss. The Company generated a net loss of $8.4 million for the three months ended September 30, 2001 compared to a net loss of $5.9 million for the three months ended September 30, 2000, an increase of $2.5 million. This increase was due to the net effect of the items discussed above. Liquidity and Capital Resources Management anticipates total capital expenditures of $18.5 million in fiscal 2002 of which approximately $11.7 million were made by September 30, 2001. This included approximately $9.2 million for purchase of new vehicles and $2.5 million for other property and equipment. Net Cash Provided By Operating Activities. Net cash provided by operating activities of $2.3 million for the three months ended September 30, 2001 resulted primarily from $9.6 million of increases in source of funds for working capital plus non-cash items of depreciation and amortization of $7.2 million and $0.8 million of increases in other sources of funds offset by (i) the net loss of $8.4 million; and (ii) a $6.9 million increase in deferred income tax asset. Net Cash Used in Investing Activities. For the three months ended September 30, 2001, the Company made $11.7 million of capital expenditures to acquire additional vehicles, other property and equipment. Net Cash Provided by Financing Activities. Net cash provided by financing activities totaled $8.4 million for the three months ended September 30, 2001, due primarily to (i) a $5.5 million capital contribution from the Company's parent, AETG; and (ii) $4.8 million of insurance premium financing, partially offset by a $1.6 million net reduction in the Company's revolving lines of credit and $0.3 million of principal payments on borrowings. The Company continues to experience higher automobile liability insurance costs which are impacting profit margins. The first quarter is historically the period of the Company's greatest use of its revolving line of credit due to the purchase of vehicles for the upcoming school year and seasonal lower revenues in this quarter. The Company believes that its Receivable Agreement along with its borrowing capacity under its $125 million revolving credit facility (of which $9.9 million was undrawn at September 30, 2001), and the equity contribution received from AETG in September 2001 will provide it with sufficient liquidity to conduct its operations for the balance of the year. At September 30, 2001, the Company's total debt and stockholder's equity were $244.6 million and $43.6 million respectively. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from fluctuations in interest rates, which could impact its consolidated financial position, results of operations and cash flows. The Company manages the exposure to market risk through its regular operating and financing activities. The Company does not use derivative 9 financial instruments for speculative or trading purposes and does not maintain such instruments that may expose it to significant market risk. Our earnings are sensitive to changes in short-term interest rates as a result of our borrowings under variable rate debt. If interest rates increase by 10 percent for the year ending June 30, 2002, our interest expense would increase, and income before income taxes would decrease, by approximately $0.9 million. This analysis does not consider the effects of the reduced level of overall economic activity, or other factors that could exist in such an environment. Further, in the event of a change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure. In addition, the Company manages its fuel costs to reduce its exposure to market changes. Fuel costs are sensitive to market changes as well as the overall growth or decline of the Company's business. Changes in fuel costs would result in an increase or decrease in the Company's gross margin percentage. Based on a hypothetical 10 percent increase in fuel costs for the year ended June 30, 2001, the total costs would be equivalent to an increase in cost of $1.6 million, or .37% of total revenues. 10 PART II OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a) Exhibits See Exhibit Index on Page E-1 for exhibits filed with this report on Form 10-Q. b) Reports on Form 8-K - None. 11 SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized. ATLANTIC EXPRESS TRANSPORTATION CORP. By: /s/ NATHAN SCHLENKER --------------------------------- Nathan Schlenker Chief Financial Officer November 19, 2001 12 Index to Exhibits The following documents are exhibits to this Quarterly Report on Form 10-Q. For convenient reference, each exhibit is listed according to the Exhibit Table of Regulation S-K. The page number, if any, listed opposite an exhibit indicates the page number in the sequential numbering system on the manually signed original of this Quarterly Report on Form 10-Q where such exhibit can be found. Exhibit Sequential Page Number Exhibit Number ------ ------- ------ None E-1