UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One):
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 29, 1996
( ) 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: 1-14134
UNITED TRANSNET, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-2198204
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1080 Holcomb Bridge Road, Building 200, Suite 140, Roswell, Georgia 30076
(Address of principal executive offices) (Zip Code)
(770) 518-1180
(Registrant's telephone number, including area code)
Not Applicable
(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 __
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practicable date.
Class Shares outstanding at August 7, 1996
- --------------------------------- -------------------------------------------
Common Stock, $.001 par value 9,380,946
Exhibit Index located on page 19
<PAGE>
UNITED TRANSNET, INC.
INDEX
Page No.
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
as of June 29, 1996 and December 31, 1995 1
UNITED TRANSNET, INC.
For the Three and Six Months Ended June 29, 1996 and
COMBINED FOUNDING COMPANIES For the Three and Six Months
Ended June 30, 1995
Consolidated Statements of Operations 2
UNITED TRANSNET, INC.
For the Six Months Ended June 29, 1996 and COMBINED
FOUNDING COMPANIES For the Six Months Ended June 30, 1995
Consolidated Statements of Cash Flows 3
Consolidated Statements of Stockholders' Equity
as of June 29, 1996 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
<TABLE>
<CAPTION>
UNITED TRANSET, INC.
CONSOLIDATED BALANCE SHEETS
June 29, December 31,
1996 1995
(Unaudited) (Audited)
(Thousands of dollars, except share information)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,632 $ 2,330
Accounts receivable, less allowance of $536 for June 29, 1996
and $654 for December 31, 1995 26,757 20,512
Short-term investments - 2
Prepaids and other assets 5,336 2,644
Income taxes receivable 487 198
Deferred tax asset 444 -
--------- ---------
Total current assets 34,656 25,686
Property and equipment, net 9,633 10,332
Goodwill, net 27,999 16,429
Other intangible assets, net 7,658 8,340
Other assets 7,324 5,661
Deferred tax assets 3,255 3,982
--------- ---------
Total assets $ 90,525 $ 70,430
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 1,343 $ 1,500
Dividends payable - 402
Accounts payable 11,637 9,105
Accrued liabilities 11,059 13,644
Income taxes payable 130 727
Deferred tax liabilities 132 76
Total current liabilities 24,301 25,454
--------- ---------
Long-term debt, net of current maturities 30,276 24,811
Deferred compensation 1,969 487
Other liabilities 4,359 3,501
--------- ---------
Total liabilities 60,905 54,253
--------- ---------
<CAPTION>
Share Information
Stockholders' equity 1996 1995
--------- ---------
<S> <C> <C> <C> <C>
Preferred stock:
Par value $0.001 $0.001
Shares authorized 1,000,000 1,000,000
Shares issued and outstanding - - - -
Common stock:
Par value $ 0.001 $0.001
Shares authorized 25,000,000 25,000,000
Shares issued and outstanding 9,377,448 8,617,222 9 9
Paid-in capital 26,905 14,664
Retained earnings 2,706 1,504
--------- ---------
Total stockholders' equity 29,620 16,177
--------- ---------
Commitments and contingencies - -
Total liabilities and stockholders' equity $ 90,525 $ 70,430
========= =========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
<TABLE>
<CAPTION>
UNITED TRANSNET, INC.
For the Three and Six Months Ended June 29, 1996 and
COMBINED FOUNDING COMPANIES
For the Three and Six Months Ended June 30, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 29 June 30, June 29. June 30,
1996 1995 1996 1995
---------- ---------- ---------- ---------
(Unaudited) (Unaudited) (Unaudited) (Audited)
(Thousands of dollars, except share information)
<S> <C> <C> <C> <C>
Net revenues $ 71,511 $ 63,570 $ 137,766 $ 123,670
Cost of delivery 53,845 46,181 102,377 89,837
---------- ---------- ---------- -----------
Gross profit 17,666 17,389 35,389 33,833
Selling, general and administrative expenses 16,928 13,800 30,585 26,570
Amortization of intangible assets 807 810 1,554 1,615
---------- ---------- ---------- -----------
Operating income (69) 2,779 3,250 5,648
Other income (expense)
Interest expense (799) (1,314) (1,428) (2,528)
Interest income and other, net 17 66 38 122
---------- ---------- ---------- -----------
Income (Loss) before income taxes (851) 1,531 1,860 3,242
Provision (benefit) for income taxes (356) 414 739 682
---------- ---------- ---------- -----------
Net income (loss) (495) 1,117 1,121 2,560
Warrant accretion - (3,430) - (3,957)
---------- ---------- ---------- -----------
Net income (loss) available for common stockholders $ (495) $ (2,313) $ 1,121 $ (1,397)
========== ========== ========== ===========
Earnings (Loss) per common share:
Net income (loss) $ (0.05) $ 0.12
Unaudited pro forma information:
Net income before income taxes $ 1,531 $ 3,242
Provision for income taxes $ 1,016 $ 1,795
---------- -----------
Net income $ 515 $ 1,447
========== ===========
Earnings per common share:
Net income before income taxes $ 0.20 $ 0.42
Provision for income taxes $ 0.13 $ 0.23
---------- -----------
Net income $ 0.07 $ 0.19
Weighted average shares outstanding 9,228,116 7,805,409 9,349,593 7,805,409
========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statments
2
<PAGE>
<TABLE>
<CAPTION>
UNITED TRANSNET, INC.
For the Six Months Ended June 29, 1996 and
COMBINED FOUNDING COMPANIES
for the Six Months Ended June 30, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 29, June 30,
1996 1995
----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,121 $ 2,560
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization 1,521 1,774
Provision for bad debts 25 44
Amortization of goodwill and other intangible assets 1,554 1,615
Amortization of discount on long-term debt -- 484
Deferred income taxes 950 331
Loss on sale of assets -- 28
Non-cash employee compensation -- 647
Change in operating assets and liabilities:
Accounts receivable (4,717) (724)
Prepaid & other assets, current and noncurrent (4,284) 1,181
Income tax receivable (45) --
Accounts payable 2,250 1,374
Accrued liabilities (3,259) (2,836)
Dividend payable (402) --
Income taxes payable (642) 91
Deferred compensation 1,482 (62)
------- -------
Net cash provided by (used in) operating activities (4,446) 6,507
------- -------
Cash flows from investing activities
Capital expenditures, net of disposals (443) (1,804)
Sale (purchase) of short term investments 2 (100)
Purchase of companies, net of cash acquired (12,716) (3,502)
------- -------
Net cash used in investing activities (13,157) (5,406)
------- -------
Cash flows from financing activities
Net increase (decrease) in line of credit 6,428 (725)
Payments of debt (1,689) (3,680)
Proceeds from issuance of debt -- 5,609
Distributions to stockholder -- (1,025)
Net transactions with Lanter -- (1,144)
Exercise of common stock options 84 --
Issuance of common stock pursuant to overallotment option 6,182 --
Issuance of common stock in connection with business combinations 5,900 --
------- -------
Net cash provided by (used in) financing activities 16,905 (965)
------- -------
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents (698) 136
Beginning of period 2,330 4,019
End of period $ 1,632 $ 4,155
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 1437 $ 1,405
Income taxes 325 330
Disclosure of noncash investing and financing activities
Net transfers of property -- (26)
Note receivable from related party -- 115
Stock grants to key employees 647
Supplemental schedule of noncash investing and financing activities
In connection with a Founding Company's acquisitions, liabilities were
assumed as follows:
Fair value of aasets acquired 3,150
Cash paid for capital stock and assets (2,881)
-------
Liabilities assumed 269
In connection with United TransNet's acquisitions, liabilities were =======
assumed as follows:
Fair value of assets acquired $14,289
Proceeds paid for capital stock and assets (12,731)
-------
Liabilities assumed $ 1,558
=======
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
UNITED TRANSNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
(Thousands of dollars except share information)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (Audited) 8,617,222 $9 $14,664 $1,504 $16,177
(Unaudited)
Stockholders' equity of pooled acquisition
not restated 58,252 - 75 81 156
Common stock issued for purchase
accounting acquisitions 226,921 - 5,900 - 5,900
Exercise of common stock options 16,653 - 84 - 84
Exercise of overallotment option 458,400 - 6,182 - 6,182
Net income - - - 1,121 1,121
--------- ----- ------- ------ -------
Balance at June 29, 1996 9,377,448 $9 $26,905 $2,706 $29,620
========= ===== ======= ====== =======
</TABLE>
4
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and Organization
United TransNet, Inc. (the "Company") provides scheduled and unscheduled ground
and air delivery services for local, regional, national, and international
shipments and offers same-day and next-day delivery options. Primary customers
of the Company are financial institutions, pharmaceutical companies and
automotive parts suppliers.
The Company was formed by the mergers (the "Mergers") of CDG Holding Corp. and
its operating subsidiary, Courier Dispatch Group, Inc. (collectively "Courier
Dispatch"); Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film
Transit"); Lanter Courier Corporation ("Lanter"); Salmon Acquisition Corporation
and its operating subsidiary, Sunbelt Courier, Inc. (collectively "Sunbelt");
and 3D Distribution Systems, Inc. and its affiliated corporations and
subsidiaries (collectively "3D") (collectively the "Founding Companies"). Under
the merger agreements, all outstanding shares of the Founding Companies' capital
stock were converted into shares of the Company's Common Stock concurrent with
the consummation of the initial public offering ("Offering") of such Common
Stock. The Founding Companies are considered predecessor companies to the
Company. The Mergers were accounted for in a manner similar to
poolings-of-interest and, accordingly, the assets and liabilities of the
Founding Companies were transferred at their historical amounts. Prior to the
Mergers, the Company had no significant transactions or operations.
Note 2 - Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated financial statements for the
three and six months ended June 29, 1996 and for the three months ended June 30,
1995 included in this report have not been audited. In the opinion of
management, all adjustments necessary for a fair presentation of the financial
positions and results of operations for the interim periods have been made. All
such adjustments are of a normal recurring nature. Results of operations for the
three and six months periods ended June 29, 1996 are not necessarily indicative
of the results of operations for the year ending December 28, 1996 or any
interim periods. While certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, the Company believes that
the disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
1995 Annual Report on Form 10-K.
On January 16, 1996, the Company changed its fiscal year end from December 31 to
the last Saturday in December, beginning with the fiscal year ending December
28, 1996. Each of the Company's fiscal quarters will end on the last Saturday of
the last month of each calendar quarter.
There have been no changes to the accounting policies of the Company during the
periods presented. For a description of these policies, see Note 1 of the Notes
to Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
5
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Basis of Presentation (continued)
Certain of the Founding Companies were S corporations during the period ended
June 30, 1995 and, accordingly were not subject to corporate income taxes. The
unaudited pro forma information is presented for the purpose of reflecting a
provision for income taxes as if all of the Founding Companies had been subject
to income tax for all periods presented, calculated in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, based on
tax laws that were in effect during the respective periods.
Note 3 - Earnings/(Loss) Per Common Share
Earnings/(Loss) per common share for the three and six month periods ending June
29, 1996 were computed based on the weighted average of common and common
equivalent shares outstanding during the periods. Pro forma earnings per common
share for the three and six months periods ending June 30, 1995 were computed
based on common equivalent shares outstanding as if the Mergers and Offering had
been consummated.
6
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 4 - Combined Founding Companies
The Combined Founding Companies collectively are considered predecessors to the
Company. The following tables provide a reconciliation to the Combined Founding
Companies' Consolidated Statements of Operations for the three and six months
ended June 30, 1995.
<TABLE>
<CAPTION>
COMBINED FOUNDING COMPANIES
For the Three Months Ended June 30, 1995
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
CDG 3D Film The Districts of Salmon Tricor Combined
Holding Distribution Transit Lanter Acquisition America Founding
Corp. Systems, Inc. Incorporated Courier Corp. Corp. Inc. Companies
------- ------------- ------------ ---------------- ----------- ------- ---------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 34,529 $ 3,730 $ 5,991 $ 5,641 $ 4,260 $ 9,419 63,570
Cost of delivery 25,618 2,568 3,899 4,147 3,351 6,598 46,181
-------- ------- ------- ------- ------- ------- --------
Gross profit 8,911 1,162 2,092 1,494 909 2,821 17,389
Selling, general and
administrative expenses 7,568 1,117 1,888 983 561 1,683 13,800
Amortization of intangible assets 630 - - 96 75 9 810
-------- ------- ------- ------- ------- ------- --------
Operating income 713 45 204 415 273 1,129 2,779
Other income (expense)
Interest expense (1,113) (17) (14) - (107) (63) (1,314)
Interest income and other, net - - 17 - 8 41 66
-------- ------- ------- ------- ------- ------- --------
Income before income taxes (400) 28 207 415 174 1,107 1,531
Provision (benefit) for income taxes 271 (22) 78 - 87 - 414
-------- ------- ------- ------- ------- ------- --------
Net income (loss) (671) 50 129 415 87 1,107 1,117
Warrant accretion (3,430) - - - - - (3,430)
-------- ------- ------- ------- ------- ------- --------
Net income (loss) available for common
stockholders $ (4,101) $ 50 $ 129 $ 415 $ 87 $ 1,107 $ (2,313)
======== ======= ======= ======= ======= ======= ========
Unaudited pro forma information:
Net income (loss) before income taxes $ (400) $ 28 $ 207 $ 415 $ 174 $ 1,107 $ 1,531
Provision (benefit) for income taxes 271 (22) 78 165 87 437 1,016
-------- ------- ------- ------- ------- ------- --------
Net income (loss) $ (671) $ 50 $ 129 $ 250 $ 87 $ 670 $ 515
======== ======= ======= ======= ======= ======= ========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 4 - Combined Founding Companies (continued)
COMBINED FOUNDING COMPANIES For the
Six Months Ended June 30, 1995
CONSOLIDATED STATEMENT OF OPERATIONS
(Audited)
CDG 3D Film The Districts of Salmon Tricor Combined
Holding Distribution Transit Lanter Acquisition America Founding
Corp. Systems, Inc. Incorporated Courier Corp. Corp. Inc. Companies
------- ------------- ------------ ---------------- ----------- ------- ---------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 66,819 $ 7,422 $11,685 $11,170 $ 8,251 $18,323 $123,670
Cost of delivery 49,231 5,135 7,865 8,281 6,425 12,900 89,837
-------- ------- ------- ------- ------- ------- --------
Gross profit 17,588 2,287 3,820 2,889 1,826 5,423 33,833
Selling, general and
administrative expenses 14,498 2,083 3,535 1,953 1,114 3,387 26,570
Amortization of intangible assets 1,256 - - 191 150 18 1,615
-------- ------- ------- ------- ------- ------- --------
Operating income 1,834 204 285 745 562 2,018 5,648
Other income (expense)
Interest expense (2,145) (38) (25) - (214) (106) (2,528)
Interest income and other, net - - 25 - 15 82 122
-------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes (311) 166 285 745 363 1,994 3,242
Provision for income taxes 369 36 111 - 166 - 682
-------- ------- ------- ------- ------- ------- --------
Net income (loss) (680) 130 174 745 197 1,994 2,560
Warrant accretion (3,957) - - - - - (3,957)
-------- ------- ------- ------- ------- ------- --------
Net income (loss) available for common
stockholders $ (4,637) $ 130 $ 174 $ 745 $ 197 $ 1,994 $ (1,397)
======== ======= ======= ======= ======= ======= ========
Unaudited pro forma information:
Net income (loss) before income taxes $ (311) $ 166 $ 285 $ 745 $ 363 $ 1,994 $ 3,242
Provision (benefit) for income taxes 369 36 111 303 166 810 1,795
-------- ------- ------- ------- ------- ------- --------
Net income (loss) $ (680) $ 130 $ 174 $ 442 $ 197 $ 1,184 $ 1,447
======== ======= ======= ======= ======= ======= ========
</TABLE>
Note 5 - Business Combinations
During the second quarter of 1996, the Company completed the acquisition of
Statewide Delivery Service, Inc. ("Statewide"), M & R Express, Inc. ("M & R"),
Carl Messenger Service, Inc. ("Carl"), and Eddy Messenger Service, Inc.
("Eddy").
Effective April 30, 1996, the Company acquired certain assets and assumed
certain liabilities of Statewide. The acquisition was accounted for under the
purchase method; as such, the results of operations of Statewide are included in
the Company's consolidated financial statements for the period subsequent to its
acquisition date. The excess of the purchase price over the estimated fair value
of the tangible and identifiable intangible assets acquired is amortized over a
period of twenty-five years using the straight-line method.
8
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - Business Combinations (continued)
Effective as of April 30, 1996, the Company acquired certain assets and assumed
certain liabilities of M & R. Under the terms of the purchase agreement, the
Company may be required to make additional payments beginning in 1997 based on
revenues obtained by M & R during the four year period ending April 30, 2000 for
services provided to a certain business not previously served by M & R. The
acquisition was accounted for under the purchase method; as such, the results of
operations of M & R are included in the Company's consolidated financial
statements for the period subsequent to its acquisition date. The excess of the
purchase price over the estimated fair value of the tangible and identifiable
intangible assets acquired is amortized over a period of twenty-five years using
the straight-line method. Any future amounts earned by M & R under the terms of
the agreement will be recorded as additional cost in excess of the assets
acquired.
Effective May 10, 1996, the Company acquired all of the outstanding stock of
Carl. The acquisition of Carl was accounted for as a pooling-of-interest;
however, the Company's previously reported consolidated financial results have
not been restated to include the effect of the acquisition prior to its
acquisition date, since the effect is not material.
Effective May 14, 1996, the Company acquired all of the outstanding stock of
Eddy. Under the terms of the purchase agreement, the Company may be required to
make additional payments beginning in 1997 contingent upon Eddy achieving
certain revenue levels during the three-year period ending May 14, 1999. The
acquisition was accounted for under the purchase method; as such, the results of
operations of Eddy's are included in the Company's consolidated financial
statements for the period subsequent to its acquisition date. The excess of the
purchase price over the estimated fair value of the tangible and identifiable
intangible assets acquired is amortized over a period of twenty-five years using
the straight-line method. Any future payments earned under by Eddy the terms of
the agreement will be recorded as additional costs in excess of the assets
acquired.
Consideration for all acquisitions during the second quarter of 1996 aggregated
approximately $6.90 million in cash and 285,173 shares of the Company's common
stock with a total market value at the time of issuance of approximately $7.4
million with contingent consideration of up to $4.25 million. Total intangible
assets recognized in these transactions were approximately $12.3 million.
Set forth below are pro forma combined revenue and income data reflecting the
effect of these acquisitions on the Company's results of operations for the six
months ended June 29, 1996 and June 30, 1995. The data presented below consist
of the income statement data as presented in the Consolidated Statements of
Operations and the income data of the companies acquired in the second quarter
of 1996, as if the acquisition of such companies were effective as of the first
day of the year being reported.
For the Six Months Ended
June 29, June 30,
1996 1995
(In thousands except share data)
Net revenues $145,860 $134,989
Net income 445 1,088
Earnings per share .05 .13
9
<PAGE>
UNITED TRANSNET, INC.
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements of the Company and the related Notes thereto
appearing elsewhere in this Quarterly Report. Simultaneously with the closing of
the Company's Offering in December 1995, separate wholly-owned subsidiaries of
the Company merged with each of the six Founding Companies. Prior to the
Mergers, each of the Founding Companies operated as a separate independent
entity. For the three and six months periods ended June 30, 1995, the Combined
Financial Statements include the accounts of the Founding Companies as if the
Founding Companies had always been members of the same operating group without
giving effect to the Mergers or the Offering. As a result, combined results may
not be comparable to or indicative of future performance.
During the second quarter of 1996, the Company completed the acquisition of four
courier operations. The acquired companies consist of the following: Statewide
Delivery Service located in Boston, Massachusetts; Carl's Messenger Service
located in Baltimore, Maryland; M & R Express Delivery Service headquarted in
Hartford Connecticut; and Eddy Messenger Service headquartered in White Plains,
New York. The aggregate value of these transactions was approximately $14.30
million, excluding certain contingent payments based on future performance and
includes the issuance of 285,173 shares of Common Stock with a value at the time
of issuance of approximately $7.40 million and the payment of approximately
$6.90 million in cash. The transaction involving Carl Messenger Service was
accounted for as a pooling-of-interest; however, the Company's previously
reported consolidated financial results have not been restated to include the
effect of this transaction, since the effect is not material. Note 5, "Business
Combinations," of the Notes to Consolidated Financial Statements, included
elsewhere in this report, provides additional information regarding these
business combinations. Additionally during the second quarter of 1996, the
Company took special charges, on a pre-tax basis, of approximately $1.81
million. The special charges primarily consisted of a $1.41 million accrual of
severance cost related to the reduction in staffing throughout the Company as
part of its ongoing consolidation of the Founding Companies and approximately
$400,000 in expenses related to terminated merger discussions.
The Company reported earnings/(loss) per share for the three and six months
ended June 29, 1996 of ($.05) and $.12, respectively. Excluding consideration
for the special charges discussed above, the Company would have reported
earnings per share of $.06 and $.24, respectively, for the three and six months
ended June 29, 1996. Pro forma earnings per share for the three and six months
ended June 30, 1995 for the Combined Founding Companies and reflecting income
tax provisions as if all of the Founding Companies had been subject to tax was
$.07 and $.19, respectively.
Inclusion of Forward Looking Statements
Certain statements in this Quarterly Report which do not pertain to historical
facts may be deemed to be forward- looking statements, as defined in the Private
Securities Litigation Reform Act of 1995, and therefore may involve risks and
uncertainties. Among these risks are that the Company is in a highly competitive
business, has little combined operating history, is in the process of
integrating its operations (including acquisitions subsequent to the Mergers),
and is simultaneously pursuing an aggressive acquisition strategy. There can be
no assurance that in its highly competitive business environment, the Company
will successfully combine its operations, or achieve anticipated levels of
profitability, or that new contracts will increase the Company's revenues as
expected. Additionally, there can be no assurance that the Company will
consummate proposed acquisitions, or that acquisitions will produce returns that
justify the investment therein. There can be no assurance that the events or
results described in any forward-looking statement included in this Quarterly
Report will occur, and actual events or results may vary materially from those
included herein.
10
<PAGE>
Results of Operations
Three Months ended June 29, 1996 and June 30, 1995
The following table sets forth various items as a percentage of revenues:
For the Three Months Ended
June 29, June 30,
1996 1995
-------- ---------
Net revenue 100.0% 100.0%
Cost of delivery 75.30% 72.65%
-------- --------
Gross profit 24.70% 27.35%
Selling, general and administrative expenses 23.67% 21.71%
Amortization 1.13% 1.27%
-------- --------
Operating income (loss) (.10)% 4.37%
Interest expense 1.12% 2.07%
Interest income and other, net .02% .11%
-------- --------
Income (Loss) before income taxes (1.20)% 2.41%
======== ========
Net revenues increased $7.94 million or 12.49% to $71.51 million for the three
months ended June 29, 1996 from $63.57 million for the three months ended June
30, 1995. Of this $7.94 million net increase, $3.73 million was attributable to
the acquisitions which were previously discussed. The remaining net increase of
$4.21 million was primarily attributable to internal growth through additions to
the customer base and increases in business with existing customers.
Cost of delivery increased $7.66 million or 16.60% to $53.84 million for the
three months ended June 29, 1996 from $46.18 million for the three months ended
June 30, 1995. Of this $7.66 million increase, $2.75 million was attributable to
acquisitions made by the Company during the second quarter of 1996. Cost of
delivery as a percentage of revenues increased to 75.30% for the three months
ended June 29, 1996 from 72.65% for the three months ended June 30, 1995. This
deterioration in margin was primarily attributable to a 2.20% increase, as a
percentage of revenue, in purchased transportation and .90% and .40% increase,
as a percentage of revenue, in insurance and accident costs and fuel expense,
respectively. These increases were partially offset by a .90% decrease, as a
percentage of revenue, in courier payroll expense for 1996. The increase in
purchased transportation was due to the increased use of outside agents. The
increase in the accrual for insurance and accident costs was based on higher
frequency and loss amounts experienced in 1996 as compared to 1995. The increase
in fuel expense is due to higher fuel prices experienced throughout the United
States.
Selling, general and administrative ("SG & A") expenses increased $3.13 million
or 22.67% to $16.93 million for the three months ended June 29, 1996 from $13.80
million for the three months ended June 30, 1995. Of the $3.13 million increase,
$1.41 million was attributable to the Company terminating employment agreements
with certain officers of the Company during the second quarter of 1996, as
discussed previously. Additionally, the Company incurred charges of
approximately $400,000 related to terminated merger discussions, as discussed
previously. Excluding these special charges, SG & A expenses increased $1.32
million or 9.56% as compared to the three months ended June 30, 1995. Of the
$1.32 million increase, approximately $644,000 was attributable to acquisitions.
The remaining increase of approximately $676,000 was due to generally increased
expenditures and additional payroll expense to support the higher level of
revenues and increased administrative costs of operating as a public company. SG
& A expenses as a percentage of revenue were 21.70 % for the three months ended
June 29, 1996, excluding the special charges, compared to 21.71% for the
corresponding period in 1995.
Interest expense decreased to $0.80 million for the three months ended June 29,
1996 from $1.31 million for the three months ended June 30, 1995. The decrease
is a result of a decrease of approximately $8.00 million in the average debt
outstanding between periods. The decrease in the average balance was due to the
use of the Offering proceeds to repay a portion of the indebtedness of the
Company.
The effective tax rate was 41.84% for the three months ended June 29, 1996
compared to a pro forma effective tax rate of 66.41% for the three months ended
11
<PAGE>
June 30, 1995. The decrease is the result of relatively constant federal
nondeductible items creating a disproportionately higher taxable income for the
three months ended June 30, 1995, as compared to the three months ended June 29,
1996.
Six Months ended June 29, 1996 and June 30, 1995
The following table sets forth various items as a percentage of revenues:
For the Six Months Ended
June 29, June 30,
1996 1995
-------- ---------
Net revenue 100.0% 100.0%
Cost of delivery 74.31% 72.64%
-------- --------
Gross profit 25.69% 27.36%
Selling, general and administrative expenses 22.20% 21.48%
Amortization 1.13% 1.31%
-------- --------
Operating income 2.36% 4.57%
Interest expense 1.04% 2.04%
Interest income and other, net .03% .09%
Income before income taxes 1.35% 2.62%
======== ========
Net revenues increased $14.10 million or 11.40% to $137.77 million for the six
months ended June 29, 1996 from $123.67 million for the six months ended June
30, 1995. Of this $14.10 million net increase, $3.73 million was attributable to
acquisitions made by the Company, as previously discussed. Approximately $3.20
million of the increase is due to an acquisition by a Founding Company which
occurred in May of 1995. The remaining net increase of $7.17 million was
primarily attributable to internal growth through additions to the customer base
and increases in business with existing customers.
Cost of delivery increased $12.54 million or 13.96% to $102.38 million for the
six months ended June 29, 1996 from $89.84 million for the three months ended
June 30, 1995. Of this $12.54 million increase, $2.75 million was attributable
to acquisitions made by the Company during the second quarter of 1996. Cost of
delivery as a percentage of revenues increased to 74.31% for the six months
ended June 29, 1996 from 72.64% for the six months ended June 30, 1995. The
deterioration in margin was due to a 2.00% increase, as a percentage of
revenues, in purchased transportation costs as a result of an increase in the
use of outside agents.
Selling, general and administrative ("SG & A") expenses increased $4.02 million
or 15.11% to $30.59 million for the six months ended June 29, 1996 from $26.57
million for the six months ended June 30, 1995. Of the $4.02 million increase,
$1.41 million was attributable to the Company terminating employment agreements
with certain officers of the Company during the second quarter of 1996, as
discussed previously. Additionally, the Company incurred charges of
approximately $400,000 related to terminated merger discussions, as discussed
previously. Excluding these charges, SG & A expenses increased $2.20 million or
8.29% as compared to the six months ended June 30, 1995.
Of the $2.20 million increase, approximately $644, 000 was attributable to the
acquisitions completed in the second quarter of 1996. The remaining increase of
approximately $1.56 million in SG & A expenses was due to general increased
expenditures and additional payroll expense to support the higher level of
revenues and increased administrative costs of operating as a public company. SG
& A expenses decreased as a percentage of revenues to 20.89% for the six months
ended June 29, 1996, excluding the special charges discussed previously, as
compared to 21.48% for the six months ended June 30, 1995.
Amortization of intangibles decreased slightly to $1.55 million for the six
months ended June 29, 1996 from $1.62 million for the six months ended June 30,
1995. This decrease is attributable to non-competition agreements being fully
12
<PAGE>
amortized at December 31, 1995 which was partially offset by the amortization of
intangibles related to the acquisitions completed in second quarter of 1996,
discussed previously.
Interest expense decreased to $1.43 million for the six months ended June 29,
1996 from $2.53 million for the six months ended June 30, 1995. The decrease is
a result of the decrease of approximately $8.65 million in the average debt
outstanding between periods. The decrease in the average balance was due to the
use of the Offering proceeds to repay a portion of the indebtedness of the
Company.
The effective tax rate was 39.73% for the six months ended June 29, 1996
compared to a pro forma effective tax rate of 55.37% for the six months ended
June 30, 1995. The decrease is the result of relatively constant federal
nondeductible items creating a disproportionately higher taxable income for the
six months ended June 30, 1995, as compared to the six months ended June 29,
1996.
Liquidity and Capital Resources
During the six months ended June 29, 1996, net cash used by operating activities
was $4.45 million. Cash used in investing activities was $13.16 million, which
primarily consisted of funds used for the acquisition of four companies during
the second quarter of 1996, as discussed previously. Cash provided by financing
activities was $16.91 million which primarily consisted of the net proceeds from
the issuance of common stock totaling $6.18 million, net of interest and
underwriting discounts and commissions, and the issuance of 226,921 shares of
Common stock with a market value at the time of issuance of approximately $5.90
million and an increase in the line of credit of $6.43 million. The proceeds
from the issuance of 226,921 shares of Common Stock and the increase in the line
of credit were used primarily to finance the three acquisitions accounted for
under the purchase method of accounting, Statewide, M & R and Eddy.
On April 12, 1996 the Company entered into a $50.0 million credit agreement (the
"Credit Agreement") with a syndicate of banks led by First Union National Bank
of Georgia ("First Union"). The agreement provides a credit facility of $50.0
million to the Company to refinance the $35.0 million credit agreement the
Company entered into with First Union (the "Bridge Credit Agreement") to provide
bridge financing to the Company during the period between the closing of the
Offering and the date the Credit Agreement was entered into, and to fund
acquisitions, provide working capital and for other general corporate purposes.
The Credit Agreement provides for a revolving line of credit of $50.0 million
which terminates and, at the Company's election, converts to a term facility on
December 20, 1998, whereupon the outstanding indebtedness will be fully
amortized and repaid over the succeeding three years. Under the Credit
Agreement, First Union (for itself and as an agent for other participating
lenders) holds a first priority security interest on the Company's and its
subsidiaries' accounts and accounts receivable, a negative pledge with respect
to the Company's and its subsidiaries' remaining assets and a pledge of the
stock of the Company's subsidiaries. Also, successive borrowings by the Company
will be subject to the continued accuracy of certain representations and
warranties set forth in the Credit Agreement.
Interest rates under the Credit Agreement are determined, at the option of the
Company, at either First Union's prime rate (or, if greater, the federal funds
rate plus 0.5%) plus an applicable margin of between 0.0% and 0.625% or LIBOR
plus an applicable margin of between 0.75% and 1.75%, in each case based upon
the ratio of the Company's consolidated debt to earnings before interest, taxes
and amortization.
The Credit Agreement contains certain operational and financial covenants and
other restrictions with which the Company must comply. These covenants include,
among others, maintenance of business, compliance with laws and agreements and
limitations on additional indebtedness, encumbrances, advances, investments and
sales of assets, as well as requirements to maintain certain financial ratios.
In particular, lender consent is required for acquisitions, except for
acquisitions of businesses substantially in the business of the Company and its
subsidiaries if the consideration does not exceed cash in excess of $5.0 million
in cash or cash and other consideration in excess of $10.0 million (which limits
will be reduced during the period prior to January 1, 1997 if certain financial
tests are not met).
13
<PAGE>
The Company had approximately $29.46 million in total funded debt as of August
7, 1996, and as of that date approximately $4.69 million was available for
borrowing under the Credit Agreement based upon pro forma leverage ratios after
giving effect to the sale of approximately $6.18 million of Common Stock
pursuant to the underwriters' overallotment option which was exercised in
January 1996.
Management believes that operating cash flow and credit resources available
under the Credit Agreement will be adequate to make the repayments of
indebtedness described herein and to meet the cash needs of the Company which
the Company anticipates over the next three years. The Company has no material
commitments for capital expenditures. Although the Company desires to issue
shares of Common Stock as its primary method of financing acquisitions, it
anticipates that additional funds may be required to implement successfully its
acquisition program, and will use various methods to finance acquisitions,
including the payment of cash, for this purpose.
14
<PAGE>
UNITED TRANSNET, INC.
PART II - OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 8, 1996, an employee working in the Company's Southeast
region filed suit against the Company in the Circuit Court for
Hillsborough County, Florida. The Company has removed the case
to the United States District Court for the Middle District of
Florida. The complaint challenges the plaintiff's
noncompetition agreement and alleges retaliatory treatment by
the Company in violation of Florida's "whistleblower" statute.
The plaintiff seeks unspecified damages comprising front pay,
compensation for lost wages, benefits and other remuneration,
compensatory and punitive damages, and declaratory relief
relating to his noncompetition agreement. The Company has
filed a motion to dismiss the claim relating to the Florida
"whistleblower" statute, and is preparing to answer the
balance of the complaint and respond to discovery requests.
The Company believes the plaintiff's claims are without merit
and will vigorously defend the action.
Item 2. Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
On May 7, 1996, the Company held its annual meeting of
stockholders. The following sets forth a brief description of
each matter which was acted upon, as well as the votes cast
for, against or withheld for each such matter, and, where
applicable, the number of abstentions and broker non-votes for
each matter:
1. Election of Directors
Votes Votes Authority
Name of Director For Against Withheld
Philip A. Beylew 7,616,864 -- 2,200
Guilbert L. Brandon, Jr. 7,335,839 -- 283,225
Craig H. Deery 7,616,864 -- 2,200
Carolyn Draper 7,616,864 -- 2,200
John B. Ellis 7,616,864 -- 2,200
Habib Y. Gorgi 7,616,864 -- 2,200
Charles A. Krause 7,616,864 -- 2,200
Steven W. Lanter 7,616,864 -- 2,200
Chee B. Louie 7,616,864 -- 2,200
James G. Salmon 7,616,864 -- 2,200
2. Approval of an amendment to the Company's Amended and
Restated Certificate of Incorporation to require that
certain "fair price" and procedural conditions be
observed by any party which acquires more than ten
percent of the Company's Common Stock to accomplish a
merger or other business combination without the
approval of the Board of Directors:
Votes For: 6,129,231
Votes Against: 1,071,200
Abstentions: 44,842
Broker Non-Votes: 373,791
15
<PAGE>
3. Approval of an amendment to the Company's 1995 Stock
Incentive Plan (the "1995 Plan") to increase the
number of shares authorized for issuance thereunder
from 110,000 to 625,000:
Votes For: 6,537,781
Votes Against: 702,680
Abstentions: 4,812
Broker Non-Votes: 373,791
4. Approval for amendment to the 1995 Plan to limit the
number of shares of Common Stock for which options or
other rights may be granted to 100,000 per
participant per year:
Votes For: 7,251,948
Votes Against: 46,580
Abstentions: 15,122
Broker Non-Votes: 305,414
5. Approval of the Company's 1996 Stock and Option Plan
for Non-Employee Directors:
Votes For: 7,187,801
Votes Against: 51,660
Abstentions: 5,812
Broker Non-Votes: 373,791
6. Approval of an amendment to the Company's Amended and
Restated Certificate of Incorporation to authorize
the Board of Directors to grant a committee or
committees of the Board of Directors the power to
issue shares of the Company's capital stock:
Votes For: 6,878,831
Votes Against: 362,580
Abstentions: 3,862
Broker Non-Votes: 373,791
7. Ratification of the selection by the Board of
Directors of Price Waterhouse LLP as the Company's
independent auditors for 1996:
Votes For: 7,569,834
Votes Against: 46,680
Abstentions: 2,550
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a. The exhibits filed as part of this Report are as follows:
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedules
16
<PAGE>
b. Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K on
April 15, 1996 announcing that the Company had
entered into a credit agreement with First Union
National Bank of Georgia (for itself and as agent for
other participating lenders) pursuant to which the
Company may borrow up to $50.00 million.
The Registrant filed a Current Report on Form 8-K on
May 23, 1996 announcing that a wholly-owned
subsidiary of the Company merged with Eddy Messenger
Service, Inc.
17
<PAGE>
UNITED TRANSNET, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1996
UNITED TRANSNET, INC.
Registrant
By: /s/ Ronald J. Barowski
Ronald J. Barowski
Executive Vice President and
Chief Financial Officer
18
<PAGE>
UNITED TRANSNET, INC.
INDEX TO EXHIBITS
Exhibit Number Description Page
---------------
11 Statement Re Computation of Per Share Earnings 20
27 Financial Data Schedules 21
19
<TABLE>
<CAPTION>
UNITED TRANSNET, INC.
For the Three and Six Months Ended June 29, 1996 and
COMBINED FOUNDING COMPANIES
For the Three and Six Months Ended June 30,
1995 EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER
SHARE EARNINGS
(Thousands of dollars, except share information)
For the Three Months Ended For the Six Months Ended
June 29, June 30, June 29, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 9,228,116 7,623,668 9,129,704 7,623,668
Dilutive stock options:
(based on the treasury stock method using the
average market price for the period) 0 181,741 219,889 181,741
----------- ----------- ---------- ----------
Total primary shares outstanding and common share equivalents 9,228,116 7,805,409 9,349,593 7,805,409
Net income (loss) $ (495) $ 1,117 $ 1,12 $ 2,560
=========== =========== ========== ==========
Primary earnings (loss) per share $ (0.05) $ 0.1 $ 0.12 $ 0.33
=========== =========== ========== ==========
Fully diluted:
Average shares outstanding 9,228,116 7,623,668 9,129,704 7,623,668
Dilutive stock options:
(based on the treasury stock method using the period-end market price
if greater than average market price for the period) 0 181,741 233,859 181,741
----------- ----------- ---------- ----------
9,228,116 7,805,409 9,363,563 7,805,409
Total fully-dilutive shares outstanding
Net income (loss) $ (495) $ 1,117 $ 1,12 $ 2,560
=========== =========== ========== ==========
Fully diluted earnings (loss) per share * $ (0.05) $ 0.14 $ 0.12 $ 0.33
=========== =========== ========== ==========
<FN>
* Fully diluted earnings per share is less than 3% dilutive and, therefore,
was not disclosed on the Consolidated Statements of Operations in
accordance with the provisions of Accounting Principles Board Opinion
Number 15.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001002223
<NAME> UNITED TRANSNET, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,632
<SECURITIES> 0
<RECEIVABLES> 27,293
<ALLOWANCES> 536
<INVENTORY> 569
<CURRENT-ASSETS> 34,656
<PP&E> 28,618
<DEPRECIATION> 18,985
<TOTAL-ASSETS> 90,525
<CURRENT-LIABILITIES> 24,301
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 29,611
<TOTAL-LIABILITY-AND-EQUITY> 90,525
<SALES> 137,766
<TOTAL-REVENUES> 137,766
<CGS> 102,377
<TOTAL-COSTS> 102,377
<OTHER-EXPENSES> 32,139
<LOSS-PROVISION> 483
<INTEREST-EXPENSE> (1,428)
<INCOME-PRETAX> 1,860
<INCOME-TAX> 739
<INCOME-CONTINUING> 1,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,121
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
