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PROSPECTUS
2,000,000 SHARES
[UNITED TRANSNET, INC. LOGO]
COMMON STOCK
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This Prospectus covers 2,000,000 shares of common stock, par value $.001
per share (the "Common Stock"), which may be offered and issued by United
TransNet, Inc. (the "Company") from time to time in connection with mergers with
or acquisitions by the Company of other businesses and assets. It is expected
that the terms of acquisitions involving the issuance of securities covered by
this Prospectus will be determined by direct negotiations with the owners or
controlling persons of the businesses or assets to be merged with or acquired by
the Company, and that the shares of Common Stock issued will be valued at prices
reasonably related to market prices current either at the time a merger or
acquisition is agreed upon or at or about the time of delivery of shares. No
underwriting discounts or commissions will be paid, although finder's fees may
be paid from time to time with respect to specific mergers or acquisitions. Any
person receiving any such fees may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Company currently has 9,686,905 shares of its Common Stock listed on
the New York Stock Exchange under the symbol "UT", of which 4,668,573 are
registered and available for unrestricted trading in the public markets unless
owned by affiliates of the Company or unless such shares are subject to
restrictions on transfer under applicable federal tax law or by contract.
Applications have been and will be made to list the shares of Common Stock
offered hereby on the New York Stock Exchange in connection with each issuance
hereunder. On May 20, 1996, the closing price per share of the Common Stock, as
reported in a summary of composite transactions in The Wall Street Journal for
stocks listed on the New York Stock Exchange, was $27.75.
All expenses of this offering will be paid by the Company. All references
herein to the Company refer to the Company and its subsidiaries.
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is May 24, 1996.
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<TABLE>
TABLE OF CONTENTS
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SECTION PAGE
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Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 13
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Selected Financial Data............... 16
Unaudited Pro Forma Financial
Information......................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
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SECTION PAGE
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Business.............................. 35
Management............................ 47
Certain Transactions.................. 57
Principal Stockholders................ 61
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 66
Validity of Shares.................... 67
Experts............................... 67
Index to Financial Statements......... F-1
</TABLE>
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ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission in Washington, D.C. a
Registration Statement under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock, reference
is made to such Registration Statement and exhibits and schedules. A copy of the
Registration Statement on file with the Commission may be obtained from the
Commission's principal office in Washington, D.C., upon payment of the fees
prescribed by the Commission. Statements contained in this Prospectus as to the
contents of any contract or any other document to which reference is made are
not necessarily complete. Where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit.
The Common Stock is listed on the New York Stock Exchange. Reports, proxy
statements and other information concerning the Company may also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
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PROSPECTUS SUMMARY
On December 20, 1995, wholly-owned subsidiaries of United TransNet, Inc.,
in separate transactions, merged (the "Mergers") with six companies which
provide ground and air courier services (the "Founding Companies") in exchange
for shares of United TransNet, Inc.'s Common Stock and cash. Unless otherwise
indicated herein, all references to the "Company" include United TransNet, Inc.
and the Founding Companies after giving effect to the Mergers, and all
references to the "Combined Founding Companies" refer to the combined Founding
Companies prior to the Mergers.
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise noted, the share and per share
data in this Prospectus do not include up to 212,711 shares of Common Stock
issuable upon the exercise of outstanding stock options, up to 625,000 shares of
Common Stock issuable upon the exercise of outstanding stock options under the
Company's 1995 Stock Incentive Plan or up to 50,000 shares of Common Stock
issuable under, or upon the exercise of options granted under, the Company's
1996 Stock and Option Plan for Non-Employee Directors.
THE COMPANY
The Company offers a variety of customized distribution services for
corporate customers with time-sensitive pickup and delivery requirements.
Management believes that the Company is the leading provider of scheduled ground
courier services in the United States. Through both its ground and air
divisions, the Company provides scheduled and unscheduled delivery service for
local, regional, national and international shipments, and offers same-day and
next-day delivery options. The Company's ground delivery business serves 39
states and all major metropolitan markets in the United States. The Company's
fleet of approximately 4,082 ground transportation vehicles, which is one of the
largest courier and parcel fleets in the United States, facilitates the
Company's broad geographic coverage. Unlike most of the Company's competitors
which serve principally metropolitan areas, the Company serves all points in
many states and is the leading intrastate ground courier in most of such states.
The Company was created in 1995 to form a national ground and air courier
company. Prior to the Mergers, each of the Founding Companies was an established
business with a leading market position, experienced management and long-term
customer relationships in its respective regional market. The Company will
continue operating the business of each Founding Company on a decentralized
basis to preserve their strong regional franchises. The Company's senior
management will coordinate and standardize key functions of the Founding
Companies, including operations, purchasing, sales and marketing and
acquisitions.
Management estimates that the ground courier industry is a multi-billion
dollar industry comprised of thousands of companies. The Air Courier Conference
of America estimates that the annual revenue of the United States air courier
industry reached $40 billion in 1995, based upon industry-wide projections for
growth. The Company believes that it is well-positioned to continue to expand
its ground and air courier services in the markets it currently serves and
elsewhere.
Ground Service. The Company provides a variety of ground distribution
services to a broad range of customers requiring reliable, expedited delivery,
including (i) customized routed service, such as same-day or next-day delivery
of documents, data and canceled checks, primarily for financial institutions;
(ii) small package and parcel service, such as just-in-time delivery of
pharmaceutical products, medical supplies and office supplies; (iii) same-day
and overnight pouch service for items such as interoffice mail; (iv) expedited
mail delivery, such as morning and evening transfer of mail between post office
sorting centers and customer locations; and (v) other value-added services such
as on-call deliveries, mailroom management, warehousing and transportation
network consulting services.
Air Service. The Company offers air delivery service through commercial
airlines and chartered aircraft to transport time-sensitive documents and
packages, primarily for financial institutions, throughout the United States.
The Company provides scheduled door-to-door air service nationally, emergency
next-flight-out
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service both domestically and internationally and air cargo service primarily to
certain destinations in the Pacific Rim.
STRATEGY
The principal components of the Company's operating strategy are to
continue to focus primarily on customized, scheduled delivery service, to
maintain internal growth, to capitalize on favorable industry trends and to
pursue an aggressive acquisition program to consolidate the Company's position
and broaden its geographic reach:
- FOCUS ON CUSTOMIZED, SCHEDULED DELIVERY SERVICE: The Company
concentrates primarily on customized, same-day and overnight scheduled
delivery services. Most of the Company's 1995 ground and air revenue was
derived from scheduled service, which is provided to customers on a
recurring basis with specific pickup and delivery times. Because the
majority of the Company's revenue is derived from customized delivery
service, the Company generally does not compete directly with the large,
national parcel and overnight delivery companies, which offer primarily
standardized next-day service with fixed pickup and delivery schedules.
Additionally, the Company does not emphasize on-call messenger service,
because it is generally more price competitive and is not viewed by the
Company as a market with significant potential for growth.
- MAINTAIN STRONG INTERNAL GROWTH: The Mergers have enabled the Founding
Companies to broaden their geographic reach. Consequently, the Company
expects to capture substantial national account business with customers
previously served by the Founding Companies only on a regional basis.
Additionally, the Company will expand the use of its industrial
engineering group (an internal logistics consulting operation) to
maximize the efficiency of customers' delivery systems and to promote
additional services. The Company will also continue to diversify its
customer base.
- CAPITALIZE ON FAVORABLE INDUSTRY TRENDS: The Company intends to take
advantage of several favorable industry trends, including (i)
outsourcing -- companies are increasingly outsourcing non-core services
such as expedited pickup and delivery transportation services; (ii)
just-in-time inventory management -- companies seeking to reduce
inventory and warehousing costs are relying on service-intensive,
expedited delivery companies with increasing frequency; (iii) improved
communications technology -- improved technology facilitates effective,
just-in-time inventory management, while allowing providers of expedited
delivery services to be more responsive to customers; and (iv) continuing
demands of the financial services industry -- financial institutions,
which constitute a material portion of the Company's customer base,
continue to require the delivery of originals to process checks, the
volume of which has historically increased and is expected to continue to
rise.
- GROW THROUGH ACQUISITIONS: The Company intends to pursue an aggressive
acquisition program to consolidate its position in its current operating
regions and to broaden its geographic reach in a highly fragmented
industry. The Company's management believes its prior acquisition
experience will be instrumental in identifying and negotiating
acquisitions. By acquiring companies in markets where the Company already
has a presence, management expects to recognize substantial operating
advantages by consolidating overlapping delivery routes. The Company also
expects to achieve significant cost savings by eliminating redundant
administrative functions and facilities. Additionally, the Company
intends to expand into new markets with larger, strategic acquisitions.
In such situations, the key management of the acquired companies would,
under most circumstances, remain in place. In May 1996, the Company
consummated four acquisitions, one of which was Eddy Messenger Service,
Inc., based in New York State. See "Business -- Recent Developments." The
Company is not considering any acquisition which is both probable and
material as of the date of this Prospectus.
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<TABLE>
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SUMMARY FINANCIAL DATA
UNITED
COMBINED FOUNDING COMPANIES(1) TRANSNET, INC. PRO FORMA(2)
------------------------------------------------------------ --------------- ------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1 TO DECEMBER 20 TO YEAR ENDED
------------------------------------------- DECEMBER 19, DECEMBER 31, DECEMBER 31,
1991(3) 1992 1993 1994 1995 1995 1995
-------- -------- -------- ---------- -------------- --------------- ------------
(IN THOUSANDS, EXCEPT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues............ $150,793 $154,884 $171,901 $ 214,099 $246,526 $7,748 $ 254,274
Gross profit............ 38,597 42,264 49,791 57,776 65,309 2,286 67,595
Operating income........ 2,912 5,844 6,438 5,714 8,661 609 9,270
Interest expense........ 1,741 2,291 2,387 3,758 5,288 137 5,425
Interest income and
other, net(4)......... 2,781 227 127 2,245 264 5 269
Income before income
taxes and
extraordinary item.... 3,952 3,780 4,178 4,201 3,637 477 4,114
Pro forma income before
extraordinary
item(5),(6)........... 2,837 1,281 1,900 2,447 2,616 2,708 3,595
Extraordinary loss on
extinguishment of
debt.................. -- -- -- -- -- 1,204 1,204
Pro forma net
income(6)............. 2,837 1,281 1,900 2,447 2,391
Pro forma earnings per
common share:
Income before
extraordinary
item................ $ 0.31 $ 0.46
Extraordinary loss on
early extinguishment
of debt............. -- 0.15
---------- ----------
Net income............ $ .031 0.31
---------- ----------
Weighted average number
of common and common
equivalent
shares(7)............. 7,802,636 7,848,962
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1995
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<S> <C>
BALANCE SHEET DATA:
Working capital......................................................... $ 232
Property and equipment.................................................. 10,332
Total assets............................................................ 70,517
Long-term debt.......................................................... 24,811
Stockholders' equity.................................................... 16,177
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</TABLE>
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<TABLE>
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SUMMARY FINANCIAL DATA
(UNAUDITED)
UNITED
TRANSNET,
COMBINED INC.
FOUNDING COMPANIES(8) ------------
--------------------- FOR THE
FOR THE THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 30,
1995 1996
--------------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues............................................. $ 60,100 $ 66,255
Gross profit............................................. 16,444 17,723
Operating income......................................... 2,869 3,319
Interest expense......................................... (1,214) (629)
Interest income and other, net........................... 57 21
Income before income taxes and extraordinary item........ 1,712 2,711
Income before extraordinary item......................... 1,444 1,616
Extraordinary loss on extinguishment of debt............. -- --
Net income............................................... 1,444 1,616
Net income available for common stockholders............. 917 1,616
Earnings per common share:
Income before extraordinary item...................... $ 0.18
Extraordinary loss on extinguishment of debt.......... --
----------
Net income............................................ $ 0.18
==========
UNAUDITED PRO FORMA INFORMATION:(5)
Income before income taxes and extraordinary item..... $ 1,712
Provision for taxes................................... 779
----------
Income before extraordinary item...................... 933
Extraordinary loss on extinguishment of debt.......... --
----------
Net income............................................ $ 933
==========
Earnings per common share:
Income before income taxes and extraordinary item..... $ 0.22
Provision for taxes................................... 0.10
----------
Income before extraordinary item...................... 0.12
Extraordinary loss on extinguishment of debt.......... --
----------
Net income............................................ $ 0.12
==========
Weighted average number of common and common equivalent
shares(7)............................................. 7,805,409 9,212,186
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BALANCE SHEET DATA:
Working capital.......................................... $ 8,895
Property and equipment................................... 9,681
Total assets............................................. 69,049
Long-term debt........................................... 23,210
Stockholders' equity..................................... 23,995
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[FN]
(1) The Founding Companies collectively are considered predecessors to the
Company. The following table represents selected information of the
individual Founding Companies for the two most recent fiscal years and the
period from January 1 to December 19, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1 TO
------------------- DECEMBER 19,
1993 1994 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
COURIER DISPATCH
Net revenues.................................................................... $ 70,631 $104,614 $133,701
Gross profit.................................................................... 20,671 27,929 33,905
Net loss........................................................................ (319) (1,768) (2,076)
======== ======== ========
TRICOR
Net revenues.................................................................... $ 32,504 $ 34,288 $ 37,252
Gross profit.................................................................... 8,778 9,442 10,080
Net income...................................................................... 1,666 4,112 3,156
======== ======== ========
FILM TRANSIT
Net revenues.................................................................... $ 24,692 $ 24,717 $ 22,352
Gross profit.................................................................... 8,613 7,888 7,786
Net income...................................................................... 688 253 396
======== ======== ========
LANTER
Net revenues.................................................................... $ 19,647 $ 21,431 $ 21,777
Gross profit.................................................................... 5,195 5,629 5,309
Net income...................................................................... 1,317 1,431 1,095
======== ======== ========
SUNBELT
Net revenues.................................................................... $ 11,882 $ 14,187 $ 16,629
Gross profit.................................................................... 2,616 2,984 3,542
Net (loss) income............................................................... (176) 54 272
======== ======== ========
3D
Net revenues.................................................................... $ 12,545 $ 14,862 $ 14,815
Gross profit.................................................................... 3,918 3,904 4,687
Net loss........................................................................ (65) (217) (227)
======== ======== ========
COMBINED
Net revenues.................................................................... $171,901 $214,099 $246,526
Gross profit.................................................................... 49,791 57,776 65,309
Net income...................................................................... 3,111 3,865 2,616
======== ======== ========
</TABLE>
[FN]
(2) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to December 19, 1995 and the results of
operations of United TransNet, Inc. for the period from December 20 to
December 31, 1995.
(3) Includes financial information of a predecessor company to Courier Dispatch
for nine months and actual data for Courier Dispatch for three months.
(4) Included in other income for the years ended December 31, 1991 and 1994 are
proceeds from key man life insurance of $3.0 million and $2.0 million,
respectively.
(5) Certain of the Founding Companies were S corporations during the periods
presented 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 FAS 109, based on tax laws that were in effect during the respective
periods.
(6) Provision for income taxes for the period from December 20 to December 31,
1995 and the year ended December 31, 1995 reflects the benefits of (i) the
reversal of the valuation allowance of $2,164 related
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to the deferred tax assets of Courier Dispatch and (ii) the recording of a
net deferred tax asset of $243 at Tricor and Lanter upon their change from
S corporations to C corporations.
(7) Weighted average number of common and common equivalent shares for 1994
includes (i) 4,750,243 shares issued to the stockholders of the Founding
Companies in connection with the Mergers of the Founding Companies, (ii)
2,873,425 shares sold in the Company's initial public offering to cover the
cash portion of the purchase price paid in connection with the Mergers of
the Founding Companies and (iii) the dilution attributable to outstanding
options to purchase Common Stock, applying the treasury stock method. For
1995, weighted average number of common and common equivalent shares also
includes (i) the weighted average portion of the 3,925,000 shares sold in
the Company's initial public offering, net of the shares sold to cover the
cash portion of the purchase price paid in connection with the Mergers of
the Founding Companies, (ii) the weighted average portion of 58,021 shares
repurchased in December 1995 from a minority stockholder and (iii) the
weighted average portion of stock options which became exercisable during
1995.
(8) The Founding Companies are considered predecessors to the Company. The
following table represents selected unaudited information of the individual
Founding Companies for the period ending March 31, 1995.
<TABLE>
<CAPTION>
FOR THE
THREE
MONTHS ENDED
MARCH 31,
1995
------------
<S> <C>
COURIER DISPATCH
Net revenues................................................... $32,290
Gross profit................................................... 8,677
Net loss....................................................... (536)
=======
TRICOR
Net revenues................................................... $ 8,904
Gross profit................................................... 2,602
Net income..................................................... 887
=======
FILM TRANSIT
Net revenues................................................... $ 5,694
Gross profit................................................... 1,728
Net income..................................................... 46
=======
LANTER
Net revenues................................................... $ 5,529
Gross profit................................................... 1,395
Net income..................................................... 330
=======
SUNBELT
Net revenues................................................... $ 3,991
Gross profit................................................... 917
Net income..................................................... 110
=======
3D
Net revenues................................................... $ 3,692
Gross profit................................................... 1,125
Net income..................................................... 80
=======
COMBINED
Net revenues................................................... $60,100
Gross profit................................................... 16,444
Net income..................................................... 917
=======
</TABLE>
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY
The Company was founded in October 1995 to effect the Mergers and prior to
December 1995 conducted no operations. Prior to the Mergers, each of the
Founding Companies operated as a separate independent entity and there can be no
assurance that the Company's management will successfully integrate the combined
entity and effectively implement the Company's operating or growth strategies.
See "The Company," "Business" and "Management."
ACQUISITION STRATEGY; POSSIBLE NEED FOR ADDITIONAL FINANCING
One of the Company's business strategies is to acquire additional scheduled
ground and air courier companies that will complement its existing operations or
provide it with an entry into regions it does not presently serve. There can be
no assurance that the Company will be able to acquire or profitably manage
additional companies or successfully integrate such additional companies into
the Company. In addition, there can be no assurance that companies acquired in
the future either will be beneficial to the successful implementation of the
Company's overall strategy or will ultimately produce returns that justify the
investment therein, or that the Company will be successful in achieving
meaningful economies of scale through the acquisition thereof. See
"Business -- Acquisition Strategy."
The Company intends to issue shares of Common Stock as its primary method
of financing acquisitions. In the event that the Company chooses to issue Common
Stock as acquisition consideration and the Common Stock does not maintain a
sufficient valuation, or potential acquisition candidates are unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company may be required to utilize more of its cash resources,
if available, in order to continue its acquisition program. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain the necessary capital through additional debt or equity
financings. There can be no assurance that the Company will be able to obtain
such financing if and when it is needed or that, if available, it will be
available on terms the Company deems acceptable. As a result, the Company might
be unable to implement successfully its acquisition strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
HIGHLY COMPETITIVE INDUSTRY
The market for scheduled ground and air courier services is highly
competitive. Competition on pricing is often intense in the courier industry,
particularly for basic delivery services. Additionally, other companies with
significantly greater financial and other resources than the Company that do not
currently operate ground and air courier businesses may enter the industry in
the future. See "Business -- Competition."
CLAIMS EXPOSURE
As of March 30, 1996, the Company utilized the services of approximately
5,879 drivers and from time to time such drivers are involved in accidents. The
Company carries liability insurance of $15 million for each such accident (it
may effectively self-insure for the first $250,000 claimed), and independent
owner/operators are required to maintain liability insurance of at least the
minimum amounts required by applicable state law. Furthermore, all drivers and
independent owner/operators are covered by the Company's fidelity bond. There
can be no assurance that claims against the Company, whether under the liability
insurance or the fidelity bond, will not exceed the applicable amount of
coverage. In addition, the Company's increased visibility and financial strength
as a public company may create additional claims exposure. If the Company were
to experience a material increase in the frequency or severity of accidents,
liability claims, workers' compensation
9
<PAGE> 10
claims, or unfavorable resolutions of claims, the Company's operating results
could be materially adversely affected. In addition, significant increases in
insurance costs could reduce the Company's profitability.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and senior management. Furthermore, the Company may to some
extent be dependent on the senior management of companies that may be acquired
in the future. If the executive officers of the Company become unable or decide
not to continue in their present roles, or if a material number of such senior
management fail to continue with the Company and the Company is unable to
attract and retain other skilled employees, the Company's business could be
adversely affected. See "Management."
STATUS OF INDEPENDENT OWNER/OPERATORS
From time to time, federal and state authorities have sought to assert that
independent owner/operators in the transportation industry, including those
utilized by the Company, are employees, rather than independent contractors. The
Company believes that the independent owner/operators utilized by the Company
are not employees under existing interpretations of federal and state laws.
However, there can be no assurance that federal and state authorities will not
challenge this position, or that other laws or regulations, including tax laws,
or interpretations thereof, will not change. If, as a result of any of the
foregoing, the Company is required to pay for and administer added benefits to
independent owner/operators, the Company's operating costs would increase.
Additionally, if the Company is required to pay backup withholding with respect
to amounts paid to such persons, it may be required to pay penalties and/or to
restate financial information from prior periods. See "Business -- Ground
Courier Operations -- Use of Independent Owner/Operators."
TECHNOLOGY
Some analysts have predicted that the increased use of electronic funds
transfers will cause the development of a "checkless society", which could
adversely affect demand for the Company's services from the financial services
industry. Similarly, technological advances in the nature of "electronic mail"
and "telefax" have affected the demand for on-call delivery services by
customers. While none of these technological developments has had a significant
adverse impact on the Company's business to date, and although the number of
checks written in the United States has increased annually since 1990, there can
be no assurance that these or similar technologies will not have an adverse
effect on the Company in the future. See "Business -- Business Strategy" and
"-- Ground Courier Operations."
SIGNIFICANT INFLUENCE OF DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this Prospectus, the Company's directors and executive
officers as a group beneficially owned approximately 43% of the outstanding
Common Stock. Although the directors and executive officers as a group do not
hold a majority of the outstanding Common Stock, they are in a position, if they
act together, to exert significant influence over the election of directors and
other corporate actions requiring stockholder approval. See "Principal
Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICES
The Company can make no prediction as to the effect, if any, that sales of
additional shares of Common Stock or the availability of shares for future sale
will have on the market price of the Common Stock. Sales in the public market of
substantial amounts of the Common Stock (including shares issued upon the
exercise of outstanding options), or the perception that such sales could occur,
could depress prevailing market prices for the Common Stock. Such sales also may
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. See "Shares Eligible for Future Sale."
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As partial consideration for the Mergers, the stockholders of the Founding
Companies received, in the aggregate, 4,692,222 shares of Common Stock. Such
shares are not registered under the Securities Act, and such stockholders have
demand and piggyback registration rights with respect to such shares. In
connection with the Mergers, the Company also granted to BancBoston Ventures
Inc. ("BancBoston"), Fleet Venture Resources, Inc. ("FVR") and Fleet Venture
Partners III ("FVP" and together with FVR, "Fleet") demand and piggyback
registration rights with respect to their shares of Common Stock, and granted
piggyback registration rights to First Union National Bank of Georgia ("First
Union"). Any shares which have not been registered may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration. See "Description of Capital Stock -- Registration Rights."
As of the date of this Prospectus, the Company had outstanding options to
purchase 212,711 shares of Common Stock and had outstanding options to purchase
an additional 214,997 shares of Common Stock under its 1995 Stock Incentive
Plan, under which 410,003 shares remain available for issuance. Under the 1996
Stock and Option Plan for Non-Employee Directors, 50,000 shares of Common Stock
have been reserved for issuance. Seventy percent of the non-employee directors'
annual fee will be payable in the form of options to purchase Common Stock
pursuant to such plan and the balance will be payable in cash, and non-employee
directors will be able to elect to receive Common Stock in lieu of all or a
specified portion, in increments of twenty-five percent, of their cash
compensation. The Company intends to register the shares issuable upon exercise
of options granted under the foregoing two plans or otherwise granted and, upon
such registration and issuance, the shares will be eligible for resale in the
public markets. See "Shares Eligible for Future Sale" and "Management -- 1995
Stock Incentive Plan," "-- 1996 Stock and Option Plan for Non-Employee
Directors" and "-- Other Stock Options."
The Company, all of the stockholders of the Founding Companies and the
executive officers and directors of the Company have agreed not to offer or sell
any shares of Common Stock of the Company, including the shares referred to in
the second preceding paragraph, during a period of 180 days (the "Lockup
Period") commencing December 14, 1995 without the prior written consent of Smith
Barney Inc., except that the Company may issue Common Stock upon the exercise of
options or in connection with acquisitions. After the Lockup Period, all such
shares may be sold in accordance with Rule 144 promulgated under the Securities
Act, subject to the volume, holding period and other limitations of Rule 144.
EFFECT OF CERTAIN CHARTER PROVISIONS
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Board of Directors is empowered to issue Preferred Stock
without stockholder approval. The existence of this "blank-check" Preferred
Stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise, and
may adversely affect the prevailing market price of the Common Stock. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law, which limits transactions between a publicly held company and
"interested stockholders" (generally, those stockholders who, together with
their affiliates and associates, own 15% or more of such company's outstanding
capital stock). Section 203 may have the effect of deterring certain potential
acquisitions of the Company. In addition to the Board of Directors' ability to
issue Preferred Stock, the Company's Amended and Restated Certificate of
Incorporation and By-Laws contain other provisions which may have anti-takeover
effects. The Company's Amended and Restated Certificate of Incorporation
furthermore contains a so-called "fair price" provision, which requires that,
unless certain transactions are approved by a majority of the Company's
disinterested directors, certain minimum price and procedural requirements must
be observed by any party which acquires more than ten percent of the outstanding
shares of Common Stock of the Company and then seeks to accomplish a merger or
other form of business combination or transaction (which would eliminate or
could significantly change the interests of the remaining stockholders). See
"Description of Capital Stock -- Preferred Stock" and "-- Provisions of Delaware
Law and the Company's Charter and By-Laws."
11
<PAGE> 12
NO DIVIDENDS
The Company does not anticipate paying any cash dividends on shares of its
Common Stock in the foreseeable future and intends to retain future earnings, if
any, for use in its business. In addition, the Company has entered into a credit
agreement (the "Credit Agreement") with First Union (for itself and as agent for
other participating lenders) pursuant to which the Company may borrow up to $50
million to refinance certain existing indebtedness of the Founding Companies
which was assumed in the Mergers, as well as to fund acquisitions and provide
working capital and for other general corporate purposes. The Credit Agreement
limits the Company's ability to pay cash dividends on its Common Stock. See
"Dividend Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Capital Stock -- Common Stock -- Dividends."
12
<PAGE> 13
THE COMPANY
The Company offers a variety of customized distribution services for
corporate customers with time-sensitive pickup and delivery requirements.
Through both its ground and air divisions, the Company provides scheduled and
unscheduled delivery service for local, regional, national and international
shipments, and offers same-day and next-day delivery options. Management
believes that the Company is the leading provider of scheduled ground courier
services in the United States.
<TABLE>
The Company was incorporated in October 1995 for the purpose of forming a
national ground and air courier company. In December 1995, the Company acquired
the Founding Companies. See "Business -- Organization" and "Certain Transactions
- -- Organization of the Company." The Founding Companies, each of which has been
in business for at least 13 years, provide ground and air courier service to the
areas listed below:
<CAPTION>
PERIOD ENDED
YEAR DECEMBER 19,
FOUNDING COMPANY ESTABLISHED 1995 AREAS SERVED
- ---------------- ----------- ------------ ------------
<S> <C> <C> <C>
Courier Dispatch(1)...... 1967 $133.7 million Alabama, Connecticut, Florida, Georgia, Maine,
Maryland, Massachusetts, Minnesota, New
Hampshire, North Carolina, North Dakota, Rhode
Island, South Carolina, South Dakota, Tennessee,
Vermont, Virginia and Washington, D.C.
Tricor(2)................ 1957 $ 37.3 million California; portions of Arizona, Colorado,
Florida, Georgia, Idaho, Illinois, Minnesota,
Nevada, New Jersey, New York, Oregon, Texas,
Utah, Washington and certain Pacific Rim
destinations
Film Transit(3).......... 1937 $ 22.4 million Alabama, Arkansas, Louisiana, Mississippi,
Oklahoma and Tennessee; portions of Florida,
Georgia, Illinois, Kentucky, Missouri and Texas
Lanter(4)................ 1981 $ 21.8 million Iowa, Wisconsin and Nebraska; portion of Michigan
Sunbelt(5)............... 1974 $ 16.6 million Arkansas, Louisiana and Mississippi; portions of
Alabama, Florida, Kentucky, Missouri, Oklahoma,
Tennessee and Texas
3D(6).................... 1982 $ 14.8 million Arkansas, Florida and Texas; portions of
Louisiana, Missouri and Oklahoma
<FN>
- ---------------
(1) Courier Dispatch Group, Inc. is referred to herein as "Courier Dispatch." In
connection with the Mergers, Courier Dispatch Group, Inc. was merged with
and into its parent company, CDG Holding Corp., and CDG Holding Corp.
changed its name to "Courier Dispatch Group, Inc."
(2) Tricor America, Inc., which is referred to herein as "Tricor," is the
successor by merger to Tricor California, Inc., Tricor Nevada, Inc. and
Tricor International, all of which were merged into Tricor America, Inc.
prior to the Mergers.
(3) Film Transit, Incorporated, which distributed the capital stock of its
subsidiary to its stockholders prior to the Mergers, is referred to herein
as "Film Transit."
(4) Lanter Courier Corporation is referred to herein as "Lanter." Immediately
prior to the Mergers, Lanter transferred the assets and liabilities relating
to its business conducted outside of the areas listed in the above chart to
Lanter Delivery Systems, Inc. The business which remained with Lanter, which
serves the areas listed in the above chart, is sometimes referred to herein
as the "Districts." See "Business -- Organization."
(5) Sunbelt Courier, Inc. is referred to herein as "Sunbelt." In connection with
the Mergers, Sunbelt Courier, Inc. was merged with and into its parent
company, Salmon Acquisition Corporation, and Salmon Acquisition Corporation
changed its name to "Sunbelt Courier, Inc."
(6) 3D Distribution Systems, Inc. and its affiliated corporations and
subsidiaries are referred to herein collectively as "3D."
</TABLE>
In May 1996, the Company acquired Eddy Messenger Service, Inc. ("Eddy
Messenger") which provides ground courier services in Connecticut, New Jersey
and New York State (including New York City). See "Business -- Recent
Developments."
The Company's principal executive offices are located at 1080 Holcomb
Bridge Road, Building 200, Suite 140, Roswell, Georgia 30076. The Company's
telephone number is (770) 518-1180 and its facsimile number is (770) 518-2587.
13
<PAGE> 14
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
The Company's Common Stock has been traded on the New York Stock Exchange
under the symbol "UT" since December 15, 1995. On May 20, 1996, the last sale
price of the Common Stock was $27.75 per share, as published in The Wall Street
Journal on May 21, 1996. On May 20, 1996, there were 65 shareholders of record
of the Company's Common Stock. The initial public offering price of the Common
Stock was $14.50 per share. The following table sets forth the range of high and
low sale prices for the Common Stock for the period from December 14, 1995, the
date of the Company's initial public offering, through May 20, 1996.
HIGH LOW
------- -------
<S> <C> <C>
1995
Fourth Quarter (from December 15)........... $15.125 $14.50(1)
FISCAL 1996
First Quarter............................... $23.375 $14.50
Second Quarter (through May 20)............. $ 29.00 $20.13
<FN>
- ---------------
(1) Represents the initial public offering price.
</TABLE>
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future and intends to retain future earnings, if any, for use in
its business. Any future payment of dividends on the Common Stock is within the
discretion of the Board of Directors and will depend upon varying factors,
including the capital requirements, operating results and financial condition of
the Company from time to time. The Credit Agreement limits the Company's ability
to pay cash dividends on its Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Capital Stock -- Common
Stock -- Dividends."
14
<PAGE> 15
<TABLE>
CAPITALIZATION
<CAPTION>
The following table sets forth the long-term debt, short-term debt and
capitalization at December 31, 1995 and March 30, 1996 (unaudited) of the
Company. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and other information
appearing elsewhere in this Prospectus.
DECEMBER 31, MARCH 30,
1995 1996
-------------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Short-term debt................................................... $ 1,500 $ 177
Long-term debt, net of current maturities(1)...................... 24,811 23,210
------- -------
Total debt................................................... 26,311 23,387
------- -------
Stockholders' equity:
Preferred stock.............................................. -- --
Common stock................................................. 9 9
Paid-in capital.............................................. 14,664 20,866
Retained earnings............................................ 1,504 3,120
------- -------
Total stockholders' equity.............................. 16,177 23,995
------- -------
Total capitalization.................................... $42,488 $47,382
======= =======
<FN>
- ---------------
(1) For a description of the Company's long-term debt, see Note 6 to the
Consolidated Financial Statements of the Company.
</TABLE>
15
<PAGE> 16
SELECTED FINANCIAL DATA
The statement of operations data shown below for the years ended December
31, 1991, 1992, 1993, and 1994 and the period from January 1 to December 19,
1995 and for the three months ended March 31, 1995 and the balance sheet data as
of December 31, 1991, 1992, 1993 and 1994 are that of the Combined Founding
Companies prior to the Mergers on a historical basis except for pro forma data.
During the periods presented the Combined Founding Companies were not under
common control or management and some were not taxable entities. Therefore the
data presented may not be comparable to or indicative of post-combination
results to be achieved by the Company after the Mergers.
The following selected financial data with respect to the Combined Founding
Companies' combined statements of operations for the years ended December 31,
1993 and 1994 and the period from January 1 to December 19, 1995 and for the
three months ended March 31, 1995 and with respect to the Combined Founding
Companies' combined balance sheets as of December 31, 1993 and 1994 have been
derived from the Combined Founding Companies' combined financial statements that
appear elsewhere in this Prospectus. The selected financial data with respect to
United TransNet, Inc.'s consolidated statements of operations for the period
from December 20 to December 31, 1995 and for the three months ended March 30,
1996 and with respect to United TransNet, Inc.'s consolidated balance sheets as
of December 31, 1995 and March 30, 1996 have been derived from United TransNet,
Inc.'s consolidated financial statements that appear elsewhere in this
Prospectus. The financial data provided below should be read in conjunction with
these accompanying financial statements and related notes thereto as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
16
<PAGE> 17
<TABLE>
<CAPTION>
UNITED
COMBINED FOUNDING COMPANIES(1) TRANSNET, INC. PRO FORMA(2)
------------------------------------------------------------ --------------- ------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1 TO DECEMBER 20 TO YEAR ENDED
------------------------------------------- DECEMBER 19, DECEMBER 31, DECEMBER 31,
1991(3) 1992 1993 1994 1995 1995 1995
-------- -------- -------- ---------- -------------- --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
HISTORICAL DATA
Net revenues................ $150,793 $154,884 $171,901 $ 214,099 $246,526 $ 7,748 $ 254,274
Cost of delivery............ 112,196 112,620 122,110 156,323 181,217 5,462 186,679
-------- -------- -------- ---------- -------- ---------- ----------
Gross profit................ 38,597 42,264 49,791 57,776 65,309 2,286 67,595
Selling, general and
administrative expenses... 34,836 34,778 41,095 48,395 53,444 1,585 55,029
Amortization of intangible
assets.................... 849 1,642 2,258 3,667 3,204 92 3,296
-------- -------- -------- ---------- -------- ---------- ----------
Operating income............ 2,912 5,844 6,438 5,714 8,661 609 9,270
Interest expense............ 1,741 2,291 2,387 3,758 5,288 137 5,425
Interest income and other,
net(4).................... 2,781 227 127 2,245 264 5 269
-------- -------- -------- ---------- -------- ---------- ----------
Income before income taxes
and extraordinary item.... 3,952 3,780 4,178 4,201 3,637 477 4,114
Provision (benefit) for
income taxes.............. (223) 1,361 1,067 336 1,021 (2,231) (1,210)
-------- -------- -------- ---------- -------- ---------- ----------
Income before extraordinary
item...................... 4,175 2,419 3,111 3,865 2,616 2,708 5,324
Extraordinary loss on
extinguishment of debt.... -- -- -- -- -- 1,204 1,204
-------- -------- -------- ---------- -------- ---------- ----------
Net income................ $ 4,175 $ 2,419 $ 3,111 $ 3,865 $ 2,616 $ 1,504 $ 4,120
======== ======== ======== ========== ======== ========== ==========
Net income (loss) available
for common
stockholders(5)........... $ 4,175 $ 1,027 $ 2,980 $ 3,338 $(16,814)
Earnings per common share:
Income before
extraordinary item...... $ .31
Extraordinary loss on
early extinguishment of
debt.................... .14
----------
Net income................ $ .17
==========
Weighted average number of
common and common
equivalent shares(6)...... 8,798,963
UNAUDITED PRO FORMA DATA(7)
Income before income taxes
and extraordinary item.... $ 3,952 $ 3,780 $ 4,178 $ 4,201 $ 4,114
Provision for income
taxes(8).................. 1,115 2,499 2,278 1,754 519
Income before extraordinary
item...................... 2,837 1,281 1,900 2,447 3,595
Net income.................. 2,837 1,281 1,900 2,447 2,391
Pro forma earnings per
common share:
Income before
extraordinary item...... $ 0.31 $ 0.46
Extraordinary loss on
early extinguishment of
debt.................... -- 0.15
---------- ----------
Net income................ $ 0.31 $ 0.31
========== ==========
Weighted average number of
common and common
equivalent shares(9)...... 7,802,636 7,848,962
========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------- DECEMBER 31,
1991 1992 1993 1994 1995
-------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Working capital................ $ 3,744 $ 12 $ (407) $ (4,962) $ 232
Property and equipment......... 12,750 12,236 13,224 15,165 10,332
Total assets................... 42,393 45,264 47,130 68,423 70,430
Long-term debt................. 14,639 12,500 13,706 25,967 24,811
Stockholders' equity........... 12,144 11,731 7,152 3,056 16,177
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
UNITED
TRANSNET,
COMBINED INC.
FOUNDING COMPANIES(10) ------------
---------------------- FOR THE
FOR THE THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 30,
1995 1996
---------------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues............................................ $ 60,100 $ 66,255
Cost of delivery........................................ 43,656 48,532
---------- ----------
Gross profit............................................ 16,444 17,723
Selling, general and administrative expenses............ 12,770 13,657
Amortization of intangible assets....................... 805 747
---------- ----------
Operating income........................................ 2,869 3,319
Interest expense........................................ (1,214) (629)
Interest income and other, net.......................... 57 21
---------- ----------
Income before income taxes and extraordinary item....... 1,712 2,711
Provision for income taxes.............................. 268 1,095
---------- ----------
Income before extraordinary item........................ 1,444 1,616
Extraordinary loss on extinguishment of debt............ -- --
---------- ----------
Net income.............................................. $ 1,444 $ 1,616
========== ==========
Net income available for common stockholders(5)......... $ 917 $ 1,616
Earnings per common share:
Income before extraordinary item..................... $ 0.18
Extraordinary loss on extinguishment of debt......... --
----------
Net income........................................... $ 0.18
==========
UNAUDITED PRO FORMA INFORMATION:(7)
Income before income taxes and extraordinary item.... $ 1,712
Provision for taxes.................................. 779
----------
Income before extraordinary item..................... 933
Extraordinary loss on extinguishment of debt......... --
----------
Net income........................................... $ 933
==========
Earnings per common share:
Income before income taxes and extraordinary item.... $ 0.22
Provision for taxes.................................. 0.10
----------
Income before extraordinary item..................... 0.12
Extraordinary loss on extinguishment of debt......... --
----------
Net income........................................... $ 0.12
==========
Weighted average number of common and common equivalent
shares(9)............................................ 7,805,409 9,212,186
---------- ----------
BALANCE SHEET DATA:
Working capital......................................... $ 8,895
Property and equipment.................................. 9,681
Total assets............................................ 69,049
Long-term debt.......................................... 23,210
Stockholders' equity.................................... 23,995
</TABLE>
18
<PAGE> 19
- ---------------
[FN]
(1) The Founding Companies collectively are considered predecessors to the
Company. The following table represents selected information of the
individual Founding Companies for the two most recent fiscal years and the
period from January 1 to December 19, 1995.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1 TO
------------------- DECEMBER 19,
1993 1994 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
COURIER DISPATCH
Net revenues............................................. $ 70,631 $104,614 $133,701
Gross profit............................................. 20,671 27,929 33,905
Selling, general and administrative...................... 17,443 24,060 28,533
Net loss................................................. (319) (1,768) (2,076)
======== ======== ========
TRICOR
Net revenues............................................. $ 32,504 $ 34,288 $ 37,252
Gross profit............................................. 8,778 9,442 10,080
Selling, general and administrative...................... 6,789 7,058 6,898
Net income............................................... 1,666 4,112 3,156
======== ======== ========
FILM TRANSIT
Net revenues............................................. $ 24,692 $ 24,717 $ 22,352
Gross profit............................................. 8,613 7,888 7,786
Selling, general and administrative...................... 7,348 7,351 7,155
Net income............................................... 688 253 396
======== ======== ========
LANTER
Net revenues............................................. $ 19,647 $ 21,431 $ 21,777
Gross profit............................................. 5,195 5,629 5,309
Selling, general and administrative...................... 3,511 3,816 3,845
Net income............................................... 1,317 1,431 1,095
======== ======== ========
SUNBELT
Net revenues............................................. $ 11,882 $ 14,187 $ 16,629
Gross profit............................................. 2,616 2,984 3,542
Selling, general and administrative...................... 2,135 2,096 2,320
Net (loss) income........................................ (176) 54 272
======== ======== ========
3D
Net revenues............................................. $ 12,545 $ 14,862 $ 14,815
Gross profit............................................. 3,918 3,904 4,687
Selling, general and administrative...................... 3,869 4,014 4,693
Net loss................................................. (65) (217) (227)
======== ======== ========
COMBINED
Net revenues............................................. $171,901 $214,099 $246,526
Gross profit............................................. 49,791 57,776 65,309
Selling, general and administrative...................... 41,095 48,395 53,444
Net income............................................... 3,111 3,865 2,616
======== ======== ========
</TABLE>
[FN]
(2) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to December 19, 1995 and the results of
operations of United TransNet, Inc. for the period from December 20 to
December 31, 1995.
19
<PAGE> 20
[FN]
(3) Includes financial information of a predecessor company to Courier Dispatch
for nine months and actual data for Courier Dispatch for three months.
(4) Included in other income for the years ended December 31, 1991 and 1994 are
proceeds from key man life insurance of $3.0 million and $2.0 million,
respectively.
(5) Net income (loss) available for common stockholders includes warrant
accretion for the years ended December 31, 1992, 1993 and 1994 and the
period ended December 19, 1995 and for the three months ended March 31,
1995 of $1.4 million, $0.1 million, $0.5 million, $19.4 million and $0.5
million, respectively.
(6) Weighted average number of common and common equivalent shares for the
period from December 20 to December 31, 1995 includes (i) 4,692,222 shares
issued to the stockholders of the Founding Companies in connection with the
Mergers which gives effect to 58,021 shares repurchased from a minority
stockholder immediately prior to the Company's initial public offering,
(ii) 3,925,000 shares sold in the Company's initial public offering and
(iii) the dilution attributable to outstanding options to purchase Common
Stock, applying the treasury stock method.
(7) Certain of the Founding Companies were S corporations during the periods
presented 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 FAS 109, based on tax laws that were in effect during the respective
periods.
(8) Provision for income taxes for the year ended December 31, 1995 reflects
the benefits of (i) the reversal of the valuation allowance of $2,164
related to the deferred tax assets of Courier Dispatch and (ii) the
recording of a net deferred tax asset of $243 at Tricor and Lanter upon
their change from S corporations to C corporations.
(9) Weighted average number of common and common equivalent shares for 1994
includes (i) 4,750,243 shares issued to the stockholders of the Founding
Companies in connection with the Mergers of the Founding Companies, (ii)
2,873,425 shares sold in the Company's initial public offering to cover the
cash portion of the purchase price paid in connection with the Mergers of
the Founding Companies and (iii) the dilution attributable to outstanding
options to purchase Common Stock, applying the treasury stock method. For
1995, weighted average number of common and common equivalent shares also
includes (i) the weighted average portion of the 3,925,000 shares sold in
the Company's initial public offering, net of the shares sold to cover the
cash portion of the purchase price paid in connection with the Mergers of
the Founding Companies, (ii) the weighted average portion of 58,021 shares
repurchased in December 1995 from a minority stockholder and (iii) the
weighted average portion of stock options which became exercisable during
1995.
<TABLE>
(10) The Founding Companies are considered predecessors to the Company. The
following table represents selected unaudited information of the
individual Founding Companies for the period ending March 31, 1995.
<CAPTION>
FOR THE
THREE
MONTHS ENDED
MARCH 31,
1995
------------
<S> <C>
COURIER DISPATCH
Net revenues................................................... $32,290
Gross profit................................................... 8,677
Selling, general and administrative............................ 6,930
Net loss....................................................... (536)
=======
TRICOR
Net revenues................................................... $ 8,904
Gross profit................................................... 2,602
Selling, general and administrative............................ 1,704
Net income..................................................... 887
=======
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
FOR THE
THREE
MONTHS ENDED
MARCH 31,
1995
------------
<S> <C>
FILM TRANSIT
Net revenues................................................... $ 5,694
Gross profit................................................... 1,728
Selling, general and administrative............................ 1,647
Net income..................................................... 46
=======
LANTER
Net revenues................................................... $ 5,529
Gross profit................................................... 1,395
Selling, general and administrative............................ 970
Net income..................................................... 330
=======
SUNBELT
Net revenues................................................... $ 3,991
Gross profit................................................... 917
Selling, general and administrative............................ 553
Net income..................................................... 110
=======
3D
Net revenues................................................... $ 3,692
Gross profit................................................... 1,125
Selling, general and administrative............................ 966
Net income..................................................... 80
=======
COMBINED
Net revenues................................................... $60,100
Gross profit................................................... 16,444
Selling, general and administrative............................ 12,770
Net income..................................................... 917
=======
</TABLE>
21
<PAGE> 22
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial information provides
information on the combined financial information of the Company and Eddy
Messenger. The unaudited pro forma balance sheet presentation assumes that the
merger (the "Eddy Messenger Merger") of Eddy Messenger with a wholly-owned
subsidiary of the Company had been consummated as of March 30, 1996. The
unaudited pro forma income statement presentation assumes that the Eddy
Messenger Merger had been consummated at the inception of each income statement
period presented. In the Eddy Messenger Merger, the Company acquired all of the
outstanding capital stock of Eddy Messenger in exchange for approximately
226,900 shares of Common Stock and $3.6 million in cash, excluding certain
contingent payments based on future performance. The Eddy Messenger Merger will
be accounted for under the purchase method of accounting.
Since March 30, 1996, the Company has acquired the assets of M & R Express,
Inc. ("M&R"), the assets of Statewide Delivery Service, Inc. ("Statewide") used
in connection with Statewide's scheduled and unscheduled ground messenger and
courier services in Massachusetts and the capital stock of Carl Messenger
Service, Inc. ("Carl Messenger"). These companies provide scheduled and
unscheduled ground messenger and courier services in Connecticut, Maryland and
Massachusetts. The total revenue of these three companies for the year ended
December 31, 1995 was approximately $12 million. The aggregate consideration for
these transactions was $3.3 million in cash, excluding certain contingent
payments based on future performance, and approximately 58,000 shares of Common
Stock. The pro forma effect of these acquisitions is not presented since such
effect is not material either individually or in the aggregate.
22
<PAGE> 23
UNITED TRANSNET, INC.
<TABLE>
PRO FORMA COMBINING BALANCE SHEETS AS OF MARCH 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
UNITED EDDY
TRANSNET, INC. MESSENGER PRO FORMA PRO FORMA
CONSOLIDATED SERVICE, INC. ADJUSTMENTS COMBINED
-------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............. $ 1,350 $ 161 $ $ 1,511
Accounts receivable.................... 22,086 803 22,889
Less: allowance........................ (383) -- (383)
Short-term investments................. 32 -- 32
Prepaids and other assets.............. 3,524 -- 3,524
Income taxes receivable................ 202 615 817
------- ------ ------ -------
Total current assets........... 26,811 1,579 28,390
Property and equipment................... 9,681 45 9,726
Goodwill, net............................ 16,120 -- 5,926 (1) 22,046
Other intangible assets, net............. 7,908 10 2,540 (1) 10,458
Other assets............................. 5,555 209 5,764
Deferred tax assets...................... 2,974 281 3,255
------- ------ ------ -------
Total assets................... $69,049 $2,124 $8,466 $79,639
======= ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................ $ 177 $ 225 $ (200)(1) $ 202
Dividends payable...................... 402 -- 402
Accounts payable....................... 8,441 118 8,559
Accrued liabilities.................... 8,115 1,061 (225)(1) 8,951
Income taxes payable................... 705 4 709
Deferred tax liabilities............... 76 -- 76
------- ------ ------ -------
Total current liabilities...... 17,916 1,408 (425) 18,899
Long term debt, net of current
maturities............................. 23,210 88 3,600 (1) 26,898
Deferred compensation.................... 451 -- 451
Other liabilities........................ 3,477 19 3,496
------- ------ ------ -------
Total liabilities.............. 45,054 1,515 3,175 49,744
------- ------ ------ -------
Stockholders' equity
Preferred stock.......................... -- -- -- --
Common stock............................. 9 -- -- 9
Paid-in capital.......................... 20,866 -- 5,900 (1)(2) 26,766
Treasury stock........................... -- (16) 16 (2) --
Retained earnings........................ 3,120 625 (625)(2) 3,120
------- ------ ------ -------
Total stockholders' equity..... 23,995 609 5,291 29,895
------- ------ ------ -------
Total liabilities and
stockholders' equity......... $69,049 $2,124 $8,466 $79,639
======= ====== ====== =======
</TABLE>
23
<PAGE> 24
<TABLE>
- ---------------
<FN>
(1) Intangibles resulting from the acquisition of Eddy Messenger:
<S> <C>
Purchase Price:
Common stock........................................ $5,900
Cash................................................ 3,600
Acquisition cost.................................... 75
------
Total..................................... 9,575
Pay-off of certain debt with cash proceeds.......... 500
Equity of Eddy Messenger............................ 609
------
Intangibles resulting from the acquisition of Eddy
Messenger......................................... $8,466
======
Allocation of resulting intangible
Goodwill............................................ $5,926
Other intangible -- customer list................... 2,540
------
$8,466
======
</TABLE>
<TABLE>
(2) To record issuance of Common Stock valued at $5.9 million for the
acquisition of Eddy Messenger as follows:
<CAPTION>
COMMON PAID-IN TREASURY RETAINED
STOCK CAPITAL STOCK EARNINGS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Combined balances............................... $9 $20,866 $(16) $3,745
Issuance of 226,921 shares of Common Stock...... -- 5,900
Elimination of acquired entity.................. 16 (625)
--
------- ---- ------
Pro forma combined.............................. $9 $26,766 $ 0 $3,120
== ======= ==== ======
</TABLE>
24
<PAGE> 25
UNITED TRANSNET, INC.
<TABLE>
PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
UNITED EDDY
TRANSNET, MESSENGER
INC. SERVICE, PRO FORMA PRO FORMA
CONSOLIDATED INC. ADJUSTMENTS COMBINED
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................................ $ 66,255 $ 2,838 $ $ 69,093
Cost of delivery............................ 48,532 2,330 (171)(3) 50,691
---------- ------- ------ ----------
Gross profit.............................. 17,723 508 171 18,402
Selling, general and administrative
expenses.................................. 13,657 1,548 (993)(3) 14,212
Amortization of intangibles................. 747 112(1) 859
---------- ------- ------ ----------
Operating income.......................... 3,319 (1,040) 1,052 3,331
Other income (expense)
Interest expense.......................... (629) (3) (62)(2) (694)
Interest income and other, net............ 21 104 (85)(3) 40
---------- ------- ------ ----------
Income (loss) before income taxes........... 2,711 (939) 905 2,677
Provision (benefit) for income taxes........ 1,095 (357) 344(4) 1,082
---------- ------- ------ ----------
Net income (loss)........................... $ 1,616 $ (582) $ 561 $ 1,595
========== ======= ====== ==========
Earnings per share.......................... $ 0.18 $ 0.17
========== ==========
Earnings per share -- fully diluted......... $ 0.18 $ 0.17(5)
========== ==========
Weighted average shares outstanding......... 9,212,186 9,439,107
========== ==========
</TABLE>
[FN]
- ---------------
(1) To amortize the assignment of the purchase price that exceeds the fair value
of the net assets acquired. The amount assigned to goodwill is to be
amortized using the straight-line method over a period of twenty-five years.
The amount assigned to the intangible -- customer list is to be amortized
using the straight-line method over a period of twelve years.
(2) To record the interest expense related to the cash portion of the
acquisition. The interest rate used is the actual borrowing rate for the
cash portion of the acquisition. The interest rate is 6.94%.
25
<PAGE> 26
[FN]
(3) As part of the acquisition of Eddy Messenger, the real estate operations of
Eddy Messenger will not be a continuing part of the operations of the
combined entities. Additionally, certain terms regarding officers' salaries
and rental expense on facilities with related parties have been agreed to
between the parties. The following adjustments reflect the effect of these
agreements on the continuing revenue and expenses of the combined entities:
<TABLE>
<CAPTION>
REAL ESTATE OPERATIONS TERMS PER AGREEMENT TOTAL
---------------------- ------------------- -----
<S> <C> <C> <C>
Revenues (included in interest income
and other, net)...................... $ 85 $ $ 85
==== ==== ====
Cost of delivery
Salaries............................. $ 52 $ $ 52
Telephone............................ 1 1
Property taxes....................... 11 11
Rent................................. 59 59
Other................................ 48 48
---- ---- ----
Total............................. $112 $ 59 $171
==== ==== ====
Selling, general and administrative
expenses
Salaries............................. $323 $361 $684
Insurance and benefits............... 16 18 34
Vehicle leases and maintenance....... 7 7
Vehicle depreciation................. 118 118
Leasehold improvements
depreciation...................... 138 138
Professional fees.................... 12 12
---- ---- ----
Total............................. $489 $504 $993
==== ==== ====
</TABLE>
[FN]
(4) Tax effect of the pro forma adjustments using a rate of 38%.
(5) Earnings per share - fully diluted include the effect of the contingent
payment of $3.65 million amortized using the straight-line method over a
period of twenty-five years.
26
<PAGE> 27
<TABLE>
PRO FORMA COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
UNITED EDDY
TRANSNET, INC. MESSENGER PRO FORMA PRO FORMA
CONSOLIDATED(6) SERVICE, INC. ADJUSTMENTS COMBINED
--------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues........................ $ 254,274 $12,181 $ $ 266,455
Cost of delivery.................... 186,679 9,628 (392)(3) 195,915
---------- ------ ----- ----------
Gross profit................... 67,595 2,553 392 70,540
Selling, general and administrative
expenses.......................... 55,029 2,710 (993)(3) 56,746
Amortization of intangibles......... 3,296 -- 449(1) 3,745
---------- ------ ----- ----------
Operating income (loss)........ 9,270 (157) 936 10,049
Other income (expense)
Interest expense.................. (5,425) (6) (250)(2) (5,681)
Interest income and other, net.... 269 307 (207)(3) 369
---------- ------ ----- ----------
Income before income taxes and
extraordinary item................ 4,114 144 479 4,737
Unaudited information:(7)
Provision for income taxes.......... 519 62 182(4) 763
---------- ------ ----- ----------
Income before extraordinary items... $ 3,595 $ 82 $ 297 $ 3,974
========== ======= ===== ==========
Earnings per share -- primary....... $ 0.46 $ 0.49
========== ==========
Earnings per share -- fully
diluted........................... $ 0.46 $ 0.47(5)
========== ==========
Weighted average shares outstanding
primary and fully diluted......... 7,848,962 8,075,883
========== ==========
<FN>
- ---------------
(1) To amortize the assignment of the purchase price that exceeds the fair value
of the net assets acquired. The amount assigned to goodwill is to be
amortized using the straight-line method over a period of twenty-five years.
The amount assigned to the intangible-customer list is to be amortized using
the straight-line method over a period of twelve years.
(2) To record the interest expense to the cash portion of the acquisition. The
interest rate used is the actual borrowing rate for the cash portion of the
acquisition. The interest rate is 6.94%.
</TABLE>
27
<PAGE> 28
[FN]
<TABLE>
(3) As part of the acquisition of Eddy Messenger, the real estate operations of
Eddy Messenger will not be a continuing part of the operations of the
combined entities. Additionally, certain terms regarding officers' salaries
and rental expense on facilities with related parties have been agreed to
between the parties. The following adjustments reflect the effect of these
agreements on the continuing revenues and expenses of the combined entities:
<CAPTION>
REAL ESTATE TERMS PER
OPERATIONS AGREEMENT TOTAL
----------- --------- -----
<S> <C> <C> <C>
Revenues (included in interest
income and other, net)....... $207 $ $207
==== ==== ====
Cost of delivery
Salaries..................... $ 85 $ $ 85
Telephone.................... 5 5
Property taxes............... 69 69
Rent......................... 233 233
---- ---- ----
Total..................... $159 $233 $392
==== ==== ====
Selling, general and
administrative expenses
Salaries..................... $ 93 $617 $710
Insurance and benefits....... 34 29 63
Insurance building........... 24 24
Vehicle leases and
maintenance............... 25 25
Vehicle depreciation......... 46 46
Professional fees............ 77 48 125
---- ---- ----
Total..................... $228 $765 $993
==== ==== ====
<FN>
(4) Tax effect of the pro forma adjustments using a rate of 38%.
(5) Earnings per share - fully diluted include the effect of the contingent
payment of $3.65 million amortized using the straight-line method over a
period of twenty-five years.
(6) Reflects the results of operations of the Combining Founding Companies for
the period from January 1 to December 19, 1996 and the results of operations
of the Company for the period from December 20 to December 31, 1995.
(7) Certain of the Founding Companies were S corporations during the period
presented and accordingly were not subject to corporate income taxes. The
unaudited 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 the period presented, calculated in accordance with Statement
of Financial Accounting Standards 109, based on the tax laws that were in
effect during the period.
</TABLE>
28
<PAGE> 29
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, the Combined Financial
Statements of the Combined Founding Companies, the Financial Statements of the
Founding Companies and the related Notes thereto appearing elsewhere in this
Prospectus.
INTRODUCTION
Simultaneously with the closing of the Company's initial public 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. As a result, historical
combined results may not be comparable to or indicative of future performance.
For the years ended December 31, 1993 and 1994, 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 initial public offering. Pro Forma year ended
December 31, 1995 includes the accounts of the Founding Companies for the period
from January 1 to December 19, 1995 as if the Founding Companies had always been
members of the same operating group without giving effect to the Mergers or the
initial public offering and the accounts of the Company for the period from
December 20 to December 31, 1995.
The Founding Companies derived their revenues from fees charged for ground
and air delivery and distribution management services. Cost of delivery expenses
relating to ground delivery services consist primarily of salaries and related
benefits paid to drivers, fees paid to independent contractors and vehicle
operating and maintenance expenses. The primary cost of delivery expenses for
air delivery services include purchased services from commercial air carriers
and ground delivery agents.
Prior to the Mergers and the initial public offering, Tricor and Lanter
were S corporations under the Internal Revenue Code of 1986, as amended. The
Company will begin to file as a consolidated group for federal income tax
purposes. For purposes of the Combined Financial Statements presented in this
Prospectus, pro forma federal and state income taxes have been provided for
these two companies as if they had filed C corporation tax returns. See Note 15
to Notes to the Combined Financial Statements of the Combined Founding
Companies.
INCLUSION OF FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may be deemed to
be forward-looking statements, as defined in the Private Securities Litigation
Reform Act of 1995. Any forward-looking statement included herein has been
included based upon the facts available to management at the date of this
Prospectus. Any forward-looking statement is, however, inherently subject to the
uncertainty of future events, whether economic, competitive or otherwise, many
of which are beyond the control of the Company, or which may involve
determinations which may be made by management in the future. There can,
therefore, be no assurance that the events or results described in such
forward-looking statements will occur, and actual events or results may vary
materially from those included herein. See "Risk Factors" for a discussion of
the material factors which may affect such events or results.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth various items as a percentage of revenues:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
PRO
FORMA
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net revenue............................................................ 100.0% 100.0% 100.0%
Cost of delivery....................................................... 71.0% 73.0% 73.4%
----- ----- -----
Gross profit......................................................... 29.0% 27.0% 26.6%
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
PRO
FORMA
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Selling, general and administrative expenses........................... 24.0% 22.6% 21.7%
Amortization........................................................... 1.3% 1.7% 1.3%
---- ---- ----
Operating income..................................................... 3.7% 2.7% 3.6%
Interest expense....................................................... 1.4% 1.8% 2.1%
Interest income and other, net......................................... 0.1% 1.1% 0.1%
---- ---- ----
Income before income taxes and extraordinary item.................... 2.4% 2.0% 1.6%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 30,
1995 1996
--------- ---------
<S> <C> <C>
Net revenue........................................................ 100.0% 100.0%
Cost of delivery................................................... 72.6% 73.3%
----- -----
Gross profit..................................................... 27.4% 26.7%
Selling, general and administrative expenses....................... 21.3% 20.6%
Amortization....................................................... 1.3% 1.1%
----- -----
Operating income................................................. 4.8% 5.0%
Interest expense................................................... 2.0% 0.9%
Interest income and other, net..................................... 0.1% 0.0%
----- -----
Income before income taxes....................................... 2.9% 4.1%
===== =====
</TABLE>
Consolidated Three Months Ended March 30, 1996 Compared to Combined Three
Months Ended March 31, 1995
Net revenues increased 10.2% to $66.3 million for the three months ended
March 30, 1996 from $60.1 million for the three months ended March 31, 1995. Of
this $6.2 million net increase, $2.0 million was attributable to acquisitions
made by Courier Dispatch in the Upper Midwest and Western regions in May 1995.
The remaining net increase was primarily attributable to internal growth through
additions to the customer base and increases in business with existing
customers.
Cost of delivery increased 11.2% to $48.5 million for the three months
ended March 30, 1996 from $43.7 million for the three months ended March 31,
1995. Of this $4.9 million increase, $1.6 million was attributable to
acquisitions made by Courier Dispatch in the Upper Midwest and Western regions
in May 1995. Cost of delivery as a percentage of revenues increased to 73.3% for
the three months ended March 30, 1996 from 72.6% for the three months ended
March 31, 1995. This deterioration in margin was attributable to a loss of
conjunctive business in the Florida and Upper Midwest regions, although offset
by a smaller increase at the Iowa and Wisconsin districts of the Upper Midwest
region. Additionally, hourly rate increases for drivers in the range of $0.25 to
$0.50 per hour were extended in the Upper Midwest, Mid-Atlantic and Southeast
regions.
Selling, general and administrative expenses increased 6.9% to $13.7
million for the three months ended March 30, 1996 from $12.8 million for the
three months ended March 31, 1995. The $0.9 million increase is a result of the
following: (i) Courier Dispatch's 1995 acquisitions, (ii) organizational changes
at the Company as a result of the Company's initial public offering, and (iii)
increases required to support higher levels of revenue.
Amortization of intangibles decreased to $0.7 million for the three months
ended March 30, 1996 from $0.8 million for the three months ended March 31,
1995. This decrease is attributable to non-competition agreements being fully
amortized at December 31, 1995.
Interest expense decreased to $0.6 million for the three months ending
March 30, 1996 from $1.2 million for the three months ended March 31, 1995. The
decrease is a result of the use of the proceeds of the Company's initial public
offering to repay a portion of the indebtedness of the Company.
30
<PAGE> 31
The effective tax rate was 40.3% for the three months ended March 30, 1996
compared to a pro forma effective tax rate of 45.5% for the three months ended
March 31, 1995. The decrease is the result of relatively constant federal
nontaxable items and a decrease in state nontaxable items creating
disproportionately higher taxable income for the three months ended March 31,
1995, as compared to the three months ended March 30, 1996.
Pro Forma Year Ended December 31, 1995 Compared to Historical Combined Year
Ended December 31, 1994
Net revenues increased 18.8% to $254.2 million for the year ended December
31, 1995 from $214.1 million for the year ended December 31, 1994. The increase
of $40.1 million was comprised of $33.6 million from Courier Dispatch, $4.1
million from Tricor and $4.3 million from Lanter, Sunbelt and 3D combined and a
decrease of $1.9 million from Film Transit. Of this net increase, $23.2 million
was attributable to acquisitions by Courier Dispatch in the Mid-Atlantic,
Florida and Upper Midwest regions. The remaining net increase was primarily
attributable to internal growth in Courier Dispatch, Tricor and Sunbelt through
additions to their customer base and increases in business with existing
customers.
Cost of delivery increased 19.4% to $186.7 million for the year ended
December 31, 1995 from $156.3 million for the year ended December 31, 1994. The
increase of $30.4 million was comprised of $26.2 million from Courier Dispatch,
$3.2 million from Tricor, $3.3 million from Sunbelt and Lanter combined, and a
decrease of $2.3 million from Film Transit and 3D combined. The increase at
Courier Dispatch is primarily due to 1994 and 1995 acquisitions. Cost of
delivery as a percentage of net revenues increased to 73.4% for the year ended
December 31, 1995 from 73.0% for the year ended December 31, 1994. This
deterioration in margin, attributable to Courier Dispatch, resulted primarily
from the implementation of benefit programs and lower profit margins associated
with Commercial Courier Express, Inc. ("Commercial Courier", acquired in June
1994), which has a higher concentration of dedicated as compared to conjunctive
business.
Selling, general and administrative expenses increased 13.7% to $55.0
million for the year ended December 31, 1995 from $48.4 million for the year
ended December 31, 1994. The increase of $6.6 million was comprised of $5.4
million from Courier Dispatch and $1.3 million from Tricor, Sunbelt, Lanter and
3D combined and a decrease of $0.1 million from Film Transit. The increase is a
result of (i) one-time compensation items associated with the Company's initial
public offering at Courier Dispatch and 3D, (ii) Courier Dispatch's 1994 and
1995 acquisitions, (iii) organizational changes at Courier Dispatch as a result
of the Company's initial public offering, and (iv) increases required to support
higher levels of revenue at Courier Dispatch, Tricor, Sunbelt, Lanter and 3D.
Amortization of intangibles decreased to $3.3 million for the year ended
December 31, 1995 from $3.7 million for the year ended December 31, 1994. This
decrease is primarily attributable to the one-time write-off of operating
certificates at December 31, 1994 which totalled $0.6 million. Excluding this
adjustment, amortization of intangibles increased $0.2 million for the year
ended December 31, 1995 primarily as a result of Courier Dispatch's 1994 and
1995 acquisitions.
Interest Expense increased to $5.4 million for the year ended December 31,
1995 from $3.8 million for the year ended December 31, 1994, primarily as a
result of borrowings by Courier Dispatch for acquisitions in 1994 and 1995 and
for working capital purposes.
Interest income and other, net decreased to $0.3 million for the year ended
December 31, 1995 from $2.2 million for the year ended December 31, 1994,
primarily as a result of $2.0 million of key man life insurance proceeds
received in 1994 related to the death of a former officer of Tricor.
The effective tax rate was (29.4%) in 1995 compared to 8.0% in 1994. In
1995, the valuation allowance of $2.2 million relating to the deferred tax
assets of Courier Dispatch was reversed because the consolidated earnings of the
Company have caused realization to become probable. Also in 1995, a benefit of
$0.2 million was recognized related to the recording of net deferred tax assets
at Tricor and Lanter upon their change from S corporations to C corporations.
See the notes to the related accompanying financial statements of United
TransNet, Inc. and the Combined Founding Companies for a more detailed analysis
of the provision for income taxes.
31
<PAGE> 32
The extraordinary loss of $1.2 million relates to the early extinguishment
of debt, reflecting the use of proceeds from the Company's initial public
offering.
Historical Combined Year Ended December 31, 1994 Compared to Historical
Combined Year Ended December 31, 1993
Net revenues increased 24.5% to $214.1 million in 1994 from $171.9 million
in 1993. The increase of $42.2 million was comprised of $34.0 million from
Courier Dispatch, $1.8 million from Tricor and $6.4 million from Film Transit,
Lanter, Sunbelt and 3D combined. Of this increase, $26.2 million was
attributable to acquisitions in 1993 and 1994 by Courier Dispatch in the
Mid-Atlantic, Florida and Upper Midwest regions. The remaining net increase was
primarily attributable to internal growth in Courier Dispatch, Tricor, Lanter
and Sunbelt through additions to their customer base and increases in business
with existing customers.
Cost of delivery increased 28.0% to $156.3 million for the year ended
December 31, 1994 from $122.1 million for the year ended December 31, 1993. The
increase of $34.2 million was comprised of $26.7 million from Courier Dispatch,
$2.3 million from 3D, and $5.2 million from Sunbelt, Tricor, Lanter and Film
combined. The increase at Courier Dispatch is primarily due to 1993 and 1994
acquisitions. Cost of delivery as a percentage of net revenues increased to
73.0% for the year ended December 31, 1994 from 71.0% for the year ended
December 31, 1993. This deterioration in margin, attributed to Courier Dispatch,
resulted primarily from lower profit margins associated with Commercial Courier,
which has a higher concentration of dedicated as compared to conjunctive
business.
Selling, general and administrative expenses increased 17.8% to $48.4
million for the year ended December 31, 1994 from $41.1 million for the year
ended December 31, 1993. The increase of $7.3 million was comprised of $6.6
million from Courier Dispatch and $0.7 million from Tricor, Sunbelt, Lanter, 3D
and Film combined. The increase at Courier Dispatch is primarily a result of
1993 and 1994 acquisitions as well as increases required to support higher
revenue.
Amortization of intangibles increased to $3.7 million for the year ended
December 31, 1994 from $2.3 million for the year ended December 31, 1993 as a
result of Courier Dispatch's acquisitions in 1993 and 1994.
Interest expense increased to $3.8 million in 1994 from $2.4 million in
1993, primarily as a result of Courier Dispatch borrowings for the acquisition
of companies and the repurchase of common stock.
Interest income and other, net, increased to $2.2 million in 1994 from $0.1
million in 1993, primarily as a result of $2.0 million of key man life insurance
proceeds received in 1994 related to the death of a former officer of Tricor.
The effective tax rate was 8.0% in 1994 compared to 25.5% in 1993. Income
not subject to corporate level taxation increased by $2.6 million in 1994
compared to 1993. See the notes to the related accompanying financial statements
of the Combined Founding Companies for a more detailed analysis of the provision
for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Historical Combined Year Ended December 31, 1993
During 1993, net cash provided by operating activities was $8.4 million.
Cash used in investing activities was $6.4 million, which primarily consisted of
$3.3 million of capital expenditures and payments of $3.1 million by Courier
Dispatch to acquire companies. Cash used in financing activities was $3.6
million which primarily consisted of net debt payments of $1.1 million by
Courier Dispatch, Tricor, Film Transit and 3D, a distribution by Tricor of $0.6
million to a stockholder, borrowings by Sunbelt of $0.3 million from a related
party and net payments by the Districts of $2.2 million to Lanter.
Historical Combined Year Ended December 31, 1994
During 1994, net cash provided by operating activities was $11.1 million.
Cash used in investing activities was $17.1 million, which primarily consisted
of $2.0 million of capital expenditures and payments of $14.3 million by Courier
Dispatch to acquire companies. Cash provided by financing activities was $8.1
million
32
<PAGE> 33
which primarily consisted of net borrowings of $13.9 million by Courier
Dispatch, a distribution by Tricor of $1.6 million to a stockholder, payments by
Courier Dispatch of $3.0 million to repurchase common stock offset by proceeds
of $0.6 million from the sale of common stock, borrowings by Sunbelt of $0.5
million from a related party and net payments by the Districts of $2.3 million
to Lanter.
Pro Forma Year Ended December 31, 1995
During 1995, net cash provided by operating activities was $8.3 million.
Cash used in investing activities was $4.1 million, which primarily consisted of
$2.3 million of capital expenditures and payments of $3.5 million by Courier
Dispatch to acquire companies during the year. Cash used in financing activities
was $5.9 million, which consisted of net proceeds from the issuance of common
stock, net of the cash consideration of the Mergers, of $11.4 million, a net
increase in borrowings of $24.3 million, repayment of debt totaling $33.4
million, net payments by the Districts to Lanter of $2.1 million, a distribution
by Tricor of $5.3 million to a stockholder and $0.8 million for the repurchase
of Common Stock by Courier Dispatch. The net increase in borrowings was the
result of the repayment of existing debt assumed in the Mergers and additional
borrowings for working capital purposes. The repayment of debt was primarily the
refinancing of $12.9 million of debt incurred by Courier Dispatch for
acquisitions of companies in 1994 and 1995, repayment of $10.9 million of
Courier Dispatch subordinated debt and Sunbelt's repayment of $5.8 million to a
related party.
The Company for the Period from December 20 to December 31, 1995
On December 20, 1995, the Company completed the Mergers and its initial
public offering, which involved the public sale of 3,925,000 shares of Common
Stock at a price of $14.50 per share. The proceeds from the Company's initial
public offering, net of underwriting discounts and commissions and after
deducting expenses of the initial public offering, were approximately $47.2
million. Of this amount, $35.8 million was used to pay the cash portion of the
purchase price to the stockholders of the Founding Companies. The remaining
$11.4 million was used to repay a portion of the indebtedness assumed from the
Founding Companies in connection with the Mergers.
For the period from December 20 to December 31, 1995, net cash used by
operating activities was $1.8 million. Cash used in investing activities was
less than $0.1 million. Cash provided by financing activities was $0.8 million.
The Company for the Three Months Ended March 30, 1996
During the three months ended March 30, 1996, net cash used by operating
activities was $4.1 million. Cash used in investing activities was $0.2 million,
which primarily consisted of capital expenditures. Cash provided by financing
activities was $3.3 million which primarily consisted of net proceeds from the
issuance of Common Stock totaling $6.2 million, net of interest and underwriting
discounts and commissions, and the repayment of debt totaling $2.9 million. The
repayment of debt was for that incurred by Courier Dispatch for acquisitions of
companies in 1995 and included payments made on the Company's revolving line of
credit.
The Company has entered into the Credit Agreement with First Union (for
itself and as agent for other participating lenders) pursuant to which the
Company may borrow up to $50 million to refinance certain existing indebtedness
assumed in the Mergers, as well as to fund acquisitions and provide working
capital and for other general corporate purposes. The Credit Agreement provides
for a revolving line of credit of $50 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 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
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<PAGE> 34
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 million or cash or cash and other consideration in excess of $10 million
(which limits will be reduced during the period prior to January 1, 1997 if
certain financial tests are not met).
The Company had borrowed approximately $31.4 million under the Credit
Agreement as of May 20, 1996, and as of that date approximately $13.2 million
was available for borrowing thereunder.
Based upon its present plans, management believes that operating cash flow
and available credit resources 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 intends 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.
ACCOUNTING STANDARDS
The Company currently accounts for stock-related compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and therefore the Company does not expect any effect from the
adoption of Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation." This statement is effective for the Company's year
ending December 31, 1996.
SEASONALITY AND INFLATION
The Company's revenue typically shows no significant seasonal variations,
although its delivery services may be affected by sudden or prolonged inclement
weather if transportation channels are disrupted.
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
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BUSINESS
GENERAL
The Company offers a variety of customized distribution services for
corporate customers with time-sensitive pickup and delivery requirements.
Management believes that the Company is the leading provider of scheduled ground
courier services in the United States. Through both its ground and air
divisions, the Company provides scheduled and unscheduled delivery service for
local, regional, national and international shipments, and offers same-day and
next-day delivery options. The Company's ground delivery business serves 39
states and all major metropolitan markets in the United States. The
approximately 4,082 ground transportation vehicles in the Company's fleet as of
March 30, 1996, which is one of the largest courier and parcel fleets in the
United States, facilitate the Company's broad geographic coverage. Unlike most
of the Company's competitors which serve principally metropolitan areas, the
Company serves all points in many states and is the leading intrastate ground
courier in most of such states. Additionally, the Company's air division
provides scheduled door-to-door air service nationally, emergency
next-flight-out service both domestically and internationally and air cargo
service primarily to certain destinations in the Pacific Rim.
INDUSTRY OVERVIEW
The ground courier industry in the United States is highly fragmented and
is composed of same-day, next-day and second-day service providers with a
customer base of businesses which regularly require time-sensitive deliveries of
documents and parcels. Management estimates that the ground courier industry is
a multi-billion dollar industry comprised of thousands of companies. The
document and parcel delivery market is served by (i) thousands of small,
closely-held owner-operator businesses which operate in only one location with
little or no national market share, (ii) numerous firms which operate
principally on a regional basis, (iii) fewer than ten multi-regional companies,
including the Company, which focus on same-day and early next-day delivery, and
(iv) several large companies with national hub-and-spoke delivery systems which
dominate the next-day and second-day delivery market and provide service based
upon their own pickup and delivery schedules rather than those established by
the customer. These large national companies currently do not have a broad
presence in the same-day delivery market.
The air courier industry in the United States provides same-day, next-day
and next-flight-out delivery services to customers requiring inter-city document
and parcel delivery. The Air Courier Conference Association estimates that the
annual revenue of the air courier industry reached $40 billion in 1995 based
upon industry-wide predictions for growth. The industry is comprised of numerous
closely-held companies as well as several large well-capitalized entities
serving either specified regions of the U.S. or the entire nation, many of which
utilize agency relationships to provide the ground services necessary to ship
deliveries to their final destinations.
BUSINESS STRATEGY
The principal components of the Company's operating strategy are to
continue to focus primarily on customized, scheduled delivery service, to
maintain internal growth, to capitalize on favorable industry trends and to
pursue an aggressive acquisition program to consolidate the Company's position
and broaden its geographic reach:
- FOCUS ON CUSTOMIZED, SCHEDULED DELIVERY SERVICE: The Company
concentrates primarily on customized, same-day and overnight scheduled
delivery services. Most of the Company's 1995 ground and air revenue was
derived from scheduled service, which is provided to customers on a
recurring basis with specific pickup and delivery times. Because the
majority of the Company's revenue is derived from customized delivery
service, the Company generally does not compete directly with the large,
national parcel and overnight delivery companies, which offer primarily
standardized next-day service with fixed pickup and delivery schedules.
Additionally, the Company does not emphasize on-call messenger service,
because it is generally more price competitive and is not viewed by the
Company as a market with significant potential for growth.
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- MAINTAIN STRONG INTERNAL GROWTH: The Mergers have enabled the Founding
Companies to broaden their geographic reach. Consequently, the Company
expects to capture substantial national account business with customers
previously served by the Founding Companies only on a regional basis.
Additionally, the Company will expand the use of its industrial
engineering group (an internal logistics consulting operation) to
maximize the efficiency of customers' delivery systems and to promote
additional services. The Company will also continue to diversify its
customer base.
- CAPITALIZE ON FAVORABLE INDUSTRY TRENDS: The Company intends to take
advantage of several favorable industry trends, including (i)
outsourcing -- companies are increasingly outsourcing non-core services
such as expedited pickup and delivery transportation services; (ii)
just-in-time inventory management -- companies seeking to reduce
inventory and warehousing costs are relying on service-intensive,
expedited delivery companies with increasing frequency; (iii) improved
communications technology -- improved technology facilitates effective,
just-in-time inventory management, while allowing providers of expedited
delivery services to be more responsive to customers; and (iv) continuing
demands of the financial services industry -- financial institutions,
which constitute a material portion of the Company's customer base,
continue to require the delivery of originals to process checks and,
according to The Nilson Report, a publication which reports on consumer
payment systems, the volume of checks written has increased by 8.5% since
1990, and is expected to continue to increase through 2021.
- GROW THROUGH ACQUISITIONS: The Company intends to pursue an aggressive
acquisition program to consolidate its position in its current operating
regions and to broaden its geographic reach in a highly fragmented
industry. The Company's management believes its prior acquisition
experience will be instrumental in identifying and negotiating
acquisitions. By acquiring companies in markets where the Company already
has a presence, management expects to recognize substantial operating
advantages by consolidating overlapping delivery routes. The Company also
expects to achieve significant cost savings by eliminating redundant
administrative functions and facilities. Additionally, the Company
intends to expand into new markets with larger, strategic acquisitions.
In such situations, the key management of the acquired companies would,
under most circumstances, remain in place.
ACQUISITION STRATEGY
The highly fragmented courier industry consists of thousands of small
ground courier companies and numerous scheduled air courier companies. Many of
these companies present attractive acquisition opportunities for the Company.
The Company's senior management team has significant acquisition experience,
including (in addition to the Mergers) the completion of the acquisition of six
ground courier companies and two air courier companies in the last three years.
The Company intends to continue to acquire ground and air courier businesses in
regions where it currently has a presence, and may seek to make strategic
acquisitions in regions where it does not presently operate. The Company
recently consummated four acquisitions, as described below under "-- Recent
Developments." The Company is not considering any acquisition which is both
probable and material as of the date of this Prospectus.
In the regions where it has operations, the Company will endeavor to
acquire businesses with strong customer relationships, a history of superior
customer service and the potential to be assimilated efficiently into the
Company's existing regional management structure. For strategic acquisitions in
new regions, the Company will evaluate the strength of the existing management
and operations, and will seek management with operating philosophies consistent
with its own. In all acquisitions, the Company will evaluate the potential for
revenue growth and the efficiencies that may be achieved through consolidation.
The Company intends to appoint a vice president of acquisitions to work with
regional management to identify acquisition opportunities. The Company will rely
upon its senior management to negotiate acquisitions.
The Company believes it is an attractive acquiror for closely held
businesses which are unable to raise sufficient capital to expand and for
companies whose owners desire liquidity. The Company intends to issue shares of
Common Stock as its primary method of financing acquisitions; however, it may
use other financing
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methods as necessary, including the payment of cash or the issuance of debt or
other equity securities. See "Risk Factors -- Acquisition Strategy; Possible
Need for Additional Financing."
The Company believes that it has a competitive advantage because of
management's experience in assimilating acquired companies into ongoing
operations. Once a new business has been acquired, the Company expects to assign
an operations logistics team from its industrial engineering group to integrate
the acquisition into the Company. The team would initially convert accounting,
payroll and cash management functions, assimilate and standardize insurance
coverage and employee benefits, visit customers and meet with employees.
Thereafter, in regions where the Company has already established operations, the
team would seek to consolidate route structures and facilities with the
Company's pre-existing operations.
RECENT DEVELOPMENTS
In May 1996, the Company acquired the assets of M&R, the assets of
Statewide used in connection with Statewide's scheduled and unscheduled ground
messenger and courier services in Massachusetts and the capital stock of Carl
Messenger. These companies provide scheduled and unscheduled ground messenger
and courier services in Connecticut, Maryland and Massachusetts. The total
revenue of these companies for the year ended December 31, 1995 was
approximately $12 million. The aggregate consideration for these transactions
was approximately $3.3 million in cash, excluding certain contingent payments
based on future performance, and approximately 58,000 shares of Common Stock.
On May 14, 1996, a wholly-owned subsidiary of the Company merged with Eddy
Messenger, a company which provides scheduled and unscheduled ground messenger
and courier services in Connecticut, New Jersey and New York State (including
New York City). The aggregate consideration (the "Eddy Messenger Merger
Consideration") for the Eddy Messenger Merger was valued at $9.5 million,
excluding certain contingent payments based on future performance, and included
the issuance of approximately 226,900 shares of Common Stock and the payment of
approximately $3.6 million in cash. The amount of the Eddy Messenger Merger
Consideration was determined based on Eddy Messenger's current operating
results, estimates of additional customer base available to Eddy Messenger and
estimates of cost savings for the Company resulting from the Eddy Messenger
Merger. The cash portion of the Eddy Messenger Merger Consideration was funded
by borrowings under the Company's revolving credit facility with First Union
National Bank of Georgia, as agent for a group of lenders.
In connection with the Eddy Messenger Merger, the Company entered into
leases for four properties which are partly or wholly-owned by entities owned or
controlled by various former stockholders of Eddy Messenger. The Company also
assumed two additional leases owned by third parties not affiliated with Eddy
Messenger or its former stockholders. Such properties were leased by Eddy
Messenger prior to the Eddy Messenger Merger for an aggregate monthly rental
expense to Eddy Messenger of approximately $36,660 per month. Under the leases
with the Company, the aggregate monthly rental expense for these properties is
approximately $21,223 per month. In additional to real property leases, the
tangible assets of Eddy Messenger include furniture, fixtures, equipment and
customer lists.
Upon the closing of the Eddy Messenger Merger, three of the four former
stockholders of Eddy Messenger entered into a three-year employment agreement
with the Company which includes a two-year covenant not to compete. The fourth
former Eddy Messenger stockholder entered into a two-year noncompetition
agreement with the Company.
GROUND COURIER OPERATIONS
The Company offers its customers scheduled ground parcel and package
courier service on a recurring basis with specific pickup and delivery times as
well as unscheduled (or on-call) ground courier service. The Company's ground
delivery business serves 39 states and all major metropolitan markets in the
United States and management believes that the Company is the leading provider
of scheduled ground courier services in the United States. Unlike most of the
Company's competitors which serve principally metropolitan areas, the Company
serves all points in many states and is the leading intrastate ground courier in
most of such states. The Company offers nationwide service with particularly
strong regional franchises in the Southeast, in the
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Midwest, along the East Coast and in select western states. The Company's fleet,
which consisted of approximately 4,082 ground transportation vehicles as of
March 30, 1996, is one of the largest courier and parcel fleets in the United
States and facilitates the Company's broad geographic coverage. The following
chart indicates the states in which the Company provides scheduled ground
courier services on a state-wide basis:
<TABLE>
<CAPTION>
STATEWIDE SERVICE
-----------------
<S> <C>
Northeast Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Rhode Island, Vermont
Mid-Atlantic Maryland, North Carolina, South Carolina, Virginia, Washington, D.C.
Southeast Alabama, Florida, Georgia, Tennessee (Eastern)
South Central Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee (Western), Texas
Midwest Iowa, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin
West California
</TABLE>
The Company also provides ground courier services in connection with its
air courier service to all locations within the United States.
The Company provides a variety of ground distribution services, including
(a) customized routed service, such as same-day or next-day delivery of
documents, data and canceled checks, primarily for financial institutions, (b)
small package and parcel service, such as just-in-time delivery of
pharmaceutical products, medical supplies and office supplies, (c) same-day and
overnight pouch service, for items such as interoffice mail, (d) expedited mail
delivery, such as morning and evening transfer of mail between post office
sorting centers and customer locations, and (e) other value-added services, such
as on-call deliveries, warehousing, mailroom management and transportation
network consulting services.
The Company primarily offers two types of ground courier service,
"conjunctive" service and "dedicated" service. When providing "conjunctive"
service, the Company adjusts its existing scheduled route structure in order to
meet a customer's pickup and delivery needs in conjunction with service provided
to other customers. The Company attempts to develop its conjunctive delivery
business to increase route concentration. Certain of the Company's customers
favor the Company's "dedicated" service, in which the Company assigns one or
more vehicles and drivers to pick up and deliver items for a single customer at
the times and to the locations designated by the customer.
The Company's subsidiaries have entered into written contracts with
approximately 450 customers. The contracts typically specify the types of
services to be provided, the price of such services and the term of the
contract, which is at least one year. Although such contracts generally can be
terminated by the customer after a short notice and cure period if the level of
service is inadequate, such terminations have been rare in the Company's
experience.
In recent years, unscheduled or on-call services have been offered as a
supplemental service to customers who request it, rather than developed as a
profit center of the Company's ground operations. For certain of its customers,
the Company provides warehousing services in the form of temporary storage of
parts and supplies required for distribution on demand. To a smaller degree, the
Company also provides in-house mailroom management.
Industrial Engineering. The Company's industrial engineering department
provides logistics consulting services and designs customized delivery programs.
The industrial engineering department utilizes the Company's costing models
(including cost factors such as fuel, insurance and labor costs, types of
vehicles to be used, time and mileage), data from operations and route dry runs
in making its recommendations for dedicated and conjunctive delivery routes. The
industrial engineering department works closely with the Company's marketing
staff and is actively involved in developing the Company's proposals for new
accounts
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and for additional services for existing accounts. The industrial engineering
department also provides consulting services to potential and existing customers
to analyze and evaluate a customer's existing operations and propose more
efficient delivery systems. Finally, the industrial engineering department
conducts internal studies of the Company's routes to assist the Company in
achieving maximum efficiency.
<TABLE>
Vehicles. As of March 30, 1996, the Company operated a fleet of
approximately 4,082 ground transportation vehicles, of which approximately 65%
were leased by the Company from approximately nine unaffiliated lessors. Of
these 4,082 vehicles, 37 were operated as manufacturers' test vehicles. To lower
its costs, the Company intends to reduce the number of firms from which it
leases vehicles. A Company vehicle lease typically has a term of 12 months with
renewal options. Monthly lease payments are calculated based upon a variable
percentage of the vehicle's stipulated cost. Upon termination of the lease, the
vehicle is sold with a stipulated residual value. The Company is responsible for
the vehicle's maintenance and insurance. Vehicles range in size from passenger
cars to trailers as set forth below:
VEHICLES IN OPERATION
(AS OF MARCH 30, 1996)
----------------------
<CAPTION>
APPROXIMATE APPROXIMATE
TYPE NUMBER % OF FLEET
- ---- ----------- -----------
<S> <C> <C>
Passenger Cars...................................................... 534 13.1%
Compact pickup trucks............................................... 1,211 29.7
Full-size vans/mid-size vans........................................ 1,715 42.0
Cube vans........................................................... 215 5.3
Dock trucks......................................................... 235 5.7
Tractors............................................................ 24 0.6
Trailers............................................................ 148 3.6
----- ----
Total............................................................... 4,082 100%
===== ====
</TABLE>
In an effort to extend the useful lives of its vehicles and to maximize
safety, the Company has implemented a sophisticated fleet maintenance program.
In its Northeast, Mid-Atlantic, Southeast, South Central and Midwest regions,
the Company operates thirty-five of its own maintenance shops in order to
provide high quality service for its vehicles. The Company, through one of its
vehicle lessors, participates in an extended warranty plan offered by certain
automobile manufacturers, and certain of its repair facilities are certified by
at least two such manufacturers. In all regions where it does not operate a
maintenance shop, the Company contracts with independent shops in order to
service its vehicles. Management anticipates establishing additional maintenance
shops throughout its operating regions in the future and expanding its extended
warranty program to cover leased vehicles in all the regions it serves.
Drivers. As of March 30, 1996, the Company employed approximately 5,879
full- and part-time drivers who constituted approximately 84% of its workforce.
The ground courier industry has typically experienced a high driver turnover
rate. The Company believes, based upon the experience of certain of the Founding
Companies, that its strict safety and human resources policies will continue to
favorably affect the Company's aggregate driver turnover rate. The Company
believes that continued reduction in the driver turnover rate will reduce the
time devoted to driver training and thereby increase the overall efficiency of
the Company's operations. The Company anticipates that over time it will
institute health insurance benefits for all of its full-time drivers in its
continuing effort to reduce its driver turnover rate.
Use of Independent Owner/Operators. In contrast to courier companies which
rely heavily or exclusively on independent owner/operators to provide ground
courier service, the Company has historically employed its drivers directly
because it can maintain greater control over the route operations and quality of
service provided. The Company will, however, utilize the services of independent
owner/operators where management deems this to be more cost-effective. As of
March 30, 1996, the Company had contracted with approximately 764 independent
owner/operators.
The federal employment and income tax reporting of many companies in the
transportation industry has been challenged by the Internal Revenue Service on
the grounds that independent owner/operators should
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have been classified and treated, for federal tax purposes, as employees. In
order to avoid such issues, the Company will attempt to assure that its
arrangements with independent owner/operators are structured so that they will
not be deemed to be employees. As a result, such independent owner/operators
will, among other things, have substantial control over the timing and manner of
the services they provide.
AIR COURIER OPERATIONS
The Company offers air delivery service through commercial airlines and
chartered aircraft to transport time-sensitive documents and packages, primarily
for financial institutions, throughout the United States. The Company provides
scheduled door-to-door air service nationally, emergency next-flight-out service
both domestically and internationally and air cargo service primarily to the
Pacific Rim and Canada.
The Company purchases its air transportation from certain major airlines
and air charter operators. The Company has negotiated favorable terms with
commercial and charter airlines that enable it to charge competitive rates for
its services while maintaining its margins. The Company does not currently own
or operate any aircraft and has no intention to do so.
To meet the scheduling needs of its air courier customers, the Company
operates by means of a hub-and-spoke network centered in metropolitan areas
across the United States and by means of direct routing between certain cities.
In cities in which the Company maintains vehicles, the Company supplements its
air courier services with the Company's ground transportation services to
deliver its shipments to their ultimate destinations. In the cities in which the
Company does not maintain vehicles, the Company relies on agency relationships
with independent ground courier companies for transportation of shipments to and
from the airport. In providing air cargo delivery services, the Company acts as
a freight forwarding agent, arranging for cargo to be shipped to its final
destination. The Company advises customers by telephone and by an automated
transmission system on a regular basis of actual delivery times for each air
courier shipment.
The Company provides a variety of air delivery services, including (a)
customized scheduled service, such as same-day or next-day delivery of
documents, data and canceled checks, primarily for financial institutions, (b)
international service, which includes both air courier and air cargo deliveries,
and (c) next-flight-out service, in which the Company provides door-to-door
delivery of documents as quickly as possible, generally utilizing space on the
next available commercial aircraft.
CUSTOMERS
The financial services industry, including commercial banks, savings banks
and Federal Reserve banks, represents the Company's largest category of
customers, and in 1995 accounted for approximately 40% of the Combined Founding
Companies' revenue. Wholesale pharmaceutical companies, which deliver
pharmaceutical products to retail outlets, comprised the Company's next largest
category of customers, based on the 1995 revenue of the Combined Founding
Companies. Manufacturers of computer parts, automobile parts, tractor parts and
other parts and products, which utilize the Company's parcel delivery services
to ship parts and products to their customers, accounted for the third largest
share of the Combined Founding Companies' 1995 revenue. Various businesses
requiring expedited mail delivery, scheduled interoffice (or "pouch") deliveries
and other scheduled and unscheduled courier services comprised the balance of
aggregate 1995 revenues. Such businesses included insurance companies and
accounting, legal, retail, advertising, printing and other types of firms. As of
March 30, 1996, no single customer accounted for more than 5% of the Company's
revenue.
MARKETING AND CUSTOMER SERVICE
The Company conducts a comprehensive marketing program involving direct
sales and customer service to maintain and increase its customer base. As of
March 30, 1996, the Company employed approximately 42 sales employees and
approximately 50 customer service employees. The Company's marketing efforts are
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<PAGE> 41
organized regionally with senior management acting to coordinate the efforts of
regional staff and supplement their efforts in marketing for and serving
national accounts.
The Company's marketing representatives make regular calls on existing and
potential customers to design customized services capable of meeting the
customer's delivery requirements within reasonable cost parameters. Whenever
possible, the Company offers its customers several different service options in
an effort to provide the most cost effective delivery services possible when
bidding for new accounts. Customer service representatives regularly communicate
with customers to monitor the quality of services and to determine promptly a
customer's need for new or different services. The Company's senior management
attends and makes presentations at customer conferences, seminars and related
events to promote new business.
The Company's marketing and sales personnel also identify and pursue new
areas of business for the Company. The Company has identified and will pursue
deliveries of products for logistics companies, computer parts, and medical
office and hospital samples and specimen deliveries. In addition, the Company
intends to market its existing delivery routes to companies in various
industries which are outsourcing their delivery systems or otherwise require
customized delivery services.
RISK MANAGEMENT
From time to time, the Company's drivers are involved in accidents. The
Company carries liability insurance of $15 million for each such accident (it
may effectively self-insure for the first $250,000 claimed), and independent
owner/operators are required to maintain liability insurance of at least the
minimum amounts required by applicable state law. Furthermore, all drivers and
independent owner/operators are covered by the Company's fidelity bond. The
Company also has insurance policies covering property and fiduciary trust
liability.
The Company has appointed a director of risk management who is responsible
for overseeing the creation, implementation and enforcement of the Company's
safety policies and programs. In addition, each district within each region of
the Company's operations has a division safety manager who is responsible for
various safety-related duties such as conducting driver education courses,
analyzing accident records to design appropriate preventative measures and
implementing safety incentive programs for drivers. Management believes the
safety policies and programs of the Combined Founding Companies have contributed
to a decline in their aggregate insurance costs as a percentage of revenue.
COMPETITION
Both the ground and air courier businesses are highly competitive. In
general, the Company competes with national, regional and local ground and air
courier companies. Management believes that the principal competitive factors in
the courier business are the ability to provide timely deliveries on a
consistent basis at a competitive price. When competing for business, the
Company will emphasize custom-designed services, the Founding Companies' record
of maintaining excellent on-time performance standards and their established
operating history.
In its scheduled ground courier operations, the Company primarily competes
with organizations which operate on a regional basis and typically provide
scheduled courier services for time-sensitive documents and parcels. The Company
estimates that there are fewer than ten multi-regional companies which focus on
same-day and early next-day delivery and numerous firms which operate
principally on a regional basis, and that as of the closing of the Mergers the
Company was the largest of these companies. In contrast with the Company, many
of the regional and multi-regional companies serve principally metropolitan
centers without significant all-points service within a given state or region.
The Company also may compete with small, closely-held owner/operator businesses
which operate in only a small number of locations. The Company generally
competes on the basis of price and its ability to provide customized service to
more points regionally and nationally, which it believes is an important
advantage in this highly fragmented industry. Because the majority of the
Company's revenues are derived from customized, same-day delivery service, the
Company generally does not compete directly with the large, national parcel and
overnight delivery companies which offer primarily standardized next-day service
with fixed pickup and delivery schedules.
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In its air courier operations, the Company primarily competes with other
air courier companies which specialize in scheduled air delivery services, as
well as other shippers of air cargo, in which shipments are arranged in
accordance with the needs of the customer. The Company estimates that there are
fewer than twenty air courier companies and that as of the closing of the
Mergers it was the third largest, following two national parcel delivery
organizations with extensive capital resources, which have acquired air courier
companies specializing in next-flight-out deliveries utilizing commercial and
chartered airlines. Next-flight-out deliveries are not a primary focus of the
Company's air courier division. To the extent the Company provides
next-flight-out air deliveries, it will compete directly against such larger
companies for this business. Moreover, such larger companies may in the future
pursue the Company's core scheduled, customized air delivery business, in which
event the Company will compete on the basis of price, service and its
historically high performance standards. See "Industry Overview."
ORGANIZATION
In December 1995, the Company consummated the Mergers with the six Founding
Companies. The aggregate consideration paid by the Company in the Mergers was
4,692,222 shares of Common Stock and approximately $35,820,000 in cash. The
stockholders of each of the Founding Companies, except for Courier Dispatch,
received their consideration for the Mergers in the form of Common Stock and
cash. The Courier Dispatch stockholders received only Common Stock. The
consideration to be paid to the stockholders of the Founding Companies was
determined through arm's length negotiations among the Company and the
stockholders of the Founding Companies. The valuation of each Founding Company
other than Courier Dispatch was generally based upon its current operating
results, estimates of the additional customer base available to such Founding
Company and estimates of cost savings resulting from the Mergers. The valuation
of Courier Dispatch was a function of the valuation of the Company as a whole
less the valuations of the other Founding Companies.
Certain information regarding each of the Founding Companies, each of which
is a subsidiary of the Company, is discussed below:
Courier Dispatch. Courier Dispatch is based in metropolitan Atlanta,
Georgia and its business was established in 1967. Courier Dispatch operates
scheduled ground and parcel courier services in seventeen states and the
District of Columbia and operates air courier services nationally. The
stockholders of Courier Dispatch received an aggregate of 329,775 shares of
Common Stock in the Merger. In connection with the Mergers, options to purchase
shares of Courier Dispatch common stock were terminated and replaced with
options to purchase an aggregate of 216,110 shares of Common Stock at purchase
prices ranging from $2.06 to $4.42 per share, 212,711 of which options are
currently exercisable. BancBoston, Fleet and First Union, each of which held
securities convertible into shares of Courier Dispatch common stock prior to the
Mergers, exchanged their respective convertible securities for an aggregate of
1,792,660 shares of Common Stock. Officers and stockholders of Courier Dispatch
included Mr. Philip A. Belyew, who is the President, Chief Executive Officer,
Chairman and a director of the Company and Mr. Ronald J. Barowski, who is an
Executive Vice President, the Treasurer and the Chief Financial Officer of the
Company. Mr. R. David England, Jr., who was a stockholder of Courier Dispatch
and its vice president, operations, became Executive Vice President, Ground, of
the Company upon the closing of the Mergers, and Mr. George G. Wagner, who was a
corporate vice president of Courier Dispatch, became the Senior Vice President,
National Account Sales, of the Company. In connection with the Mergers, each of
Mr. Belyew, Mr. Barowski, Mr. England and Mr. Wagner entered into a three-year
employment agreement with the Company which includes a covenant not to compete
expiring no earlier than the fifth anniversary of the date of his employment
agreement.
Tricor. Tricor is based in San Francisco, California and its business was
established in 1957. Tricor provides air courier services nationally, with
ground courier support in California, as well as major metropolitan areas in
fourteen other states and Guam. Tricor also provides international air courier
and cargo services to portions of Canada and the Pacific Rim. The stockholders
of Tricor received an aggregate of 840,520 shares of Common Stock and
$11,716,000 in cash in the Mergers. Mr. Chee B. Louie, who was the president, a
director and a stockholder of Tricor, became Executive Vice President, Air, and
a director of the Company upon the closing of the Mergers. Ms. Christina V.
Louie, who held stock of Tricor jointly with
42
<PAGE> 43
Mr. Louie as his spouse, is employed by the Company at the regional level. Each
of Mr. and Ms. Louie entered into a three-year employment agreement with the
Company which includes a covenant not to compete expiring no earlier than the
fifth anniversary date of his or her employment agreement.
Film Transit. Film Transit is based in Memphis, Tennessee and was
established in 1937. Film Transit provides scheduled ground and parcel courier
services to all points in Alabama, Arkansas, Louisiana, Mississippi, Oklahoma
and Tennessee, and to portions of Florida, Georgia, Missouri, Illinois, Texas
and Kentucky. The stockholders of Film Transit received an aggregate of 530,202
shares of Common Stock and $7,390,000 in cash in the Mergers. Mr. Guilbert L.
Brandon, Jr., who was a director, the president and a stockholder of Film
Transit, became Vice President, Parcel, and a director of the Company upon the
closing of the Mergers. Mr. R. Wayne Mashburn, a former stockholder of Film
Transit, was employed by the Company at the regional level upon the closing of
the Mergers. In connection with the Mergers, each of Mr. Brandon and Mr.
Mashburn entered into a three-year employment agreement with the Company which
includes a covenant not to compete expiring no earlier than the fifth
anniversary of the date of his employment agreement. The three remaining former
stockholders of Film Transit entered into two-year covenants not to compete with
the Company.
Lanter. Lanter is based in Minneapolis, Minnesota and its business was
established in 1981. Lanter provides scheduled ground courier and parcel
delivery service to all points in Iowa, Nebraska and Wisconsin and to portions
of Michigan. The stockholders of Lanter received an aggregate of 662,145 shares
of Common Stock and $9,230,000 in cash in the Mergers. Mr. Steven W. Lanter, who
was the president, chief executive officer, a director and a stockholder of
Lanter became a director of the Company upon the closing of the Mergers. Mr.
Lanter and one of the other former stockholders of Lanter entered into a
two-year covenant not to compete with the Company. In connection with the
Mergers, Mr. Lanter pledged 31,434 shares of his Common Stock to the Company as
security for certain indemnification and other obligations owed by Mr. Lanter to
the Company under the Lanter Merger agreement. Also in connection with the
Mergers, Lanter Courier Corporation reorganized into two separate businesses:
Lanter, which was acquired by the Company in the Mergers, and Lanter Delivery
Systems, Inc. Lanter Delivery Systems, Inc. operates independently as a ground
courier and parcel delivery company in the states of Illinois, Indiana, Kansas,
Kentucky, Michigan (other than its upper peninsula), Missouri and Ohio. Prior to
the Mergers, Lanter was based in Madison, Illinois, outside of St. Louis,
Missouri. Lanter Delivery Systems, Inc. has covenanted not to operate in any
other states, except to the extent necessary to serve its ongoing business,
although the Company may compete with Lanter Delivery Systems, Inc. in such
states. The Company has a right of first refusal to acquire Lanter Delivery
Systems, Inc. which expires in December 2000.
Sunbelt. Sunbelt is based in Little Rock, Arkansas, and its business was
established in 1974. Sunbelt provides scheduled ground courier services to all
points in Arkansas, Louisiana and Mississippi and to portions of Alabama,
Florida, Kentucky, Missouri, Oklahoma, Tennessee and Texas. The stockholders of
Sunbelt received an aggregate of 270,028 shares of Common Stock and $3,764,000
in cash in the Mergers. Mr. James G. Salmon, who was the president and a
director of Sunbelt, became Vice President, Ground, and a director of the
Company upon the closing of the Mergers. In connection with the Mergers, Mr.
Salmon entered into a three-year employment agreement with the Company which
includes a covenant not to compete expiring no earlier than the fifth
anniversary of the date of his employment agreement. The three remaining former
stockholders of Sunbelt entered into two-year covenants not to compete with the
Company. Each of the covenants not to compete permits such stockholders to work
for their family business, which primarily provides contract mail transportation
service.
3D. 3D is based in Dallas, Texas and was established in 1982. 3D provides
ground parcel delivery services to most points in Arkansas, Florida and Texas
and to portions of Louisiana, Missouri and Oklahoma. The stockholders of 3D
received an aggregate of 266,892 shares of Common Stock and $3,720,000 in cash
in the Mergers. Ms. Carolyn Draper, who was the chairman, president, treasurer
and a stockholder of 3D, became a Vice President, the Secretary and a director
of the Company upon the closing of the Mergers. In connection with the Mergers,
Ms. Draper entered into a three-year employment agreement with the Company which
includes a covenant not to compete expiring no earlier than the fifth
anniversary of the date of her employment agreement. In connection with the
Mergers, Ms. Draper pledged 34,483 shares of her Common
43
<PAGE> 44
Stock to the Company as security for certain indemnification obligations owed by
Ms. Draper to the Company under the 3D Merger Agreement. One other former
stockholder of 3D entered into a two-year covenant not to compete with the
Company.
The Company will continue to operate the business of each Founding Company
on a decentralized basis to preserve the strong customer relationships and
regional franchise of each major operating unit, but senior management will act
to standardize various administrative and operating procedures such as
accounting, safety, insurance and employment policies. Over time, the Company
will gradually phase out each Founding Company's name and begin to operate in
all regions under the name "United TransNet, Inc." The Company's senior
management is composed of personnel from each of the Founding Companies. The
Company believes that it has sufficient administration and operations personnel
to pursue its business strategy on a national scale.
For further information regarding the employment agreements and
non-competition covenants, see "Management -- Employment Agreements;
Covenants-Not-To-Compete."
REGULATION
As of January 1, 1995, the Federal Aviation Administration Authorization
Act of 1994 became effective, abolishing all intrastate regulatory control over
prices, routes and services to which the Company had previously been subject.
This legislation has increased the ability of the Company to expand into new
states and to expand its presence in its existing areas of service.
The Company holds nationwide general commodities authority from the Federal
Highway Administration (formerly the Interstate Commerce Commission) to operate
as a common carrier on an interstate basis within the contiguous 48 states. The
Trucking Industry Regulatory Reform Act of 1994 further deregulated certain
segments of the transportation industry, so that the Company is no longer
required to file tariffs setting forth its interstate rates.
In connection with the operation of certain large vehicles and the handling
of hazardous materials in its courier operations, the Company is subject to
regulation by the United States Department of Transportation with respect to the
safety of operation and equipment for the Company's vehicles. The Company is
also subject to regulation by the Occupational Health and Safety Administration
and, to the extent it holds licenses to operate two-way radios to communicate
with its fleet, by the Federal Communications Commission. Management believes
that the Company is in substantial compliance with all of these regulations.
The Company's operations are subject to various federal, state and local
environmental laws and regulations governing vehicle emissions, underground fuel
tanks and the storage, use and disposal of hazardous materials and hazardous
waste in connection with the Company's in-house maintenance operations. Prior to
entering into merger agreements with the Founding Companies, the Company
evaluated all of the properties to be assumed in the Mergers, and engaged an
independent environmental audit firm to conduct assessments of the properties
owned by, or on which vehicle maintenance activities are conducted by, the
Founding Companies other than Courier Dispatch. Such assessments included
reviews of governmental databases relating to, observation of surface conditions
on and interviews with persons familiar with, such properties. Management
believes that, in connection with its prior management activities with Courier
Dispatch, it has had sufficient experience to evaluate the Courier Dispatch
properties, all of which are leased, and has ordered no further environmental
reviews for such properties. No material environmental problems were discovered
in the evaluations and reviews. To the extent environmental contamination occurs
or has occurred for which the Company is deemed responsible under applicable
law, it will be required to assume the costs of remediation, which could be
material.
44
<PAGE> 45
PROPERTIES
<TABLE>
As of March 30, 1996, the Company operated ground courier facilities in 189
locations, of which 3 were owned, 179 were leased, 3 were operated at
customer-owned locations, 2 were maintained at individual couriers' residences
and 2 were owned by another national courier company and were operated by the
Company. These facilities are principally used for operations, general and
administrative functions and training. In addition, several facilities also
contain or will primarily be used for storage and warehouse space. The owned
properties were located in Florida (one), Georgia (one) and Minnesota (one). The
chart below summarizes the locations of facilities which the Company leases:
<CAPTION>
NUMBER OF
LEASED
PROPERTIES
AS OF
REGION MARCH 30, 1996
------ --------------
<S> <C>
Northeast (ME, MA, NH, RI, VT)................................. 6
Mid-Atlantic (MD, NC, NY, SC, VA, DC).......................... 21
Southeast (AL, FL, GA, TN (Eastern))........................... 47
South Central (AR, LA, MS, OK, TN (Western), TX)............... 57
Midwest (IA, IL, MN, NE, ND, SD, WI)........................... 30
West (AZ, CA, CO, NV, OR, UT, WA).............................. 18
</TABLE>
The company has entered into additional leases in connection with its
acquisition of Eddy Messenger. See "-- Recent Developments."
The Company believes that its properties are well maintained, in good
condition and adequate for its present needs. The Company anticipates that
suitable additional or replacement space will be available when required.
The Combined Founding Companies' aggregate facilities rental expense for
the period ended December 19, 1995 was approximately $14 million and the
Company's facilities rental expense for the period from December 20, 1995 to
December 31, 1995 was approximately $0.48 million. The Company's facilities
rental expense for the period from January 1, 1996 to March 30, 1996 was
approximately $1.1 million. For additional information concerning the Company's
leases, see Note 11 to Notes to Combined Financial Statements of the Combined
Founding Companies and Note 8 to Notes to Consolidated Financial Statements of
the Company.
EMPLOYEES
At March 30, 1996, the Combined Founding Companies had approximately 6,979
employees, of which approximately 1,099 were employed full-time primarily in
various management, supervisory, administrative, and other corporate positions,
approximately 4,719 were employed full-time as drivers and approximately 1,160
were employed part-time, primarily as drivers. In 1991, Courier Dispatch's
drivers and mechanics employed at its facilities in Georgia designated Local 728
of the Teamsters as their bargaining representative, although as of March 30,
1996 only approximately 8.5% of such drivers and mechanics were union members.
The stated term of the collective bargaining agreement entered into at that time
expired as of July 31, 1993; however, no formal notice of termination or renewal
has been given by either party under such agreement's automatic renewal clause.
None of the Company's other employees are represented by unions. The Company has
experienced no work stoppages and believes that its relations with its employees
are good.
LEGAL PROCEEDINGS
Except as set forth below, there are no pending legal proceedings involving
the Company other than routine litigation incidental to the Company's business,
including numerous motor vehicle-related accident claims. In the opinion of the
Company's management, such proceedings should not, individually or in the
aggregate, have a material adverse effect on the Company's results of operations
or financial condition. See Note 11 to Notes to Combined Financial Statements of
the Combined Founding Companies for information concerning the Combined Founding
Companies' insurance and casualty claims.
45
<PAGE> 46
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 complaint contains allegations, among other things, of violations of
Florida's "whistleblower" statute and of retaliatory treatment by the Company.
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
appointed a special committee to investigate all of the employee's claims. Based
on preliminary results of that inquiry, the Company believes the claims to be
without merit and will vigorously defend the action.
46
<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
The following table sets forth certain information concerning each of the
persons who are directors or executive officers of the Company.
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Philip A. Belyew(1)........... 48 Chairman, President, Chief Executive Officer and Director
Ronald J. Barowski............ 54 Executive Vice President, Treasurer, and Chief Financial Officer
R. David England, Jr.......... 41 Executive Vice President, Ground
Chee B. Louie................. 47 Executive Vice President, Air and Director
George G. Wagner.............. 61 Senior Vice President, National Account Sales
Guilbert L. Brandon, Jr....... 49 Vice President, Parcel, and Director
Carolyn Draper................ 53 Vice President, Secretary and Director
James G. Salmon............... 30 Vice President, Ground, and Director
James W. Bennett.............. 53 Vice President, Sales, Marketing and National Accounts
Mark E. Rykowski.............. 37 Vice President, Group Services
Craig H. Deery(2)(3).......... 48 Director
John B. Ellis(2)(3)........... 71 Director
Habib Y. Gorgi(1)(2).......... 39 Director
Charles A. Krause(1)(2)....... 63 Director
Steven W. Lanter(1)(2)........ 37 Director
<FN>
- ---------------
(1) Member of the Acquisition Committee, of which Mr. Gorgi is the Chairman.
(2) Member of the Audit Committee, of which Mr. Krause is the Chairman.
(3) Member of the Compensation Committee, of which Mr. Ellis is the Chairman.
</TABLE>
Philip A. Belyew became a director and the Chairman, President and Chief
Executive Officer of the Company in October 1995. Mr. Belyew has over seventeen
years of experience in the courier industry. From June 1994 to December 1995,
Mr. Belyew was the President and Chief Executive Officer of both CDG Holding
Corp. and Courier Dispatch Group, Inc., and was a director of CDG Holding Corp.
from February 1994 until December 1995. From December 1991 until June 1994, Mr.
Belyew was President and Chief Operating Officer of Courier Dispatch Group, Inc.
From 1988 until December 1991, Mr. Belyew was a Senior Vice President of Courier
Dispatch Group, Inc. in charge of all ground profit centers.
Ronald J. Barowski became the Executive Vice President, Treasurer,
Secretary and Chief Financial Officer of the Company in October 1995, although
he ceased to serve as Secretary in December 1995. Mr. Barowski has over 30 years
of experience in finance and accounting. From March 1992 to December 1995, Mr.
Barowski was the Vice President, Chief Financial Officer, Secretary and
Treasurer of CDG Holding Corp. and Courier Dispatch Group, Inc. From August 1986
until July 1991, Mr. Barowski was the Executive Vice President, Secretary and
Chief Financial Officer of Lease Plan U.S.A.
R. David England, Jr. became the Executive Vice President, Ground, of the
Company in December 1995. Mr. England has over fourteen years of experience in
the courier industry. From October 1994 to December 1995, Mr. England was the
Vice President, Operations, of Courier Dispatch Group, Inc. From October 1992 to
October 1994, Mr. England was the Vice President, Business Development, of
Courier Dispatch Group, Inc. From November 1990 until October 1992, Mr. England
was a Regional Manager with Courier Dispatch Group, Inc.
Chee B. Louie became a director and the Executive Vice President, Air, of
the Company in December 1995. Mr. Louie has fourteen years of experience in the
courier industry. From August 1990 to December 1995, Mr. Louie was a director
and the President, Chief Executive Officer and the Secretary of Tricor, and,
47
<PAGE> 48
jointly with his spouse, was the sole stockholder of Tricor from September 1990
until December, 1995. Mr. Louie is also a director of CR Dispatch Service, Inc.,
a privately-held company.
George G. Wagner became the Senior Vice President, National Account Sales,
of the Company in December 1995. Mr. Wagner has over fifteen years of experience
in the courier industry. From 1988 to December 1995, Mr. Wagner was a Corporate
Vice President for air courier dispatch and national account sales and customer
service of Courier Dispatch Group, Inc.
Guilbert L. Brandon, Jr. became the Vice President, Parcel, and a director
of the Company in December 1995. Mr. Brandon has over ten years of experience in
the courier industry. From March 1985 to December 1995, Mr. Brandon was the
President of Film Transit.
Carolyn Draper became a director, a Vice President and the Secretary of the
Company in December 1995. Ms. Draper has over thirteen years of experience in
the transportation industry. From 1984 to December 1995, Ms. Draper was the
Chairman and President of 3D, and from December 1990 to December 1995 she was
3D's Treasurer.
James G. Salmon became a director and Vice President, Ground, of the
Company in December 1995. Mr. Salmon has eight years of experience in the
transportation industry. From January 1993 to December 1995, Mr. Salmon was a
director and the President of Salmon Acquisition Corporation and Sunbelt
Courier, Inc. Mr. Salmon was also employed on a part time basis as an assistant
to the executive officers of Pat Salmon and Sons, Inc., a company engaged in the
contract mail transportation business owned in part by his father and uncle.
From September 1990 to January 1993, Mr. Salmon was the Director of Personnel
and Legal Affairs of Pat Salmon and Sons, Inc.
James W. Bennett became Vice President, Sales, Marketing and National
Accounts, in March 1996. Mr. Bennett was the Vice President of Sales and
Marketing for Courier Dispatch from July 1994 to December 1995. From February
1989 to July 1994, Mr. Bennett was a Vice President of Pony Express Courier
Corp., a privately-held courier company.
Mark E. Rykowski became Vice President, Group Services, in March 1996. From
January 1996 to March 1996, Mr. Rykowski was the Vice President of Operations
for Courier Dispatch. Mr. Rykowski has been employed in various capacities by
Courier Dispatch, including as Regional Operations Analyst for Florida (1989 to
1990), General Manager, Florida (1990 to 1992), National Business Analyst (1992
to 1994) and Director of Operations (1994 to 1995).
Craig H. Deery became a director of the Company in December 1995. Mr. Deery
was a director of CDG Holding Corp. from 1991 to December 1995. Since 1986, Mr.
Deery has been a Managing Director of BancBoston. Mr. Deery is also a director
of Climax Manufacturing Company, The Sheridan Group, Inc., Bright Star, Inc. and
Bankers' Systems, Inc., all of which are privately-held companies.
John B. Ellis became a director of the Company in May 1996. Mr. Ellis, a
private investor, retired in 1986 as the Senior Vice President-Finance and
Treasurer of Genuine Parts Company (NYSE), a national distributor of automotive
replacement parts, where he had been employed in various capacities since 1974
and continues to serve as a director emeritus. Mr. Ellis is also a director of
Flowers Industries, Inc. (NYSE), Hughes Supply, Inc. (NYSE), Integrity,
Incorporated (OTC), Intermet Corporation (OTC), Interstate/Johnson-Lane, Inc.
(NYSE), Oxford Industries, Inc. (NYSE) and UAP, Inc. (Montreal and Toronto).
Habib Y. Gorgi became a director of the Company in December 1995. From 1986
to December 1995, Mr. Gorgi was the Executive Vice President of Fleet Growth
Resources, Inc. ("FGR"), the corporate general partner of FVP and was an
Executive Vice President of FVR from 1986 to December 1995. From January 1996 to
the present, Mr. Gorgi has been the President of FGR and FVR. Mr. Gorgi was a
director of CDG Holding Corp. from 1991 to December 1995. Mr. Gorgi is also a
director of Rosina Food Products, Inc., Dines Industrial Group, Inc., La Petite
Academy, Inc., Simonds Industries, Inc. and Wain-Roy, Inc., all of which are
privately-held companies.
48
<PAGE> 49
Charles A. Krause became a director of the Company in December 1995. Mr.
Krause has over fifteen years of experience in management consulting. Since
1980, Mr. Krause has been the President and Chief Executive Officer of Krause
Consultants Ltd., a company which performs management consulting services,
primarily in the area of strategic planning. Mr. Krause is also a director of
the Milwaukee Brewers Baseball Club, Velvac, Inc., The TLC Group, The Todd
Corporation and Hall Steel Corporation, all of which are privately-held
companies.
Steven W. Lanter became a director of the Company in December 1995. Mr.
Lanter has over fourteen years of experience in the courier industry. Since
February 1992, Mr. Lanter has been the President and Chief Operating Officer of
Lanter Company, a company engaged primarily in warehousing and trucking which is
an affiliate of Lanter. From 1987 to December 1995, Mr. Lanter was the President
of Lanter. In December 1995, Mr. Lanter became the President of Lanter Delivery
Systems, Inc.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of ten members. Each
director holds office until the annual meeting of the stockholders of the
Company next following his or her election, and until his or her successor is
elected and qualified. The holders of the shares of Common Stock, voting
separately as a class, are entitled to elect all of the directors.
The Board of Directors has established an Audit Committee, a Compensation
Committee and an Acquisition Committee.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive an annual fee of $26,800 as compensation for his or her
services as a member of the Board of Directors, plus attendance fees of $1,000
for each meeting and $1,000 for each meeting of a committee of the Board which
is not held in conjunction with a meeting of the Board of Directors.
Non-employee directors who chair committees of the Board receive an additional
fee of $2,000 per year. All directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacities as
directors of the Company. Under the 1996 Stock and Option Plan for Non-Employee
Directors, beginning in 1997 seventy percent of the annual fee will be payable
in the form of an option to purchase Common Stock pursuant to such plan and
thirty percent of the annual fee will be payable in cash, and non-employee
directors will be able to elect to receive Common Stock in lieu of all or a
specified portion, in increments of twenty-five percent, of their cash
compensation.
EXECUTIVE COMPENSATION
The Company was incorporated in October 1995, and has conducted operations
since December 1995. During the fiscal year ending December 31, 1995 the
Company's most highly compensated executive officers were Messrs. Belyew,
Brandon, Barowski, England, Louie, and Wagner (the "Named Executive Officers"),
each of whom entered into an employment agreement providing for an annual salary
of $250,000, $190,000, $150,000, $150,000, $150,000 and $130,000, respectively,
for the year commencing as of December 20, 1995. See "-- Employment Agreements;
Covenants-Not-To-Compete." In addition to base salary, the Named Executive
Officers pursuant to their employment agreements are eligible to participate in
such bonus and incentive compensation plans as are from time to time made
available to senior executives of the Company.
49
<PAGE> 50
<TABLE>
Summary Compensation Table The following table provides certain information
concerning compensation earned by each of the Named Executive Officers during
the Company's fiscal year ended December 31, 1995.
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ---------------------- UNDERLYING
PRINCIPAL POSITION YEAR(1) SALARY OPTIONS
- ------------------ ------- ------- ------------
<S> <C> <C> <C>
Philip A. Belyew................................. 1995 $28,042(2) 39,223
Chairman, President and Chief Executive Officer
Ronald J. Barowski............................... 1995 $12,709(3) 15,098
Executive Vice President, Treasurer and
Chief Financial Officer
Guilbert L. Brandon, Jr ......................... 1995 $ 5,250(4) 0
Vice President, Parcel
R. David England, Jr ............................ 1995 $10,417(3) 27,455
Executive Vice President, Ground
Chee B. Louie.................................... 1995 $ 4,616(3) 0
Executive Vice President, Air
George G. Wagner................................. 1995 $ 7,708(5) 31,378
Senior Vice President, National
Account Sales
- ---------------
<FN>
(1) The Common Stock of the Company became registered under Section 12 of the
Securities Exchange Act of 1934, as amended, effective December 14, 1995.
(2) Reflects payments made by the Company during the fiscal year ended December
31, 1995 under an employment agreement providing for an annual salary of
$250,000 commencing December 20, 1995.
(3) Reflects payments made by the Company during the fiscal year ended December
31, 1995 under an employment agreement providing for an annual salary of
$150,000 commencing December 20, 1995.
(4) Reflects payments made by the Company during the fiscal year ended December
31, 1995 under an employment agreement providing for an annual salary of
$190,000 commencing December 20, 1995.
(5) Reflects payments made by the Company during the fiscal year ended December
31, 1995 under an employment agreement providing for an annual salary of
$130,000 commencing December 20, 1995.
</TABLE>
<TABLE>
Option Grants in Last Fiscal Year. The following table sets forth
certain information concerning the grant of options to purchase Common Stock to
each of Messrs. Belyew, Barowski, England and Wagner. None of the other Named
Executive Officers were granted stock options in the fiscal year ended December
31, 1995.
OPTION GRANTS IN FISCAL YEAR 1995(1)
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATE OF STOCK
SECURITIES GRANTED TO MARKET PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE PRICE ON TERM(2)
OPTIONS IN FISCAL PRICE DATE OF EXPIRATION --------------------------------
NAME GRANTED YEAR 1995 ($/SH) GRANT DATE 0% 5% 10%
---- ---------- ---------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip A. Belyew.... 39,223 18.15% $2.06 $14.50 9/30/01 $487,934 $673,301 $906,413
Ronald J. Barowski.. 15,098 6.99% $2.06 $14.50 9/30/01 $187,819 $259,172 $348,903
R. David England,
Jr. ............... 27,455 12.70% $2.06 $14.50 9/30/01 $341,540 $471,292 $634,463
George G. Wagner.... 31,378 14.52% $2.06 $14.50 9/30/01 $390,342 $538,634 $725,121
- ---------------
<FN>
(1) The options noted in this table were issued upon conversion of options to
purchase Courier Dispatch common stock in the Mergers, and they are all
currently exercisable. See "-- Other Stock Options."
</TABLE>
50
<PAGE> 51
<TABLE>
(2) The number of years used for the life of the options is 5.778 years. The
stock price per year is as follows:
<CAPTION>
GROWTH RATE:
---------------------------
EXERCISE 5.00% 10.00%
PRICE STOCK PRICE STOCK PRICE
--------- ----------- -----------
<S> <C> <C> <C> <C>
12/20/95 $2.06 $14.50 $14.50
1 year 12/20/96 $2.06 $15.23 $15.95
1 year 12/20/97 $2.06 $15.99 $17.55
1 year 12/20/98 $2.06 $16.79 $19.30
1 year 12/20/99 $2.06 $17.62 $21.23
1 year 12/20/00 $2.06 $19.23 $25.17
0.788 year 09/30/01 $2.06 $19.23 $25.17
</TABLE>
<TABLE>
OPTION VALUES AT DECEMBER 31, 1995
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NAME OPTIONS(1) OPTIONS(2)
- ---- -------------------- ------------
<S> <C> <C>
Philip A. Belyew............................................ 39,223 $512,448
Ronald J. Barowski.......................................... 15,098 $197,255
R. David England, Jr. ...................................... 27,455 $358,700
George G. Wagner............................................ 31,378 $409,954
- ---------------
<FN>
(1) All unexercised options were immediately exercisable at December 31, 1995.
(2) Based on $13.065 per share, which is equal to $15.125 per share (the closing
price per share of the Common Stock on Friday, December 29, 1995, as
reported in a summary of composite transactions in The Wall Street Journal)
minus $2.06 (the per share exercise price of the options). All unexercised
options were immediately exercisable at December 31, 1995.
</TABLE>
<TABLE>
During the period commencing January 1, 1995 and ending December 20, 1995,
each of the Named Executive Officers received total compensation prior to the
Mergers from the Founding Companies as follows:
<CAPTION>
APPROXIMATE AMOUNT
SOURCE OF AMOUNT AND TYPE OF AND TYPE OF NON-CASH
NAME COMPENSATION CASH COMPENSATION COMPENSATION
- ---- ---------------- ---------------------------- --------------------
<S> <C> <C> <C>
Philip A. Belyew............ Courier Dispatch $167,708 $522,528(1)
Guilbert L. Brandon, Jr. ... Film Transit $185,760 $ 38,334(2)
Ronald J. Barowski.......... Courier Dispatch $114,042 $183,153(3)
R. David England, Jr. ...... Courier Dispatch $124,583 $179,132(4)
Chee B. Louie............... Tricor $230,000 plus S corporation $ 55,363(6)
distributions of
$6,800,261(5)
George G. Wagner............ Courier Dispatch $114,042 $181,265(7)
- ---------------
<FN>
(1) Consists of (i) a car allowance ($9,000), (ii) purchase of Courier Dispatch common stock at below market value
($4,002), (iii) a non-cash taxable benefit created as a result of Courier Dispatch paying the monthly interest
on a management stock loan ($25,590), (iv) a non-cash taxable benefit created as a result of Courier Dispatch
repaying the outstanding principal and interest of a management stock loan ($250,676), (v) life insurance
premiums ($9,550) and (vi) a gross-up on taxes relating to certain of the foregoing items ($223,710).
(2) Consists of (i) a car allowance ($945), (ii) life insurance premiums ($305), (iii) disability insurance
($3,176), (iv) club dues ($3,248) and (v) a pension contribution ($30,660) by Film Transit on behalf of Mr.
Brandon for 1995.
(3) Consists of (i) a car allowance ($7,800), (ii) purchase of Courier Dispatch common stock at below market value
($2,001), (iii) a non-cash taxable benefit created as a result of Courier Dispatch paying the monthly interest
on a management stock loan ($8,567), (iv) a non-cash taxable benefit created as a result of Courier Dispatch
repaying the outstanding principal and interest of a management stock loan ($84,557), (v) life insurance
premiums ($2,415) and (vi) a gross-up on taxes relating to certain of the foregoing items ($77,813).
(4) Consists of (i) a car allowance ($7,800), (ii) purchase of Courier Dispatch common stock at below market value
($2,001), (iii) a non-cash taxable benefit created as a result of Courier Dispatch paying the monthly interest
on a management stock loan ($8,667), (iv) a non-cash taxable benefit created as a result of Courier Dispatch
repaying the outstanding principal and interest of a management stock loan ($84,560), (v) life insurance
premiums ($640) and (vi) a gross-up on taxes relating to certain of the foregoing items ($75,464).
(5) Consists of S corporation distributions during the period from January 1, 1995 through December 19, 1995.
(6) Consists of (i) a company car ($18,285), (ii) disability and life insurance ($35,930) and (iii) net employer
contribution to 401(k) ($1,148).
(7) Consists of (i) a car allowance ($7,800), (ii) purchase of Courier Dispatch common stock at below market value
($2,001), (iii) a non-cash taxable benefit created as a result of Courier Dispatch paying the monthly interest
on a management stock loan ($8,567), (iv) a non-cash taxable benefit created as a result of Courier Dispatch
repaying the outstanding principal and interest of a management stock loan ($84,557), (v) life insurance
premiums ($2,880) and (vi) a gross-up on taxes relating to certain of the foregoing items ($75,460).
</TABLE>
See "Certain Transactions -- Guarantees of Loans to Certain Officers."
51
<PAGE> 52
1995 STOCK INCENTIVE PLAN
The Board of Directors and the stockholders of the Company prior to the
Company's initial public offering adopted the 1995 Stock Incentive Plan (the
"1995 Plan") and reserved for issuance thereunder an aggregate of 110,000 shares
of Common Stock. The Company's stockholders recently approved an amendment to
the 1995 Plan to increase the maximum number of shares reserved for issuance
thereunder to 625,000, subject to adjustment for any dividend, stock split or
other relevant changes in the Company's capitalization. The purpose of the 1995
Plan is to provide directors, key employees and certain advisors with additional
incentives to continue their association with the Company by increasing their
proprietary interest in the Company. The 1995 Plan currently authorizes the
issuance to participating directors, key employees and certain advisors of
Common Stock pursuant to the exercise of nontransferable options or as shares
subject to restrictions under the 1995 Plan ("Restricted Stock"), and also
authorizes the issuance of stock appreciation rights ("SARs", and collectively
with Restricted Stock, "Other Rights"). Shares of Common Stock will be deemed to
be issued under the 1995 Plan only to the extent actually issued pursuant to an
option or other award or settled in cash or shares. Any shares subject to an
option or Other Right that is surrendered to the Company or terminates, lapses
or expires for any reason without exercise will be available again for issuance
under the 1995 Plan. The 1995 Plan is intended to qualify for favorable
treatment under Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), pursuant to Rule 16b-3 promulgated thereunder ("Rule
16b-3")
As of May 15, 1996, 214,997 shares of Common Stock were subject to
outstanding options under the 1995 Plan and 410,003 additional shares were
available for the grant of additional options or Other Rights. Options to
purchase 110,000 shares of Common Stock were issued as of January 16, 1996 at an
exercise price of $14.75 per share (the average of the high and low prices of
the Common Stock reported on the date of grant) and vest over a period of five
years, expiring on January 15, 2006. Options to purchase 104,997 shares of
Common Stock were issued as of May 7, 1996 at an exercise price of $26.125 (the
average of the high and low prices of the Common Stock reported on the date of
grant) and vest over a period of five years, expiring on May 6, 2006.
The 1995 Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options ("NSOs") and Other Rights (collectively
"Awards"). The 1995 Plan is required to be administered by a committee
consisting of two or more disinterested directors of the Company. Administration
of the 1995 Plan has been assigned to the Compensation Committee. The
Compensation Committee has, subject to the terms of the 1995 Plan, the sole
authority to grant Awards under the 1995 Plan, to construe and interpret the
1995 Plan and to make all other determinations and take any and all actions
necessary or advisable for the administration of the 1995 Plan. No shares of
Common Stock issuable upon the exercise of options or Other Rights granted
pursuant to the 1995 Plan are presently registered under the Securities Act,
although the Company anticipates registering the offering and issuance of such
shares in the future and, to the extent required under the Securities Act to
permit the unrestricted sale by affiliates, the resale of such shares. Until the
offering and issuance of such shares (including such resales) are registered
under the Securities Act, any issuance of Common Stock upon the exercise of
options or pursuant to Other Rights will be effected only pursuant to an
exemption from the registration provisions of the Securities Act and resales may
be effected in accordance with Rule 144 under the Securities Act.
The Company's key employees and other individuals who render services of
special importance to the management, operation and development of the Company
or a subsidiary are eligible to receive Awards under the 1995 Plan, but only
employees of the Company and its subsidiaries are eligible to receive ISOs. As
of the date of this Prospectus, approximately 6,700 employees, five non-employee
directors and no advisors were eligible to participate in the 1995 Plan. The
Compensation Committee consists of certain non-employee directors of the
Company. Pursuant to the terms of the 1995 Plan and in order for Awards under
the 1995 Plan to receive favorable treatment under Rule 16b-3 of the Exchange
Act, the Compensation Committee must be "disinterested" within the meaning of
such Rule. While non-employee directors are eligible to receive Awards under the
1995 Plan, in order to preserve the disinterested status of the Compensation
Committee, it is anticipated that no Compensation Committee member will receive
an Award under the 1995 Plan. Options
52
<PAGE> 53
will be exercisable during the period specified by the Compensation Committee in
each option agreement and will generally be exercisable in installments pursuant
to a vesting schedule to be determined by the Compensation Committee. Options
will become immediately exercisable in the event of a "change of control" of the
Company (as described in the 1995 Plan or an optionee's stock option agreement).
No option will remain exercisable later than ten years after the date of grant
(or five years from the date of grant in the case of ISOs granted to holders of
more than ten percent of the Common Stock).
The exercise price for ISOs granted under the 1995 Plan may be no less than
the fair market value of the Common Stock on the date of grant (or 110% in the
case of ISOs granted to employees owning more than ten percent of the Common
Stock). The exercise price for NSOs and all other Awards granted under the 1995
Plan will be in the discretion of the Compensation Committee. The "fair market
value" of a share of Common Stock at any particular date is the mean between the
lowest and highest reported sale prices of the Common Stock on the date in
question on the New York Stock Exchange, where the Common Stock is listed.
The Compensation Committee may grant SARs to 1995 Plan participants as to
such number of shares of Common Stock and on such terms and conditions as it may
determine. SARs may be granted separately or in connection with ISOs or NSOs.
Upon exercise of an SAR, the holder is entitled to receive payment equal to the
excess of the fair market value, on the date of exercise, of the number of
shares of Common Stock for which the SAR is exercised, over the exercise price
for such shares under a related option, or if there is no related option, over
an amount per share stated in the written agreement setting forth the terms and
conditions of the SAR. Payment may be made in cash or other property, including
Common Stock, in accordance with the provisions of an SAR agreement. Upon the
exercise of an SAR related to an option, the option shall terminate as to the
number of shares of Common Stock for which the SAR is exercised.
The Compensation Committee may grant to 1995 Plan participants a number of
shares of Restricted Stock determined in its discretion, subject to terms and
conditions so determined by it, including conditions that may require the holder
to forfeit the Common Stock in the event that he or she ceases to provide
services to the Company before a stated time. Unlike holders of options and
SARs, a holder of Restricted Stock has the rights of a stockholder of the
Company to vote and to receive payment of dividends on the Restricted Stock,
unless the Compensation Committee specifies to the contrary in the restricted
stock agreement setting forth the terms pursuant to which the Restricted Stock
is granted.
Federal Income Tax Consequences. The rules governing the tax treatment of
options are quite technical. Therefore, the description of the Federal income
tax consequences set forth below is necessarily general in nature and does not
purport to be complete. Finally, the tax consequences under applicable state and
local income tax laws may not be the same as under the Federal income tax laws.
There are no Federal income tax consequences upon the grant of an option
under the 1995 Plan. Upon exercise of an NSO, the optionee generally will
recognize ordinary income in the amount equal to the difference between the fair
market value of the option shares at the time of exercise and the exercise
price, and the Company is generally entitled to a corresponding tax deduction.
When an optionee sells shares issued upon the exercise of an NSO, the optionee
realizes short-term or long-term capital gain or loss, depending on the length
of the holding period, but the Company is not entitled to any tax deduction in
connection with such sale.
An optionee will not be subject to federal income taxation upon the
exercise of ISOs granted under the 1995 Plan, and the Company will not be
entitled to a Federal income tax deduction by reason of such exercise. A sale of
shares of Common Stock acquired upon exercise of an ISO that does not occur
within one year after the exercise or within two years after the grant of the
option generally will result in the recognition of long-term capital gain or
loss in the amount of the difference between the amount realized on the sale and
the exercise price, and the Company is not entitled to any tax deduction in
connection therewith. If a sale of shares of Common Stock acquired upon exercise
of an ISO occurs within one year from the date of exercise of the option or
within two years from the date of the option grant (a "disqualifying
disposition"), the optionee generally will recognize ordinary income equal to
the lesser of (i) the excess of the fair market value of the shares on the date
of exercise of the options over the exercise price or (ii) the excess of the
amount realized on the sale of the shares over the exercise price. Any amount
realized on a disqualifying disposition in excess of
53
<PAGE> 54
the amount treated as ordinary income will be long-term or short-term capital
gain, depending upon the length of time the shares were held. The Company
generally will be entitled to a tax deduction on a disqualifying disposition
corresponding to the ordinary income recognized by the optionee.
In addition, if a director or an officer as defined in Section 16 of the
Exchange Act exercises all or a portion of his or her ISOs or NSOs within six
months of the grant date, no income will be recognized until six months have
expired from the grant date. At that time, such director or officer will
recognize income equal to the spread between the exercise price and the fair
market value of the stock on the six-month anniversary, including any
appreciation in the value of the stock between the exercise date and the
anniversary date. A director or officer could make an election under Section
83(b) of the Code to recognize an amount equal to the spread between the
exercise price and the fair market value on the date of exercise. Subsequent
appreciation (or depreciation), including any appreciation (or depreciation)
between the exercise date and the six-month anniversary, will be treated as
capital gain or loss and will not be recognized until the shares are sold. At
the time such director or officer recognizes compensation income, the Company
will be entitled to a corresponding deduction.
A recipient incurs no imputed income upon the grant of an SAR, but upon its
exercise realizes ordinary compensation income in an amount equal to the cash or
cash equivalent value of the Common Stock that he or she receives at that time.
If the recipient receives shares of Common Stock upon exercise of the SAR, he or
she incurs imputed income measured by the difference between the base amount set
forth in the SAR agreement and the fair market value of the Common Stock at the
exercise date (or, if at the exercise date the stock is subject to a substantial
risk of forfeiture and no election under Section 83(b) of the Code is made, at
the date or dates on which the risk expires). All such taxable amounts are
deductible by the Company at the time and in the amount of the ordinary
compensation income recognized by the recipient.
A person who receives a grant of Restricted Stock generally will not
recognize taxable income at the time the award is received, but will recognize
ordinary compensation income when restrictions constituting a substantial risk
of forfeiture lapse. The amount of ordinary compensation income that is imputed
will be equal to the excess of the aggregate fair market value, as of the date
the restrictions lapse, over the amount (if any) paid by the holder for the
Restricted Stock. Alternatively, a recipient of Restricted Stock may elect to be
taxed on the excess of the fair market value of the Restricted Stock at the time
of grant (determined without reference to the restrictions on the stock) over
the amount (if any) paid by the recipient for the Restricted Stock. All such
taxable amounts are deductible by the Company at the time and in the amount of
the ordinary compensation income recognized by the recipient of the Restricted
Stock.
1996 STOCK AND OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors has adopted and the Company's stockholders have
approved the 1996 Stock and Option Plan for Non-Employee Directors (the "1996
Plan"). The purpose of the 1996 Plan is to advance the interests of the Company
and its subsidiaries by providing to each non-employee director an added
incentive to continue in the service of the Company and a more direct interest
in its future success by the acquisition of Common Stock and options. The 1996
Plan is intended to be structured in such a manner that non-employee directors
participating in the 1996 Plan will continue to qualify as "disinterested"
directors for purposes of the administration of the 1995 Plan. The 1996 Plan is
intended to qualify for favorable treatment under Section 16 of the Exchange Act
pursuant to Rule 16b-3. The 1996 Plan will become effective as of June 1, 1996.
The 1996 Plan provides for the grant to non-employee directors of the
Company of shares of Common Stock (a "Stock Grant") and NSOs ("Options") to
purchase shares of Common Stock. A "nonqualified stock option" is a stock option
that does not qualify as an ISO under applicable provisions of the Code. Only
directors of the Company who are not officers or employees of the Company or any
of its subsidiaries (each, an "Eligible Director") are eligible to receive Stock
Grants and Options under the 1996 Plan. As of the date of this Prospectus, there
were five Eligible Directors. A total of 50,000 shares of Common Stock may be
issued under the 1996 Plan (subject to adjustment for any dividend, stock split
or other relevant changes in the Company's capitalization). Any shares subject
to an Option that is surrendered to the Company or terminates, lapses or expires
for any reason will be available again for issuance under the 1996 Plan.
54
<PAGE> 55
The 1996 Plan is administered by the Board of Directors. The Board has,
subject to the terms of the 1996 Plan, the authority to construe and interpret
the 1996 Plan, and any option agreements entered into pursuant thereto, and to
make all determinations necessary or advisable for administering the 1996 Plan.
Notwithstanding the above, the Board has no discretionary or interpretive power
or authority with respect to the selection of the Eligible Directors who receive
Stock Grants or Options, the number of shares constituting any Stock Grant or
subject to any Option, the exercise price of any Option, the periods during
which any Option may be exercised, or the term of any Option.
No shares of Common Stock issuable pursuant to Stock Grants or upon the
exercise of Options pursuant to the 1996 Plan are presently registered under the
Securities Act, although the Company anticipates in the future registering the
offering and issuance of such shares and, to the extent required under the
Securities Act to permit the unrestricted sale by affiliates, the resale of such
shares. Until such offering and issuance (including such resales) are registered
under the Securities Act, any issuance of Common Stock under the 1996 Plan will
be effected only pursuant to an exemption from the registration provisions of
the Securities Act and resales may be effected in accordance with Rule 144 under
the Securities Act.
Stock in Lieu of Cash Compensation. As previously discussed, Eligible
Directors receive as compensation for services as members of the Board of
Directors an annual retainer fee of $26,800 (the "Annual Fee") and certain other
fees paid for attendance at meetings of the Board and any committees thereof or
for serving as chairman of a Board committee (in the aggregate, "Director's
Compensation"). See "-- Board of Directors." Under the 1996 Plan, each Eligible
Director may elect to receive in the form of Common Stock all or a specified
portion (in increments of twenty-five percent) of his or her Director's
Compensation, other than that portion of his or her Annual Fee that is paid in
the form of an Option. The Common Stock will be valued at the mean between the
lowest and highest reported sales prices of the Common Stock on the New York
Stock Exchange on the date of issuance. An election to receive Common Stock in
lieu of all, or a part, of the non-Option portion of a Director's Compensation
must be made at least six months before the Eligible Director is entitled to
receive his or her Director's Compensation. The shares of Common Stock issued to
an Eligible Director in lieu of cash will be nonforfeitable and an Eligible
Director will have all of the rights of a stockholder with respect to such
Common Stock. An Eligible Director who fails to elect to receive any portion of
his or her non-Option Director's Compensation in the form of Common Stock will
receive cash.
Stock Options. On the first day of each calendar year, starting with
January 1, 1997, each Eligible Director will be automatically granted an Option
to purchase Common Stock. Each Option issued under the 1996 Plan will have a
value equal to seventy percent of the Eligible Director's Annual Fee in effect
for the preceding calendar year. To determine the number of shares that the
Option represents, the "Black-Scholes option pricing model," which is a
mathematical formula used to value options, will be used. The Black-Scholes
option pricing model considers a number of factors in order to estimate the
present value of an option to acquire a share of stock, including: the price of
the stock on the option grant date, the stock's historical volatility, the
exercise period and exercise price of the option, the stock's current dividend
yield and the current risk-free rate of interest. Because the Company's Common
Stock does not have a history of public trading, the historical volatility
factor will be estimated for the first three years based on a peer group of four
public companies. If serving on January 1, 1997, Messrs. Deery, Gorgi, Krause
and Lanter will each be entitled to receive an Option equal to seventy percent
of such Director's Annual Fee for services rendered in 1996, i.e., an Option
with a value at the time of grant equal to $18,760. In addition, if Mr. Ellis is
serving on January 1, 1997, he will be entitled to receive an Option equal to
seventy percent of that portion of his Annual Fee which is attributable to
services rendered in 1996.
Each Option will be evidenced by an agreement that will reflect the terms
and conditions of the Option and such additional terms and conditions as are
determined by the Board to be appropriate and not inconsistent with the 1996
Plan. The exercise price for each share covered by the Option will be the fair
market value of the Common Stock on the date the Option is granted. The "fair
market value" of a share of Common Stock on any particular date is the mean
between the lowest and highest reported sale prices of the Common Stock on the
date in question on the New York Stock Exchange or, if not traded on that date,
on the preceding trading day. The exercise price for each share covered by the
Option will be payable in cash or by delivering to the Company previously owned
shares of Common Stock having a fair market value on the date
55
<PAGE> 56
of exercise equal to the exercise price for the shares being purchased, or by
delivering shares to be received upon exercise of the Option. Each Option will
be immediately exercisable, in whole or in part, but no Option may be exercised
after the expiration of ten years from the date of grant.
If an Eligible Director's service as a director terminates for any reason
other than death or for cause, any outstanding Option he or she holds will be
exercisable at any time prior to the earlier of the expiration date of the
Option or sixty days from the date the Eligible Director ceases to be a
director. Following the death of an Eligible Director during service as a
director, any outstanding Option held by the Eligible Director at the time of
death will be exercisable at any time prior to the earlier of the expiration
date of the Option or one year from the date of death. If an Eligible Director
is removed for cause, any outstanding Option held by him or her will
automatically terminate as of the date of his or her removal from office.
An Option will not be assignable or transferable except by will or the laws
of descent and distribution.
Federal Income Tax Consequences. The rules governing the tax treatment of
Stock Grants and Options are quite technical. Therefore, the description of the
Federal income tax consequences set forth below is necessarily general in nature
and does not purport to be complete. Finally, the tax consequences under
applicable state and local income tax laws may not be the same as under the
Federal income tax laws.
STOCK GRANTS. An Eligible Director is subject to Federal income tax at
ordinary income rates on the fair market value of Common Stock received pursuant
to his or her election to receive all or a portion of his or her Director's
Compensation in the form of stock in lieu of cash. The Company is entitled to a
deduction for the Director's Compensation paid to the Eligible Directors,
whether the Eligible Director elects to receive Common Stock or cash.
OPTIONS. An Eligible Director will not recognize any taxable income for
Federal income tax purposes upon receipt of an Option. Upon exercise of an
Option, the Optionee will recognize ordinary income in an amount equal to the
difference between the fair market value of the option shares at the time of
exercise and the exercise price, and the Company is entitled to a corresponding
tax deduction. When an Optionee sells shares issued upon the exercise of an
Option, the Optionee may realize short-term or long-term capital gain or loss,
depending on the length of the holding period, but the Company is not entitled
to any tax deduction in connection with such sale.
If an Eligible Director exercises all or a portion of his or her Option
within six months of the grant date, no income will be recognized until six
months have expired from the grant date. At that time, an Eligible Director will
recognize income equal to the spread between the exercise price and the fair
market value of the stock on the six-month anniversary, including any
appreciation in the value of the stock between the exercise date and the
anniversary date. An Eligible Director could make an election under Section
83(b) of the Code to recognize an amount equal to the spread between the
exercise price and the fair market value on the date of exercise. Subsequent
appreciation (or depreciation), including any appreciation (or depreciation)
between the exercise date and the six-month anniversary, will be treated as
capital gain (or loss) and will not be recognized until the shares are sold. At
the time an Eligible Director recognizes compensation income, the Company will
be entitled to a corresponding deduction.
OTHER STOCK OPTIONS
Between October 1991 and December 1994, Courier Dispatch granted options to
39 of its employees and one non-employee director to purchase an aggregate of
342,044 shares of its common stock at purchase prices between $1.40 and $3.00
per share. Such options vested over a period of time after grant. In connection
with the Mergers, all Courier Dispatch options were terminated and replaced with
options to purchase an aggregate of 216,110 shares of Common Stock at purchase
prices ranging from of $2.06 to $4.42 per share, 212,711 of which options are
currently exercisable.
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
All officers of the Company serve at the discretion of the Board of
Directors. However, each of Messrs. Belyew, Brandon, Barowski, England, Louie,
Mashburn, Wagner and Salmon and Ms. Draper and
56
<PAGE> 57
Ms. Louie has entered into a separate three-year employment agreement with the
Company. Each employment agreement includes a covenant not to compete expiring
on the later of the second anniversary of the date the employee ceases to be
entitled to receive base compensation and the fifth anniversary of the date of
the employment agreement. See "-- Executive Compensation." Each of the
employment agreements provides that, in the event of a termination of employment
by the Company without cause, such employee will be entitled to receive from the
Company such base compensation and group insurance benefits as the employee
would have received (at the times as the employee would have received them)
during the period which is the greater of one year or the remainder of the
three-year term, together with such other payments and benefits to which the
employee is entitled by law or pursuant to benefit plans of the Company then in
effect.
Additionally, to the extent permitted under applicable local law, a
majority of the Company's managers, department heads and sales representatives
have entered into an agreement not to compete with the Company for a period of
up to one year following termination of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company was
formally established on January 16, 1996. The Compensation Committee consists of
John B. Ellis, who is the Chairman of the Committee, and Craig H. Deery. None of
these individuals has ever served as an officer or an employee of the Company or
of any of its subsidiaries. See "-- Directors and Executive Officers."
All executive compensation presently in effect was determined in connection
with the Mergers by negotiation among certain parties to the Mergers. Mr. Philip
A. Belyew and Mr. Ronald J. Barowski, who were the sole directors and officers
of the Company until the effectiveness of the Mergers, acted on behalf of the
Company in such negotiations.
Neither Mr. Belyew, Mr. Barowski nor any other executive officer of the
Company has ever served as (i) a member of the compensation committee or
equivalent body of any other entity, one of whose executive officers served on
the Company's Compensation Committee, (ii) a director of another entity, one of
whose executive officers served on the Company's Compensation Committee, or
(iii) a member of the compensation committee or equivalent of another entity,
one of whose executive officers served as a director of the Company.
INDEMNITY AGREEMENTS
The Company has entered into an agreement with each director, effective as
of the date of his or her appointment, pursuant to which it has agreed to
indemnify such director for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the Delaware General Corporation
Law. For a description of such law, see "Description of Capital
Stock -- Provisions of Delaware Law and the Company's Charter and
By-Laws -- Director's Liability."
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the organization of the Company, each of the Founding
Companies requested Mr. Philip A. Belyew and Mr. Ronald J. Barowski to serve as
the founding stockholders of the Company for organizational purposes. The
Company issued 100 shares of Common Stock at a purchase price of $1.00 per share
to each of Mr. Belyew and Mr. Barowski. Such shares were redeemed and canceled
in connection with the Mergers. Prior to the Mergers, Mr. Belyew was a director
and officer, and Mr. Barowski was an officer, of Courier Dispatch. The
stockholders and holders of equity securities convertible into Courier Dispatch
common stock received an aggregate of 2,122,435 shares of Common Stock in the
Mergers, which amount was negotiated at arm's length by Courier Dispatch and
representatives of each of the other Founding Companies. A portion of such
shares was attributable to Courier Dispatch's role in organizing the Company.
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<PAGE> 58
The Company received all of Courier Dispatch's business and assets in the
Mergers. In addition, the Company reimbursed Courier Dispatch for certain of the
costs it incurred in connection with the Company's initial public offering. See
"Business -- Organization."
In connection with the Mergers, certain officers and directors of the
Company received shares of Common Stock as follows: Mr. Belyew: 104,059 shares,
Mr. Barowski: 32,844 shares, Mr. Guilbert L. Brandon, Jr.: 213,752 shares, Mr.
R. David England: 32,845 shares, Ms. Carolyn Draper: 213,518 shares, Mr. Steven
W. Lanter: 572,137 shares, Mr. Chee B. Louie: 840,520 shares, Mr. James G.
Salmon: 67,507 shares and Mr. George G. Wagner: 32,844 shares. For a description
of the transactions pursuant to which the Company was formed, see
"Business -- Organization."
Courier Dispatch acquired certain assets in arm's length transactions
completed since January 1, 1992, all of which were a part of the assets and
business assumed by the Company in the Mergers. On October 30, 1992, Courier
Dispatch acquired the assets of Data Dispatch, Inc., which provided ground
courier services in Minnesota, for a cash purchase price of $320,000. On April
29, 1993, Courier Dispatch acquired the air courier assets of Clayton/National
Courier Systems, Inc. for a cash purchase price of $1.13 million. On May 13,
1993, Courier Dispatch acquired the stock of two corporations, Bancserv
Couriers, Inc. and NOW Courier, Inc., which provided ground courier services in
Alabama, for an aggregate cash purchase price of $1.96 million. On March 28,
1994, Courier Dispatch acquired the stock of Sunstate Courier, Inc., which
provided ground courier services in Florida for a cash purchase price of
approximately $2.58 million. On June 30, 1994, Courier Dispatch acquired the
stock of Commercial Courier, which provided ground courier services in North
Carolina, Virginia, Tennessee and Maryland, for a cash purchase price of $9.7
million. Also on June 30, 1994, Courier Dispatch acquired the stock of Armstrong
Couriers, Inc., a ground courier service operating in Minnesota, for a cash
purchase price of $1.265 million. On April 21, 1995, Courier Dispatch acquired
the ground courier business and assets of AirVantage, Incorporated
("AirVantage"), which provided ground courier services in Minnesota, North
Dakota, South Dakota and Wisconsin, for a purchase price of $2.65 million, of
which $400,000 was paid in cash, and the balance of which was paid by delivery
of a 9% promissory note, payable in quarterly installments until maturity on
March 31, 1999. On April 27, 1995, Courier Dispatch acquired the stock of
AirVantage Courier Inc., which provided air courier service and was based in New
Jersey, for a purchase price of $500,000, of which $150,000 was paid in cash,
and the balance of which was paid by delivery of promissory notes in the
aggregate principal amount of $350,000, each bearing interest at 9% and payable
in quarterly installments until maturity on March 31, 1999. The amounts due
under the promissory notes to each of AirVantage, Incorporated and the
stockholders of AirVantage Courier, Inc. were paid in full in January 1996.
GUARANTIES OF LOANS TO CERTAIN OFFICERS
In February 1994, CDG Holding Corp. sold 137,936 shares of its common stock
to Mr. Belyew, 40,754 of such shares to each of Mr. Barowski, Mr. England and
Mr. Wagner, and certain additional shares to other CDG Holding Corp. employees
at a purchase price per share less than the then fair market value of such
shares, and paid a bonus to each of such persons in an amount sufficient to
address the income tax consequences to such persons of such below-market
purchases. First Union made personal loans to each of Mr. Belyew, Mr. Barowski,
Mr. England and Mr. Wagner in order to enable them to purchase their shares, and
CDG Holding Corp. guaranteed each of such loans and paid all interest due on
them. In February 1995, another CDG Holding Corp. stockholder, who had purchased
common stock at the same time and on the same terms as the foregoing persons,
sold his 40,754 shares of such stock to Mr. Belyew, Mr. Barowski, Mr. England,
Mr. Wagner and another CDG Holding Corp. employee, who each purchased a pro rata
portion of such shares and assumed a corresponding pro rata portion of the
seller's outstanding loan from First Union. As of September 30, 1995, the
approximate outstanding principal amount of each of such loans was as follows:
Mr. Belyew -- $255,000; Mr. Barowski -- $85,000; Mr. England -- $85,000; and Mr.
Wagner -- $85,000. Immediately prior to the closing of the Company's initial
public offering, Courier Dispatch declared bonuses to each of such persons in
amounts sufficient to repay in full the outstanding principal and accrued and
unpaid interest on their respective loans from First Union, as well as to
address the income tax consequences to such persons of such payments.
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REAL ESTATE TRANSACTIONS
As a part of the Mergers, the Company became the lessee under two leases
for which the lessor is a general partnership of which Mr. Guilbert L. Brandon,
Jr. is a general partner. Such properties were leased by Film Transit prior to
the Mergers for an aggregate monthly rental expense to Film Transit under such
leases of approximately $15,000, plus an allocated portion of taxes, insurance
and maintenance expense. Under the leases with the Company, the aggregate
monthly rental expense is approximately $16,900.
As a part of the Mergers, the Company assumed the use of certain office
space and maintenance facilities in buildings owned by Cross Street Service,
Inc. ("Cross Street"), the stockholders of which are Mr. James G. Salmon's
father and uncle. Such facilities and services had been provided by such
corporation to Sunbelt free of charge. The Company has entered into leases with
Cross Street with respect to three of these properties. In addition, Sunbelt
had, prior to the Mergers, shared the use of certain of its facilities with
Cross Street free of charge. Except for those properties which it now leases
from Cross Street, the Company will discontinue all of these arrangements as
soon as practicable.
The Company leases three properties which are partly or wholly-owned by Mr.
Chee B. Louie. Such properties were leased by Tricor prior to the Mergers for an
aggregate monthly rental expense to Tricor of approximately $11,700. Under the
leases with the Company, the aggregate monthly rental expense for these
properties is approximately $12,950.
Prior to the Mergers, certain of the Founding Companies distributed real
estate owned by them to their stockholders, or in Sunbelt's case to Cross Street
in partial satisfaction of certain indebtedness, and such real estate is leased
to the Company at rental rates negotiated at arm's length. The aggregate monthly
rental expense to the Company is as follows: real estate leased from the Tricor
stockholders: approximately $18,400; real estate leased from the Film Transit
stockholders: approximately $2,000; and real estate leased from Cross Street
(after conveyance from the Sunbelt stockholders): approximately $11,000.
CERTAIN INDEBTEDNESS
As of September 30, 1995, BancBoston held an aggregate of $2.6 million
(including imputed interest of $529,000) of 10% Series A Senior Subordinated
Notes due 1999 (the "Series A Notes") of CDG Holding Corp. and an aggregate of
$3.65 million (including imputed interest of $699,000) of 11.5% Series B Junior
Subordinated Notes due 1996 (the "Series B Notes") of CDG Holding Corp. All of
the Series A Notes and the Series B Notes were repaid in full from the proceeds
of the Company's initial public offering. In connection with the issuance of the
Series A Notes and the Series B Notes, BancBoston acquired warrants to purchase
1,412,287 shares of CDG Holding Corp. common stock. Such warrants were exchanged
for 960,292 shares of the Company's Common Stock immediately prior to the
Mergers. Mr. Craig H. Deery, who is a director of the Company, is a Managing
Director of BancBoston.
As of September 30, 1995, Fleet held an aggregate of $2.6 million
(including imputed interest of $529,000) of Series A Notes and $2 million
(including imputed interest of $463,000) of 15% Series C Junior Subordinated
Notes due 1996 (the "Series C Notes") of CDG Holding Corp. All of the Series A
Notes and the Series C Notes were repaid in full with the proceeds of the
Company's initial public offering. In connection with the issuance of the Series
A Notes and the Series C Notes, Fleet acquired warrants to purchase 1,211,652
shares of CDG Holding Corp. common stock. Such warrants were exchanged for
823,869 shares of the Company's Common Stock immediately prior to the Mergers.
Mr. Habib Y. Gorgi, who is a director of the Company, is a General Partner of
FVP and President of FVR.
Cross Street loaned funds to Sunbelt. Of the remaining $4.9 million
principal balance of such loans outstanding at September 30, 1995, $837,000
incurred interest at 3.5%, $1.3 million incurred interest at a fluctuating rate,
and the balance incurred interest at 8%. The loan matured on December 31, 1999.
Sunbelt conveyed to Cross Street certain real estate, valued at its book value
of $1.3 million, in partial repayment of such loan. As of the effectiveness of
the Mergers, approximately $3.6 million in principal amount of such loan
remained outstanding, which amount was repaid in full from the proceeds of the
Company's initial public offering.
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Lanter issued a promissory note dated December 31, 1993 in the original
principal amount of $2.5 million to Mr. Wayne E. Lanter, Mr. Steven W. Lanter's
father, as a part of the redemption of his stock in Lanter. On May 17, 1995,
Lanter redeemed shares of its capital stock held by Mr. Jeffrey Lanter, Mr.
Steven Lanter's brother, for a purchase price of $1 million (increasing to $1.25
million upon the sale or merger of Lanter), which purchase price was paid in the
form of a promissory note of the same date. Both of such obligations and certain
additional payment obligations relating to Lanter's redemption of the capital
stock of certain other minority stockholders (which aggregate $75,000) were
assumed by Lanter Delivery Systems Inc., and the stockholders of Lanter have
agreed to indemnify the Company for any losses incurred in connection with such
liabilities, which indemnity is secured by a pledge of 31,434 shares of Common
Stock held by Mr. Steven Lanter.
OTHER TRANSACTIONS
Prior to the Mergers, Sunbelt purchased its insurance through a captive
insurance entity, the stockholders of which are Cross Street and Pat Salmon and
Sons, Inc. Insurance premiums paid in 1994 aggregated $827,000 and for fiscal
1995 through September 30, 1995 aggregated $718,000. The Company now provides
insurance for all of the former Founding Companies, and the arrangements with
such captive insurance entity have been terminated.
Lanter Company, an affiliate of Lanter prior to the Mergers of which Mr.
Steven W. Lanter is the President and Chief Operating Officer, provided certain
administrative services to Lanter and therefore allocated and charged a portion
of its corporate expenses to Lanter. These expenses were allocable to that
portion of Lanter which remained after the transfer of assets and liabilities to
Lanter Delivery Systems, Inc. as follows: $127,000, $272,000, $269,000 and
$506,000 for the years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1995, respectively. Such services are now provided by
the Company.
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members of
the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Common Stock, (ii) each director and director nominee, (iii) each executive
officer and (iv) all executive officers and directors as a group. Such
information is presented as of May 14, 1996.
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP(1)
-------------------------------
NAME SHARES PERCENTAGE OWNED
- ---------------------------------------------------------------- --------- -----------------
<S> <C> <C>
Philip A. Belyew(2)............................................. 143,282 1.52%
Ronald J. Barowski(3)........................................... 47,942 *
R. David England, Jr.(4)........................................ 60,300 *
Chee B. Louie(5)................................................ 840,520 8.98%
George G. Wagner(6)............................................. 64,222 *
Guilbert L. Brandon, Jr......................................... 213,752 2.28%
Carolyn Draper(7)............................................... 213,518 2.28%
John B. Ellis................................................... 500 *
James G. Salmon................................................. 68,007 *
Mark E. Rykowski(8)............................................. 17,650 *
James W. Bennett(9)............................................. 5,438 *
Craig H. Deery(10).............................................. 960,292 10.25%
Habib Y. Gorgi(11).............................................. 823,869 8.80%
Charles A. Krause(12)........................................... 2,000 *
Steven W. Lanter(13)............................................ 572,137 6.11%
BancBoston Ventures Inc.(14).................................... 960,292 10.25%
Fleet Venture Resources, Inc.(15)............................... 576,708 6.16%
Fleet Venture Partners III(15).................................. 247,161 2.64%
All directors and executive officers as a group (15
persons)(16).................................................. 4,033,429 43.07%
<FN>
- ---------------
* Less than one percent
(1) Except as otherwise indicated, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes 39,223 shares issuable upon the exercise of options which are
currently exercisable. See "Management -- Other Stock Options." Does not
include 50,000 shares issuable upon the exercise of options granted under
the 1995 Plan, which are not currently exercisable.
(3) Includes 15,098 shares issuable upon the exercise of options which are
currently exercisable. See "Management -- Other Stock Options." Does not
include 25,000 shares issuable upon the exercise of options granted under
the 1995 Plan, which are not currently exercisable.
(4) Includes 27,455 shares issuable upon the exercise of options which are
currently exercisable. See "Management -- Other Stock Options." Does not
include 25,000 shares issuable upon the exercise of options granted under
the 1995 Plan, which are not currently exercisable.
(5) Mr. Louie holds all of the shares indicated as beneficially owned by him
jointly with his wife. Mr. Louie's address is 717 Airport Boulevard, South
San Francisco, California 94080.
(6) Includes 31,378 shares issuable upon the exercise of options which are
currently exercisable. See "Management -- Other Stock Options." Does not
include 10,000 shares issuable upon the exercise of options granted under
the 1995 Plan, which are not currently exercisable.
(7) Does not include 6,981 shares held by Ms. Draper's adult child and 6,981
shares held by Ms. Draper's sister.
(8) Includes 17,650 shares issuable upon exercise of options which are
currently exercisable.
(9) Includes 3,399 shares issuable upon exercise of options which are currently
exercisable.
(10) Mr. Deery is a Managing Director of BancBoston. Mr. Deery disclaims
beneficial ownership of all shares of the Company's capital stock which are
directly owned by BancBoston.
(11) Consists of shares owned by FVP and FVR. Mr. Gorgi is the President of FGR,
the corporate general partner of FVP, an individual general partner of FVP
and the President of FVR. As an individual general partner of FVP, Mr.
Gorgi may be deemed to share voting and investment power with respect to
such shares with Robert M. VanDegna and FGR, the other general partners of
FVP. Mr. Gorgi disclaims beneficial ownership of all shares of the
Company's capital stock which are directly owned by FVR, and those shares
of the Company's capital stock which are directly owned by FVP, except for
his pecuniary interest therein.
(12) Consists of shares owned by Krause Consultants Ltd. Retirement Trust (the
"Krause Trust"). Mr. Krause in the sole beneficiary and administrator of
the Krause Trust.
(13) Mr. Lanter's address is 2 Lake Lorraine Court, Belleville, Illinois 62221.
(14) The stockholder's address is 100 Federal Street, Boston, Massachusetts
02110.
(15) The stockholder's address is 111 Westminster Street, Providence, Rhode
Island 02903.
(16) Includes 144,402 shares issuable upon the exercise of options which are
currently exercisable. See "Management -- Other Stock Options."
</TABLE>
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.001 par value per share, and one million shares of Preferred
Stock, $.001 par value per share. As of the date of this Prospectus, the Company
had 9,364,194 shares of Common Stock and no Preferred Stock outstanding. As of
May 20, 1996, there were 65 holders of record of Common Stock.
COMMON STOCK
Dividends. Holders of record of shares of Common Stock on the record date
fixed by the Company's Board of Directors are entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available for
such purpose, subject to any preferential dividend rights of the Preferred
Stock. The Credit Agreement limits the Company's ability to pay cash dividends
on its Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Voting Rights. Holders of shares of Common Stock vote as a single class
together with any outstanding shares of Preferred Stock (except as otherwise
provided by the terms of the outstanding Preferred Stock) on all matters
submitted to a vote of the stockholders, with each share of Common Stock
entitled to one vote, except as otherwise provided by law. Under Delaware law,
the affirmative vote of the holders of a majority of the outstanding shares of
any class of common stock is required to approve, among other things, a change
in the designations, preferences and limitations of the shares of common stock.
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share ratably with the
holders of each other class in all assets available for distribution after
payment in full of creditors and payment in full to any holders of Preferred
Stock then outstanding of any amount required to be paid under the terms of such
Preferred Stock.
Other Provisions. The holders of Common Stock are not entitled to
preemptive or subscription rights. The shares of Common Stock presently
outstanding are, and the shares of Common Stock offered hereby will be, upon
issuance, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The one million authorized and unissued shares of Preferred Stock may be
issued with such designations, preferences, limitations and relative rights as
the Board of Directors may authorize, including, but not limited to: (i) the
distinctive designation of each series and the number of shares that will
constitute such series; (ii) the voting rights, if any, of shares of such
series; (iii) the dividend rate on the shares of such series, any restriction,
limitation or condition upon the payment of such dividends, whether dividends
shall be cumulative, and the dates on which dividends are payable; (iv) the
prices at which, and the terms and conditions on which, the shares of such
series may be redeemed, if such shares are redeemable; (v) the purchase or
sinking fund provisions, if any, for the purchase or redemption of shares of
such series; (vi) any preferential amount payable upon shares of such series in
the event of the liquidation, dissolution or winding-up of the Company or the
distribution of its assets; and (vii) the price or rates of conversion at which,
and the terms and conditions on which the shares of such series may be converted
into other securities, if such shares are convertible.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.
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PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CHARTER AND BY-LAWS
Directors' Liability. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that to the fullest extent
permitted by the Delaware General Corporation Law (the "Delaware Law") as it
currently exists, a director of the Company shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Under current Delaware Law, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision of the Restated Certificate is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Restated Certificate provides
that the Company shall indemnify its directors, officers, employees and agents
to the fullest extent permitted by Delaware Law.
Section 203 of Delaware Law. The Company is a Delaware corporation and is
subject to Section 203 of Delaware Law. In general, Section 203 prevents an
"interested stockholder" (defined as a person who, together with affiliates and
associates, beneficially owns (or within three years, if an affiliate or
associate of the corporation did beneficially own) 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined below) with a Delaware corporation for three years
following the time such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation, and shares held by certain employee stock ownership plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the "interested stockholder." A "business
combination" generally includes mergers, stock or asset sales involving 10% or
more of the market value of the corporation's assets or stock, certain stock
transactions and other transactions resulting in a financial benefit to the
interested stockholders or an increase in their proportionate share of any class
or series of a corporation.
Appraisal. Delaware Law provides a statutory right to stockholders of a
corporation to dissent in connection with mergers and consolidations, and to
receive the "fair value" of their shares in cash. However, the legal proceeding
necessary to determine that fair value may involve significant expense, delay
and uncertainty to dissenting stockholders. In the case of certain business
combinations, such as sales of substantially all assets, reclassifications or
recapitalizations, the statutory right to dissent and obtain appraisal is not
available.
Provisions in the Restated Certificate. In addition to the Board of
Directors' ability to issue Preferred Stock, a number of provisions of the
Restated Certificate may have anti-takeover effects. Actions by stockholders may
be taken only at a stockholders' meeting and not by a written consent. Under
Delaware Law, stockholders can act by written consent by whatever vote would be
required at a stockholders' meeting, rather than acting at a stockholders'
meeting. Obtaining stockholder approval by calling and holding a stockholders'
meeting may be more difficult than obtaining approval by circulating a written
consent. Also, special stockholders' meetings may only be called, and their
agenda determined, by the Board, not by the stockholders. Only the Board, and
not the stockholders, may fix the record dates for stockholders' meetings.
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The size of the Board may be fixed only by the Board and not by the
stockholders. Board vacancies may only be filled by the Board until the next
stockholders' meeting, which means that Directors removed by the stockholders
during the year could be replaced only by the remaining Directors for the
balance of the removed Directors' terms.
Fair Price Provision. Upon obtaining the approval of its Board of
Directors and stockholders, the Company recently amended the Restated
Certificate to add a "fair price" provision (the "Fair Price Amendment"). Under
Delaware Law, mergers, consolidations, sales of substantially all assets and
adoption of a plan of dissolution must be approved by the holders of a majority
of the outstanding stock entitled to vote. Reclassifications and
recapitalizations involving amendments to the Restated Certificate also require
the approval of holders of a majority of the outstanding shares entitled to vote
thereon. The Fair Price Amendment requires the affirmative vote of the holders
of at least eighty percent of the voting power of all outstanding shares of
capital stock of the Company entitled to vote generally in the election of
directors to approve a "business combination" (as defined below) with a person
(other than the Company or any subsidiary of the Company and other than any
profit-sharing, employee stock ownership or other employee benefit or dividend
reinvestment plan of the Company or any subsidiary of the Company or any trustee
of or fiduciary with respect to any such plan when acting in such capacity) who
is the beneficial owner of Common Stock representing ten percent or more of the
then outstanding shares of Common Stock (the "Interested Stockholder"), or any
associate or affiliate of that person, except in cases in which either (i)
certain price criteria and procedural requirements are satisfied, or (ii) the
transaction is approved by a majority of the members of the Board of Directors
(the "Disinterested Directors") who are not affiliates, associates,
representatives or nominees of the Interested Stockholder involved in the
business combination or of any affiliate or associate of such Interested
Stockholder and who either (i) were members of the Board of Directors prior to
the time that such Interested Stockholder became an Interested Stockholder or
are current members of the Board of Directors, or (ii) are successors of
Directors referred to in clause (i) and were nominated or elected to succeed
such Directors by a majority of Disinterested Directors on the Board of
Directors at the time of such individuals' nomination or election. In the event
the price criteria and procedural requirements were to be met or the requisite
approval of the Disinterested Directors were to be given with respect to a
particular business combination, the normal requirements of Delaware Law would
apply. A "business combination" generally includes (i) mergers and
consolidations, (ii) sales, leases, exchanges, mortgages or similar transactions
involving assets or securities having an aggregate fair market value in excess
of $5 million, (iii) liquidation or dissolution, (iv) reclassification
(including a reverse stock split) of securities, recapitalization or other
similar transactions that increases the Interested Stockholder's percentage
ownership of the Company, (v) any tender offer or exchange offer resulting in
the Interested Stockholder's percentage beneficial ownership exceeding 110% of
his or her prior ownership or (vi) the issuance by the Company or any subsidiary
of any of the Company's securities to the Interested Stockholder having a fair
market value in excess of $5 million.
MINIMUM PRICE CRITERIA. The aggregate fair market value, as of the date of
the consummation of the business combination, of the consideration to be
received by the holders of Common Stock would have to be at least equal to the
highest of (i) the highest per share price paid by the Interested Stockholder
for any shares of Common Stock acquired by it within the two years immediately
prior to the first public announcement of the proposed business combination (the
"Announcement Date") or, if higher, paid in the transaction in which the
Interested Stockholder became such, or (ii) the fair market value of the Common
Stock on the Announcement Date or, if higher, on the date on which the
Interested Stockholder became an Interested Stockholder. The consideration would
be required to be paid either in cash or, at the option of the Company's
stockholders, in such other form as the Interested Stockholder has used to
acquire the largest number of shares of Common Stock it owns.
PROCEDURAL REQUIREMENT. In addition to the minimum price requirements, in
order to avoid the special stockholder vote requirement, the Interested
Stockholder would also be required to have sent a proxy or information statement
disclosing the terms and conditions of the proposed business combination and
complying with the requirements of the proxy rules promulgated under the
Exchange Act even if the Interested Stockholder would not otherwise be legally
required to provide such information to the Company's
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stockholders. The proxy or information statement must be mailed to all
stockholders of the Company at least thirty days prior to the consummation of
such business combination and must contain any statement as to the advisability
of the business combination that the Disinterested Directors may choose to make,
including, if the Disinterested Directors so decide, an opinion of an investment
banking firm selected by them as to the fairness (or not) of the terms of the
business combination from a financial point of view to the stockholders.
Provisions in the Company's By-Laws. The Company's By-Laws also contain a
number of provisions which may have an anti-takeover effect. Agenda items for
annual stockholders' meetings, if proposed by a stockholder, require prior
notice to the Board. The stockholder must give the Company notice at least
forty-five days before an annual meeting date of a proposed agenda item.
Nominees for Directors proposed by a stockholder require prior notice to the
Board. If a stockholder wishes to nominate a Director, the stockholder must give
notice at least forty-five days before the stockholders' meeting.
REGISTRATION RIGHTS
The Company has granted BancBoston and Fleet demand registration rights
with respect to their shares of Common Stock. Each of BancBoston or Fleet (or
transferees holding 51% or more of their respective shares) may require the
Company to effect up to three registrations of Common Stock, which demands must
be made at least six months apart and may not be made during periods when the
Company is in the process of registering Common Stock in an underwritten public
offering. Such rights may be exercised commencing after the closing of the
Company's initial public offering until the fourth anniversary of the
effectiveness of the Mergers. The Company may in its sole discretion postpone
registering Common Stock for up to 45 days after a demand.
The former stockholders of the Founding Companies may demand that the
Company effect registrations of Common Stock, which rights commence on the
second and expire on the fourth anniversary of the effectiveness of the Mergers.
Any such demand must be made by holders of not less than 2,039,595 shares of
Common Stock, not less than six months after any earlier demand, and may not be
made during periods when the Company is in the process of registering Common
Stock in an underwritten public offering. In addition, the Company may in its
sole discretion postpone registering Common Stock for up to 45 days after a
demand.
In connection with the Mergers, the Company also granted piggyback
registration rights to the former stockholders of the Founding Companies,
BancBoston, Fleet and First Union for shares of Common Stock received in the
Mergers, which rights shall remain in effect with respect to each such person or
entity until the resale provisions of Rule 144 promulgated under the Securities
Act ("Rule 144") are available to such person or entity without limitation as to
volume. See "Shares Eligible for Future Sale."
The number of shares registered pursuant to such demand and piggyback
rights may be limited by the lead manager of any underwritten offering. In the
event of the exercise of piggyback registration rights in connection with the
registration of Common Stock by the Company, the Company's registration will
take priority. Thereafter, in any underwritten demand or piggyback registration
in which the underwriters limit the total number of shares to be sold in the
offering, the stockholders who formerly held shares of the capital stock of Film
Transit will have the next priority over other stockholders seeking to have
their shares registered, until they have received aggregate cash proceeds from
the Merger and the sale of their shares of Common Stock (whether sold publicly
or privately) aggregating not less than $8 million. The former stockholders of
Courier Dispatch, BancBoston, Fleet and First Union will have the next priority
over others seeking to have shares registered, until such stockholders shall
have received cash in amounts proportionate to the greatest amount of cash
received in the Mergers and all subsequent sales (whether public or private) by
any other group of stockholders. All subsequent limitations on the number of
shares to be registered will thereafter first affect those stockholders who have
received the greatest proportionate amount of cash, whether in the Mergers or in
subsequent sales of Common Stock. Neither demand nor piggyback registration
rights are available to any stockholder which may sell shares of Common Stock in
reliance on the resale provisions of Rule 144 without limitation as to volume.
65
<PAGE> 66
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is First
Union National Bank of North Carolina, (telephone number (800) 829-8432).
LISTING
The Company currently has 9,686,905 shares of its Common Stock listed on
the New York Stock Exchange under the symbol "UT", of which 4,668,573 are
registered and available for unrestricted trading in the public markets unless
owned by affiliates of the Company or unless such shares are subject to
restrictions on transfer under applicable federal tax law or by contract.
Applications have been and will be made to list the shares of Common Stock
offered hereby on the New York Stock Exchange in connection with each issuance
hereunder.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect market
prices of the Common Stock prevailing from time to time. As described below,
only a limited number of shares are available for sale because of certain
contractual and legal restrictions on resale. Sales of substantial amounts of
Common Stock in the public market after these restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
The Company presently has outstanding 9,364,194 shares of Common Stock. Of
these shares, 4,383,400 are freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 or unless such shares are subject to restrictions on
transfer under applicable federal tax law or by contract.
Of the 9,364,194 shares of Common Stock presently outstanding 4,980,794 are
"restricted securities" as that term is defined in Rule 144 ("Restricted
Shares"). Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144, which is
summarized below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock that constitute restricted securities and have been outstanding and
not held by any "affiliate" of the Company for a period of two years is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of one percent of the then outstanding shares of Common Stock
(approximately 93,640 shares as of the date of this Prospectus) or the average
weekly reported trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of such sale is given, provided certain
requirements as to the manner of sale, notice of sale and the availability of
current public information are satisfied (which requirements as to the
availability of current public information were satisfied as of the date of this
Prospectus). Affiliates of the Company must comply with the foregoing
restrictions and requirements of Rule 144 as to both restricted and
non-restricted securities, except that the two-year holding period requirement
does not apply to shares of Common Stock that are not "restricted securities"
(such as shares acquired by affiliates in the Company's initial public
offering). Under Rule 144(k), a person who is not deemed an "affiliate" of the
Company at any time during the three months preceding a sale by such person, and
who has beneficially owned shares of Common Stock that were not acquired from
the Company or an "affiliate" of the Company within the previous three years,
would be entitled to sell such shares without regard to volume limitation,
manner of sale provisions, notification requirements or the availability of
current public information concerning the Company. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, such issuer.
All officers and directors of the Company, the former stockholders of the
Founding Companies, the Company and certain other stockholders have entered into
contractual "lock-up" agreements providing that they will not (with certain
limited exceptions) offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of the shares of Common Stock owned by them or
that could be purchased by them through
66
<PAGE> 67
the exercise of options to purchase Common Stock for a period of 180 days after
the effective date of the Company's initial public offering without the prior
written consent of Smith Barney Inc. As a result of these contractual
restrictions, shares subject to lock up agreements may not be sold until the
agreements expire. Since many of the shares of Common Stock (other than the
shares of Common Stock sold in the Company's initial public offering) were
issued in the Mergers and were not issued in a transaction registered under the
Securities Act, they may not be sold pursuant to Rule 144 prior to the second
anniversary of their issuance.
VALIDITY OF SHARES
The validity of the shares of Common Stock offered hereby have been passed
upon for the Company by Sullivan & Worcester LLP, Boston, Massachusetts. Harvey
E. Bines, a member of the firm of Sullivan & Worcester LLP, was a member of the
Board of Directors of the Company from December 20, 1995 to May 7, 1996. Mr.
Bines holds options to acquire 10,199 shares of Common Stock at a purchase price
of $4.42 per share and beneficially owns 1,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and for the period from December 20 to December 31, 1995; the combined
financial statements of the Combined Founding Companies, the consolidated
financial statements of CDG Holding Corp., the combined financial statements of
Tricor America, Inc., the consolidated financial statements of Film Transit,
Incorporated, the combined financial statements of the Districts of Lanter
Courier Corporation and the consolidated financial statements of Salmon
Acquisition Corporation as of December 31, 1993 and 1994 and for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995; and the
consolidated financial statements of 3D Distribution Systems, Inc. as of
December 31, 1993 and 1994 and for the year ended October 31, 1993, for the two
months ended December 31, 1993, for the year ended December 31, 1994 and for the
period ended December 19, 1995 included in this Prospectus have been so included
in reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Eddy Messenger Service, Inc. for the year ended
December 31, 1995 appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
67
<PAGE> 68
UNITED TRANSNET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE COMPANY
UNITED TRANSNET, INC.
Consolidated Balance Sheets as of March 30, 1996 (unaudited) and December 31,
1995........................................................................... F-4
Consolidated Statements of Operations of United TransNet, Inc. for the three
months ended March 30, 1996 (unaudited) and of the Combined Founding Companies
for the three months ended March 31, 1995 (unaudited).......................... F-5
Consolidated Statements of Cash Flows of United TransNet, Inc. for the three
months ended March 30, 1996 (unaudited) and of the Combined Founding Companies
for the three months ended March 31, 1995 (unaudited).......................... F-6
Consolidated Statements of Stockholders' Equity for the period ended March 30,
1996 (unaudited)............................................................... F-7
Notes to Consolidated Financial Statements...................................... F-8
Report of Price Waterhouse LLP, Independent Accountants......................... F-11
Consolidated Balance Sheet as of December 31, 1995.............................. F-12
Consolidated Statement of Operations for the period from December 20 to December
31, 1995....................................................................... F-13
Consolidated Statement of Stockholders' Equity for the period from December 20
to December 31, 1995........................................................... F-14
Consolidated Statement of Cash Flows for the period from December 20 to December
31, 1995....................................................................... F-15
Notes to Consolidated Financial Statements...................................... F-16
COMBINED FOUNDING COMPANIES (PREDECESSORS TO UNITED TRANSNET, INC.)
Report of Price Waterhouse LLP, Independent Accountants......................... F-25
Combined Balance Sheets as of December 31, 1993 and 1994........................ F-26
Combined Statements of Operations for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995..................................... F-27
Combined Statements of Stockholders' Equity for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995....................... F-28
Combined Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995..................................... F-29
Notes to Combined Financial Statements.......................................... F-30
FOUNDING COMPANIES
CDG HOLDING CORP.
Report of Price Waterhouse LLP, Independent Accountants......................... F-43
Consolidated Balance Sheets as of December 31, 1993 and 1994.................... F-44
Consolidated Statements of Operations for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-45
Consolidated Statements of Stockholders' Deficit for the years ended December
31, 1993 and 1994 and for the period ended December 19, 1995................... F-46
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-47
Notes to Consolidated Financial Statements...................................... F-48
</TABLE>
F-1
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRICOR AMERICA, INC.
Report of Price Waterhouse LLP, Independent Accountants......................... F-61
Combined Balance Sheets as of December 31, 1993 and 1994........................ F-62
Combined Statements of Operations for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995..................................... F-63
Combined Statements of Stockholder's Equity for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995....................... F-64
Combined Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995..................................... F-65
Notes to Combined Financial Statements.......................................... F-66
FILM TRANSIT, INCORPORATED
Report of Price Waterhouse LLP, Independent Accountants......................... F-73
Consolidated Balance Sheets as of December 31, 1993 and 1994.................... F-74
Consolidated Statements of Operations for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-75
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995....................... F-76
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-77
Notes to Consolidated Financial Statements...................................... F-78
THE DISTRICTS OF LANTER COURIER CORPORATION
Report of Price Waterhouse LLP, Independent Accountants......................... F-85
Combined Balance Sheets as of December 31, 1993 and 1994........................ F-86
Combined Statements of Operations for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995..................................... F-87
Combined Statements of Lanter Equity Investment Balance at December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-88
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995........................... F-89
Notes to Combined Financial Statements.......................................... F-90
SALMON ACQUISITION CORPORATION
Report of Price Waterhouse LLP, Independent Accountants......................... F-97
Consolidated Balance Sheets as of December 31, 1993 and 1994.................... F-98
Consolidated Statements of Operations for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-99
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1993 and 1994 and for the period ended December 19, 1995.......... F-100
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995................................ F-101
Notes to Consolidated Financial Statements...................................... F-102
</TABLE>
F-2
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
3D DISTRIBUTION SYSTEMS, INC.
Report of Price Waterhouse LLP, Independent Accountants......................... F-109
Consolidated Balance Sheets as of December 31, 1993 and 1994.................... F-110
Consolidated Statements of Operations for the year ended October 31, 1993, for
the two months ended December 31, 1993, for the year ended December 31, 1994
and for the period ended December 19, 1995..................................... F-111
Consolidated Statements of Stockholders' Equity for the year ended October 31,
1993, for the two months ended December 31, 1993, for the year ended December
31, 1994, and for the period ended December 19, 1995........................... F-112
Consolidated Statements of Cash Flows for the year ended October 31, 1993, for
the two months ended December 31, 1993, for the year ended December 31, 1994
and for the period ended December 19, 1995..................................... F-113
Notes to Consolidated Financial Statements...................................... F-114
EDDY MESSENGER SERVICE, INC.
Report of Ernst & Young LLP, Independent Auditors............................... F-121
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)........... F-122
Statements of Income for the year ended December 31, 1995 and for the three
months ended March 31, 1996 and 1995 (unaudited)............................... F-123
Statements of Retained Earnings as of December 31, 1995 and March 31, 1996
(unaudited)................................................................... F-124
Statements of Cash Flows for the year ended December 31, 1995 and for the three
months ended March 31, 1996 and 1995 (unaudited)............................... F-125
Notes to Financial Statements................................................... F-126
</TABLE>
F-3
<PAGE> 71
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 30, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 1,350 $ 2,330
Accounts receivable, less allowance of $383 as of March 30,
1996 and $654 as of December 31, 1995...................... 21,703 20,512
Short-term investments........................................ 32 2
Prepaids and other assets..................................... 3,524 2,644
Income taxes receivable....................................... 202 198
------- -------
Total current assets....................................... 26,811 25,686
Property and equipment, net..................................... 9,681 10,332
Goodwill, net................................................... 16,120 16,429
Other intangible assets, net.................................... 7,908 8,340
Other assets.................................................... 5,555 5,661
Deferred tax assets............................................. 2,974 3,982
------- -------
Total assets.......................................... $69,049 $70,430
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt............................................... $ 177 $ 1,500
Dividends payable............................................. 402 402
Accounts payable.............................................. 8,441 9,105
Accrued liabilities........................................... 8,115 13,644
Income taxes payable.......................................... 705 727
Deferred tax liabilities...................................... 76 76
------- -------
Total current liabilities.................................. 17,916 25,454
Long-term debt, net of current maturities....................... 23,210 24,811
Deferred compensation........................................... 451 487
Other liabilities............................................... 3,477 3,501
------- -------
Total liabilities..................................... 45,054 54,253
------- -------
</TABLE>
<TABLE>
<CAPTION>
SHARE INFORMATION
---------------------------
1996 1995
----------- -----------
<S> <C> <C> <C> <C>
Stockholders' equity
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.... 9,079,021 8,617,222 9 9
Paid-in capital................................................. 20,866 14,664
Retained earnings............................................... 3,120 1,504
------- -------
Total stockholders' equity................................. 23,995 16,177
------- -------
Commitments and contingencies................................... -- --
------- -------
Total liabilities and stockholders' equity............ $69,049 $70,430
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 72
UNITED TRANSNET, INC.
FOR THE THREE MONTHS ENDED MARCH 30, 1996 AND
COMBINED FOUNDING COMPANIES
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
FOR THE THREE
MONTHS ENDED
-------------------------
MARCH 30, MARCH 31,
1996 1995
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues........................................................ $ 66,255 $ 60,100
Cost of delivery.................................................... 48,532 43,656
---------- ----------
Gross profit...................................................... 17,723 16,444
Selling, general and administrative expenses........................ 13,657 12,770
Amortization of intangible assets................................... 747 805
---------- ----------
Operating income.................................................. 3,319 2,869
Other income (expense)
Interest expense.................................................. (629) (1,214)
Interest income and other, net.................................... 21 57
---------- ----------
Income before income taxes.......................................... 2,711 1,712
Provision for income taxes.......................................... 1,095 268
---------- ----------
Net income.......................................................... 1,616 1,444
Warrant accretion................................................. -- (527)
---------- ----------
Net income available for common stockholders........................ $ 1,616 $ 917
========== ==========
Earnings per common share:
Net income........................................................ $ 0.18
==========
Unaudited pro forma information:
Net income before income taxes.................................... $ 1,712
Provision for income taxes........................................ 779
----------
Net income........................................................ $ 933
==========
Earnings per common share:..........................................
Net income before income taxes.................................... $ 0.22
Provision for income taxes........................................ 0.10
----------
Net income available for common stockholders...................... $ 0.12
==========
Weighted average shares outstanding................................. 9,212,186 7,805,409
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 73
UNITED TRANSNET, INC.
FOR THE THREE MONTHS ENDED MARCH 30, 1996 AND
COMBINED FOUNDING COMPANIES
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
FOR THE THREE MONTHS
ENDED
-------------------------
MARCH 30, MARCH 31,
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net income......................................................... $ 1,616 $ 1,444
Adjustments to reconcile net income to net cash provided by (used
in) operating activities
Depreciation and amortization................................... 797 910
Provision for bad debts......................................... (108) 29
Amortization of goodwill and other intangible assets............ 747 805
Amortization of discount on long-term debt...................... -- 221
Deferred income taxes........................................... 1,008 375
Change in operating assets and liabilities:
Accounts receivable........................................... (1,083) 2,467
Prepaid and other assets, current and noncurrent.............. (774) 1,986
Income tax receivable......................................... (4) --
Accounts payable.............................................. (664) (1,215)
Accrued liabilities........................................... (5,555) (514)
Income taxes payable.......................................... (20) 20
Deferred compensation......................................... (36) (30)
------- -------
Net cash provided by (used in) operating activities........ (4,076) 6,498
------- -------
Cash flows from investing activities
Capital expenditures, net of disposals............................. (146) (644)
Purchase of short term investments................................. (30) (100)
Purchase of companies, net of cash acquired........................ (6) (42)
------- -------
Net cash used in investing activities...................... (182) (786)
------- -------
Cash flows from financing activities
Net decrease in line of credit..................................... (1,550) (1,275)
Payments of debt................................................... (1,374) (1,629)
Distributions to stockholder....................................... -- (1,776)
Net transactions with Lanter....................................... -- (466)
Exercise of common stock options................................... 20 --
Issuance of common stock pursuant to overallotment option.......... 6,182 --
------- -------
Net cash provided by (used in) financing activities........ 3,278 (5,146)
------- -------
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents............................................ (980) 566
Beginning of period................................................ 2,330 4,020
------- -------
End of period...................................................... $ 1,350 $ 4,586
======= =======
Supplemental disclosure of cash flow information
Cash paid during the quarter for
Interest........................................................ $ 252 $ 602
Income taxes.................................................... 110 166
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 74
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
COMMON STOCK
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. 8,617,222 $9 $14,664 $1,504 $16,177
Exercise of common stock options......... 3,399 -- 20 -- 20
Exercise of overallotment option......... 458,400 -- 6,182 -- 6,182
Net income............................... -- -- -- 1,616 1,616
--------- -- ------- ------ -------
Balance at March 30, 1996................ 9,079,021 $9 $20,866 $3,120 $23,995
========= == ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 75
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 of such Common
Stock. The Founding Companies were 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 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. These statements should be read in conjunction with the
Company's audited Consolidated Financial Statements for the year ended December
31, 1995 set forth elsewhere in this Prospectus.
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, beginning with the fiscal
quarter ending March 30, 1996. Results of operations for the three months ended
March 30, 1996 are not necessarily indicative of the results of operations for
the year ending December 28, 1996 or any interim periods.
There have been no changes to the accounting policies of the Company during
the periods presented. For description of these policies, see Note 1 of the
Notes to Consolidated Financial Statements in the Company's audited Consolidated
Financial Statements for the year ended December 31, 1995 set forth elsewhere in
this Prospectus.
Certain of the Founding Companies were S Corporations during the period
ended March 31, 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 FAS 109, based on tax laws that were in effect during the respective
periods.
NOTE 3 -- EARNINGS PER COMMON SHARE
Earnings per common share for the period ending March 30, 1996 was computed
based on the weighted average of common and common equivalent shares outstanding
during the period. Pro forma earnings per common share for the period ending
March 31, 1995 was computed based on common equivalent shares outstanding as if
the Mergers and common stock offering had been consummated.
F-8
<PAGE> 76
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 table provides a reconciliation to the Combined
Founding Companies Consolidated Statement of Operations for the three months
ended March 31, 1995.
COMBINED FOUNDING COMPANIES
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
THE DISTRICTS OF
CDG 3D FILM LANTER SALMON TRICOR COMBINED
HOLDING DISTRIBUTION TRANSIT COURIER, ACQUISITION AMERICA FOUNDING
CORP. SYSTEMS, INC. INCORPORATED CORPORATION CORPORATION INC. COMPANIES
------- ------------- ------------ ---------------- ----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......... $32,290 $3,692 $5,694 $5,529 $3,991 $8,904 $60,100
Cost of delivery...... 23,613 2,567 3,966 4,134 3,074 6,302 43,656
------- ------ ------ ------ ------ ------ -------
Gross profit........ 8,677 1,125 1,728 1,395 917 2,602 16,444
Selling, general and
administrative
expenses............ 6,930 966 1,647 970 553 1,704 12,770
Amortization of
intangible assets... 626 -- -- 95 75 9 805
------- ------ ------ ------ ------ ------ -------
Operating income.... 1,121 159 81 330 289 889 2,869
Other income (expense)
Interest expense.... (1,032) (21) (11) -- (107) (43) (1,214)
Interest income and
other, net....... -- -- 9 -- 7 41 57
------- ------ ------ ------ ------ ------ -------
Income before income
taxes and
extraordinary
items............... 89 138 79 330 189 887 1,712
Provision for income
taxes............... 98 58 33 -- 79 -- 268
------- ------ ------ ------ ------ ------ -------
Net income (loss)..... (9) 80 46 330 110 887 1,444
Warrant accretion... (527) -- -- -- -- -- (527)
------- ------ ------ ------ ------ ------ -------
Net income (loss)
available for common
stockholders........ $ (536) $ 80 $ 46 $ 330 $ 110 $ 887 $ 917
======= ====== ====== ====== ====== ====== =======
United pro forma
information:
Net income before
income taxes..... $ 89 $ 138 $ 79 $ 330 $ 189 $ 887 $ 1,712
Provision for income
taxes............ 98 58 33 138 79 373 779
------- ------ ------ ------ ------ ------ -------
Net income (loss)... $ (9) $ 80 $ 46 $ 192 $ 110 $ 514 $ 933
======= ====== ====== ====== ====== ====== =======
</TABLE>
F-9
<PAGE> 77
(This page intentionally left blank)
F-10
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
United TransNet, Inc.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of United
TransNet, Inc. and its subsidiaries at December 31, 1995 and the results of
their operations and their cash flows for the period from December 20 to
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-11
<PAGE> 79
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 2,330
Accounts receivable, less allowance of $654................................... 20,512
Short-term investments........................................................ 2
Prepaids and other assets..................................................... 2,644
Income taxes receivable....................................................... 198
-------
Total current assets.................................................. 25,686
Property and equipment, net..................................................... 10,332
Goodwill, net................................................................... 16,429
Other intangible assets, net.................................................... 8,340
Other assets.................................................................... 5,661
Deferred tax assets............................................................. 3,982
-------
$70,430
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt............................................................... $ 1,500
Dividends payable............................................................. 402
Accounts payable.............................................................. 9,105
Accrued liabilities........................................................... 13,644
Income taxes payable.......................................................... 727
Deferred tax liabilities...................................................... 76
-------
Total current liabilities............................................. 25,454
Long-term debt, net of current maturities....................................... 24,811
Deferred compensation........................................................... 487
Other liabilities............................................................... 3,501
-------
54,253
-------
Stockholders' equity
Preferred Stock, $.001 par value; 1,000,000 authorized; no shares issued and
outstanding................................................................ --
Common Stock, $.001 par value; 25,000,000 authorized; 8,617,222 issued and
outstanding................................................................ 9
Paid-in capital............................................................... 14,664
Retained earnings............................................................. 1,504
-------
Total stockholders' equity............................................ 16,177
-------
Commitments and contingencies................................................... --
-------
$70,430
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 80
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C>
Net revenues......................................................................... $ 7,748
Cost of delivery..................................................................... 5,462
-------
Gross profit....................................................................... 2,286
Selling, general and administrative expenses......................................... 1,585
Amortization of intangible assets.................................................... 92
-------
Operating income................................................................... 609
Other income (expense):
Interest expense................................................................... (137)
Interest income and other, net..................................................... 5
-------
Income before income taxes........................................................... 477
Provision (benefit) for income taxes................................................. (2,231)
-------
Income before extraordinary item..................................................... 2,708
Extraordinary item -- loss on early extinguishment of debt, net of income tax benefit
of $803............................................................................ 1,204
-------
Net income........................................................................... $ 1,504
=======
Earnings per common share
Income before extraordinary item................................................... $ .31
Extraordinary item................................................................. .14
-------
Net income......................................................................... $ .17
=======
Weighted average number of common and common equivalent shares....................... 8,799
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 81
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock to Founding Company
stockholders...................................... 4,692,222 $5 $ 3,309 $ -- $ 3,314
Issuance of Common Stock............................ 3,925,000 4 47,175 -- 47,179
Distribution to Founding Company stockholders....... -- -- (35,820) -- (35,820)
Net income.......................................... -- -- -- 1,504 1,504
--------- -- -------- -------- --------
Balance at December 31, 1995........................ 8,617,222 $9 $ 14,664 $1,504 $ 16,177
========= == ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 82
UNITED TRANSNET, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Net income................................................................................ $ 1,504
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization.......................................................... 103
Provision for bad debts................................................................ (25)
Amortization of goodwill and other intangible assets................................... 92
Deferred income taxes.................................................................. (2,572)
Change in operating assets and liabilities
Accounts receivable.................................................................. 460
Other assets......................................................................... 188
Accrued interest-related party....................................................... 91
Accounts payable..................................................................... (3,343)
Accrued liabilities.................................................................. 1,269
Income taxes payable................................................................. 426
--------
Net cash used in operating activities............................................. (1,807)
--------
Cash flows from investing activities
Capital expenditures, net of disposals.................................................... (22)
--------
Net cash used in investing activities............................................. (22)
--------
Cash flows from financing activities
Increase in revolving line of credit...................................................... 23,434
Decrease in revolving line of credit...................................................... (6,495)
Payments of debt.......................................................................... (27,473)
Proceeds from sale of common stock........................................................ 47,179
Distribution to Founding Company stockholders............................................. (35,820)
--------
Net cash provided by financing activities......................................... 825
--------
Net decrease in cash and cash equivalents................................................... (1,004)
Cash and cash equivalents
Beginning of period....................................................................... 3,334
--------
End of period............................................................................. $ 2,330
========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest............................................................................... $ 34
Income taxes........................................................................... 8
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 83
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 merger 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 (the "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.
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.
Estimates
The preparation of consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable, short-term investments, short-term
debt, and accounts payable. The fair value of long-term debt instruments is
based upon the current interest rate environment and remaining term to maturity
(see Note 6). The Company feels that the carrying value of long-term debt
approximates the fair value.
The more significant accounting policies followed by the Company are
described below:
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Short-term
investments consist of certificates with original maturities of less than one
year.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-
F-16
<PAGE> 84
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
line method over the estimated useful lives of the assets, which range from
three to thirty-one and a half years. The cost and accumulated depreciation of
property retired or otherwise disposed of are removed from the account balances
and any gain or loss is included in other income. Assets subject to capital
leases are amortized using the straight-line method over the terms of the
leases.
Goodwill and Other Intangible Assets
Goodwill and intangible assets are currently amortized on a straight-line
basis over periods ranging from 1 to 20 years. The carrying value of intangible
assets is evaluated for indications of possible impairment whenever events or
changes in circumstances indicate that the carrying value of an intangible asset
may not be recoverable. Events or changes in circumstances which may indicate
impairment include a significant adverse change in legal factors, business
climate or government regulation and current cash flow losses combined with a
history of cash flow losses or forecasted continuing cash flow losses associated
with an acquired company. The review is based on comparing the carrying amount
to the undiscounted estimated cash flows before interest charges from operations
over the remaining amortization period. No impairment is indicated as of
December 31, 1995.
Goodwill was $20,589 at December 31, 1995. Related accumulated amortization
totaled $4,160 at December 31, 1995.
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Insurance Claims
The Company is self-insured with respect to certain aspects of its workers'
compensation, general liability, automobile and physical damage on vehicles and
group health insurance. The accompanying financial statements include an
insurance accrual based upon third party administrator's and management's
evaluations of estimated future ultimate costs of outstanding claims and an
estimated liability for claims incurred but not reported on an undiscounted
basis. The ultimate cost of these claims will depend on the outcome of
individual claims given the potential for these claims to increase or decrease
over time.
Revenue Recognition
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
The Company determines taxes on income by using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's consolidated financial
statements or tax returns. In estimating future tax consequences, FAS 109
requires the consideration of all expected future events other than enactments
of changes in the tax laws or rates.
Earnings per Common Share
Earnings per share of common stock was computed based on the weighted
average number of common and common equivalent shares (if dilutive) outstanding
during the period from December 20 to December 31, 1995.
F-17
<PAGE> 85
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
New Accounting Standards
The Company currently accounts for stock related compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and therefore the Company does not expect the adoption of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" to have a material impact on the Company's financial position or
results of operations. This statement is effective for the Company's year ending
December 31, 1996.
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Land.................................................................. $ 577
Buildings............................................................. 2,904
Delivery vehicles..................................................... 15,144
Equipment and furnishings............................................. 6,290
Leasehold improvements................................................ 2,567
--------
27,482
Less accumulated depreciation and amortization........................ (17,150)
--------
$ 10,332
========
</TABLE>
4. OTHER INTANGIBLE ASSETS
<TABLE>
Other intangible assets consists of the following:
<CAPTION>
ESTIMATED
AMORTIZABLE
LIVES DECEMBER 31,
(YEARS) 1995
----------- ------------
<S> <C> <C>
Customer lists.............................................. 5-12 $ 7,524
Noncompete agreements....................................... 1-8 7,207
Other intangible assets..................................... 6 1,061
-------
15,792
Less accumulated amortization............................... (7,452)
-------
$ 8,340
=======
</TABLE>
5. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accrued payroll and related benefits.................................... $ 3,454
Accrued insurance....................................................... 8,748
Other accrued liabilities............................................... 4,943
-------
17,145
Less current portion.................................................... 13,644
-------
$ 3,501
=======
</TABLE>
F-18
<PAGE> 86
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. SHORT-TERM AND LONG-TERM DEBT
<TABLE>
Short-term and long-term obligations consist of the following:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Term loans payable in varying monthly installments, plus interest
varying from 6% to 16%................................................ $ 147
Revolving line of credit with interest at the prime rate (8.5% at
December 31, 1995) plus 0.25%......................................... 23,434
Acquisition loans payable in varying monthly installments, plus interest
at 9%; final payment due March 1999................................... 2,300
Notes payable, net of imputed interest of approximately $2 at
December 31, 1995..................................................... 179
Contracts payable in monthly installments of $2, plus interest at
8.5%.................................................................. 16
Other notes payable..................................................... 232
Other non-compete agreements............................................ 3
-------
26,311
Less current portion.................................................... (1,500)
-------
$24,811
=======
</TABLE>
The Company maintains a line of credit aggregating $35 million which
expires on January 15, 1997. The Company is required to pay a commitment fee of
.25% on the unused portion of the line of credit. At December 31, 1995, $23,434
was outstanding under this agreement. The estimated fair market value of the
line of credit approximates the carrying value included in the balance sheet at
December 31, 1995 due to its varying interest rate.
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1996............................................. $ 1,500
1997............................................. 24,686
1998............................................. 45
1999............................................. 74
2000 and thereafter.............................. 6
-------
$26,311
=======
</TABLE>
In December 1995, the Company repaid all of the subordinated notes of
Courier Dispatch which were assumed in the Mergers and generated an
extraordinary loss of $2,007, net of a tax benefit of $803.
F-19
<PAGE> 87
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES
<TABLE>
The provision (benefit) for income taxes is as follows:
<CAPTION>
PERIOD FROM
DECEMBER 20
TO
DECEMBER 31,
1995
------------
<S> <C>
Current tax expense
Federal....................................................................... $ 278
State......................................................................... 68
Deferred tax benefit
Federal....................................................................... (2,187)
State......................................................................... (390)
-------
Total provision (benefit)............................................. $(2,231)
=======
<CAPTION>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
PERIOD FROM
DECEMBER 20
TO
DECEMBER 31,
1995
------------
<S> <C>
Tax at federal statutory rate................................................... $ 163
State income taxes, net of federal income tax benefit........................... 23
Decrease in valuation allowance................................................. (2,164)
Nondeductible expenses.......................................................... 1
Change in corporate tax status.................................................. (243)
Other........................................................................... (11)
-------
$(2,231)
=======
</TABLE>
F-20
<PAGE> 88
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The components of deferred income taxes are as follows:
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets
Insurance accrual............................................................. $ 2,430
Deferred compensation......................................................... 248
Vacation accrual.............................................................. 410
Accounts receivable allowance................................................. 259
Net operating loss carryforwards.............................................. 1,918
Other......................................................................... 84
-------
5,349
-------
Deferred tax liabilities
Accumulated depreciation...................................................... (940)
Non-compete agreements........................................................ (101)
Other......................................................................... (402)
-------
(1,443)
-------
$ 3,906
=======
</TABLE>
The valuation allowance of $2,164 at December 20, 1995 related to the
deferred tax assets of Courier Dispatch was reversed because the consolidated
earnings of the Company have caused realization to become probable.
At December 31, 1995, the Company has net operating loss carryforwards
available for tax purposes of approximately $4 million to offset future taxable
income through 2010.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rent expense related to operating leases amounted to approximately $477 for
the period from December 20 to December 31, 1995.
<TABLE>
The following are the approximate future minimum lease payments required by
operating leases:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1996.......................................... $3,531
1997.......................................... 2,706
1998.......................................... 1,422
1999.......................................... 666
2000 and thereafter........................... 1,463
------
$9,788
======
</TABLE>
Litigation
The Company is, from time to time, party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.
F-21
<PAGE> 89
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Self-Insurance Program
The Company is self-insured with respect to certain aspects of its workers'
compensation, general liability and automobile insurance and physical damage on
vehicles claims. In accordance with the terms of the insurance policy, the
Company maintains a $1,240 letter of credit with a commercial bank in favor of
the insurer. Management believes that any claims as of December 31, 1995,
arising under this self-insurance program will not have a material adverse
effect on the financial position, results of operations, or cash flows of the
Company.
9. RELATED PARTY TRANSACTIONS
A board member of the Company is an officer of a bank, an affiliate of
which is a significant customer of the Company. At December 31, 1995, the
Company had an accounts receivable balance of $565 from this customer. Sales to
this customer approximated $201 for the period from December 20 to December 31,
1995.
Sunbelt uses two facilities owned by a related party for which no rent is
charged. Sunbelt shares one of its facilities with this entity at no charge to
the entity.
Film Transit leases two facilities from a partnership of which the partners
are two stockholders of the Company. Rent paid to the partnership for the period
from December 20 to December 31, 1995 was $6.
10. EMPLOYEE BENEFIT PLANS
Several of the Company's subsidiaries have qualified defined contribution
plans which allow for voluntary pretax contributions by the employees. The
Company pays all general and administrative expenses of the plans and in some
cases makes matching contributions on behalf of the employees.
One subsidiary of the Company has a noncontributory profit sharing plan for
the benefit of qualifying employees. Contributions to the plan are calculated at
graduated percentages of the subsidiary's net income before taxes and employee
bonuses.
11. CONCENTRATION OF CREDIT RISK
During the period ended December 31, 1995, no one customer represented
greater than 10% of total revenue of the Company. The Company's revenues are
primarily derived from services to financial institutions, pharmaceutical
companies, automotive and farm implement companies. Although the Company is
affected by the creditworthiness of its customers, management does not believe
significant credit risk exists at December 31, 1995. The Company generally does
not require collateral, and maintains reserves for potential credit losses.
F-22
<PAGE> 90
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCK OPTION PLAN
<TABLE>
The Company has in place a stock option plan whereby selected members of
management have been granted options to purchase shares of common stock.
Transactions related to stock options for the period from December 20 to
December 31, 1995 are as follows:
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 20, 1995................................ 216,110 $2.06-4.42
Granted......................................................... -- --
Exercised....................................................... -- --
Cancelled or expired............................................ -- --
------- ----------
Outstanding at December 31, 1995................................ 216,110 $2.06-4.42
======= ==========
</TABLE>
13. UNAUDITED PRO FORMA INFORMATION
<TABLE>
The following table presents the unaudited results of operations of the
Company for the years ended December 31, 1994 and 1995 as if the mergers had
occurred on January 1, 1994. The pro forma information below reflects certain
adjustments, including the elimination of interest expense on debt paid off with
proceeds from the initial public offering and taxation as if Tricor and Lanter,
subchapter S corporations, had been subject to federal and state income taxes
throughout the periods presented.
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1994 1995
---------- ----------
<S> <C> <C>
Net revenues...................................................... $ 214,099 $ 254,274
Net income........................................................ 4,703 4,085
Net income per common share....................................... 0.53 0.46
Weighted average shares outstanding............................... 8,798,963 8,798,963
</TABLE>
14. SUBSEQUENT EVENTS
Sale of common stock
On January 16, 1996, the Company sold 458,400 shares of Common Stock
pursuant to an exercise of the underwriters' over-allotment option. The proceeds
from the exercise of the over-allotment option, net of underwriting discounts
and commissions and after deducting expenses related to the exercise, were
approximately $6.2 million.
1995 Stock Incentive Plan
On January 16, 1996, options to purchase 110,000 shares of Common Stock
were granted pursuant to the 1995 Stock Incentive Plan (the "1995 Plan") with an
exercise price of $14.75 per share, the market value of the Common Stock on the
date of grant. On March 6, 1996 the Board of Directors authorized increasing the
total number of shares subject to the 1995 Plan to an aggregate of 625,000
shares, subject to approval of that increase by stockholders of the Company.
1996 Stock and Option Plan
On March 6, 1996, the Board of Directors of the Company established the
1996 Stock and Option Plan (the "1996 Plan") for non-employee directors, subject
to approval of this plan by stockholders of the Company. Under the 1996 Plan,
50,000 shares of common stock are reserved for issuance. The initial grants of
stock and options may not occur before January 1, 1997.
F-23
<PAGE> 91
(This page intentionally left blank)
F-24
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholders of
the Combined Founding Companies
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the combined financial position of the
Combined Founding Companies at December 31, 1993 and 1994 and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1994 and for the period ended December 19, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Combined Founding Companies'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-25
<PAGE> 93
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
<TABLE>
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................ $ 1,918 $ 4,019
Accounts receivable, less allowance of $572 and $676..................... 13,114 18,868
Short-term investments................................................... -- 900
Prepaids and other assets................................................ 2,343 1,560
Deferred tax assets...................................................... 91 306
------- -------
Total current assets............................................. 17,466 25,653
Property and equipment, net................................................ 13,224 15,165
Goodwill, net.............................................................. 8,121 15,502
Other intangible assets, net............................................... 5,463 9,004
Other assets............................................................... 1,307 1,653
Restricted certificates of deposit......................................... 1,037 837
Deferred tax assets, net................................................... 512 609
------- -------
$47,130 $68,423
======= =======
LIABILITIES, COMMON STOCK WARRANTS AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt.......................................................... $ 3,510 $10,057
Short-term debt -- related parties....................................... 575 575
Accrued interest -- related parties...................................... 1,401 1,837
Accounts payable......................................................... 3,668 7,515
Accrued liabilities...................................................... 8,566 10,347
Income taxes payable..................................................... 153 284
------- -------
Total current liabilities........................................ 17,873 30,615
Long-term debt, net of current maturities.................................. 5,158 13,666
Long-term debt -- related parties, net of current maturities............... 8,548 12,301
Deferred compensation...................................................... 768 619
Other liabilities.......................................................... 2,939 2,294
------- -------
35,286 59,495
------- -------
Common stock warrants...................................................... 4,692 5,872
------- -------
Stockholders' equity
Common stock............................................................. 93 93
Paid-in capital.......................................................... 2,713 2,572
Retained earnings........................................................ 12,812 9,367
Treasury stock........................................................... (7,050) (7,050)
Common stock -- subscriptions receivable................................. -- (510)
Predecessor basis adjustment............................................. (1,416) (1,416)
------- -------
7,152 3,056
------- -------
Commitments and contingencies.............................................. -- --
------- -------
$47,130 $68,423
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 94
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
<TABLE>
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------- ------------
1993 1994 1995
-------- -------- ------------
<S> <C> <C> <C>
Net revenues................................................. $171,901 $214,099 $246,526
Cost of delivery............................................. 122,110 156,323 181,217
-------- -------- --------
Gross profit............................................... 49,791 57,776 65,309
Selling, general and administrative expenses................. 41,095 48,395 53,444
Amortization of intangible assets............................ 2,258 3,667 3,204
-------- -------- --------
Operating income........................................... 6,438 5,714 8,661
Other income (expense)
Interest expense -- related party.......................... (1,591) (2,146) (2,575)
Interest expense........................................... (796) (1,612) (2,713)
Interest income and other, net............................. 127 2,245 264
-------- -------- --------
Income before income taxes................................... 4,178 4,201 3,637
Provision for income taxes................................... 1,067 336 1,021
-------- -------- --------
Net income................................................... 3,111 3,865 2,616
Warrant accretion.......................................... (131) (527) (19,430)
-------- -------- --------
Net income (loss) available for common stockholders.......... $ 2,980 $ 3,338 $(16,814)
======== ======== ========
Unaudited pro forma information (Note 15):
Net income before income taxes............................. $ 4,178 $ 4,201 $ 3,637
Provision for income taxes................................. 2,278 1,754 2,750
-------- -------- --------
Net income................................................. 1,900 2,447 887
Warrant accretion.......................................... (131) (527) (19,430)
-------- -------- --------
Net income (loss) available for common stockholders.......... $ 1,769 $ 1,920 $(18,543)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 95
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
<TABLE>
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK PREDECESSOR
------------------ TREASURY PAID IN SUBSCRIPTIONS RETAINED BASIS
SHARES AMOUNT STOCK CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
--------- ------ -------- ------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992..... 1,272,445 $93 $(7,050) $ 3,477 $ -- $ 11,769 $(1,416) $ 6,873
Distributions to stockholders.... -- -- -- -- -- (608) -- (608)
Issuance of common stock......... 2,950 -- -- 38 -- -- -- 38
Net transactions with Lanter..... -- -- -- (2,119) -- -- -- (2,119)
Warrant accretion................ -- -- -- -- -- (131) -- (131)
3D net loss for two months ended
December 31, 1993.............. -- -- -- -- -- (12) -- (12)
Net income....................... -- -- -- 1,317 -- 1,794 -- 3,111
--------- --- ------- ------- ----- -------- ------- --------
Balance at December 31, 1993..... 1,275,395 93 (7,050) 2,713 -- 12,812 (1,416) 7,152
Distributions to stockholders.... -- -- -- -- -- (1,580) -- (1,580)
Issuance of common stock......... 300,952 1 -- 716 (556) -- -- 161
Retirement of treasury stock..... (954,098) (1) -- -- -- (3,772) -- (3,773)
Subscription payment............. -- -- -- -- 46 -- -- 46
Net transactions with Lanter..... -- -- -- (2,288) -- -- -- (2,288)
Warrant accretion................ -- -- -- -- -- (527) -- (527)
Net income....................... -- -- -- 1,431 -- 2,434 -- 3,865
--------- --- ------- ------- ----- -------- ------- --------
Balance at December 31, 1994..... 622,249 93 (7,050) 2,572 (510) 9,367 (1,416) 3,056
Distributions to stockholders.... -- -- -- -- -- (7,850) -- (7,850)
Contributions from stockholder... -- -- -- 586 -- -- -- 586
Issuance of common stock......... 22,506 -- -- 726 -- -- -- 726
Purchase and retirement of
stock.......................... (85,331) -- -- (782) -- -- -- (782)
Retirement of treasury stock..... (33,688) (1) 59 (59) -- -- -- (1)
Subscription payments............ -- -- -- -- 510 -- -- 510
Warrant accretion................ -- -- -- -- -- (19,430) -- (19,430)
Exercise of common stock
warrants....................... 2,636,439 2 -- 25,969 -- -- -- 25,971
Net transactions with Lanter..... -- -- -- (2,088) -- -- -- (2,088)
Net income....................... -- -- -- 1,095 -- 1,521 -- 2,616
--------- --- ------- ------- ----- -------- ------- --------
Balance at December 19, 1995..... 3,162,175 $94 $(6,991) $28,019 $ -- $(16,392) $(1,416) $ 3,314
========= === ======= ======= ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE> 96
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------ -------------
1993 1994 1995
------- -------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................................................. $ 3,111 $ 3,865 $ 2,616
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................ 2,949 3,358 3,458
Provision for bad debts.................................................................. 270 288 8
Amortization of goodwill and other intangible assets..................................... 2,258 2,859 3,204
Amortization of discount on long-term debt............................................... 421 707 999
Deferred income taxes.................................................................... 516 (312) 383
Write-off of intangible assets........................................................... -- 808 --
Loss (gain) on sale of assets............................................................ 38 27 (69)
Non-cash employee compensation........................................................... 38 154 1,199
Change in operating assets and liabilities
Accounts receivable.................................................................... (1,971) (3,626) (2,121)
Other assets........................................................................... (323) 199 (6,930)
Accrued interest-related party......................................................... 372 352 (323)
Accounts payable....................................................................... 1,702 3,483 4,795
Accrued liabilities.................................................................... (595) (1,089) 58
Dividend payable....................................................................... -- -- 402
Income taxes payable................................................................... (218) 134 2,670
Deferred compensation.................................................................. (202) (149) (260)
------- -------- -------
Net cash provided by operating activities............................................ 8,366 11,058 10,089
------- -------- -------
Cash flows from investing activities
Capital expenditures, net of disposals..................................................... (3,305) (2,001) (2,265)
(Purchase) sale of short-term investments.................................................. -- (900) 900
Sale of restricted certificates of deposit................................................. -- 200 837
Purchase of companies, net of cash acquired................................................ (3,123) (14,391) (3,502)
------- -------- -------
Net cash used in investing activities................................................ (6,428) (17,092) (4,030)
------- -------- -------
Cash flows from financing activities
Net increase in revolving line of credit................................................... 1,535 4,913 347
Payments of debt........................................................................... (2,599) (6,217) (5,897)
Proceeds from issuance of debt............................................................. -- 15,208 7,045
Distributions to stockholder............................................................... (608) (1,580) (5,424)
Payments on long-term debt -- related party................................................ (110) (160) --
Proceeds from long-term debt -- related party.............................................. 428 650 --
Net transactions with Lanter............................................................... (2,200) (2,274) (2,062)
Purchase and retirement of common stock.................................................... -- (2,961) (782)
Sale of common stock....................................................................... -- 556 --
Exercise of stock options.................................................................. -- -- 27
Exercise of stock warrants................................................................. -- -- 2
------- -------- -------
Net cash (used in) provided by financing activities.................................. (3,554) 8,135 (6,744)
------- -------- -------
Net (decrease) increase in cash and cash equivalents......................................... (1,616) 2,101 (685)
Cash and cash equivalents
Beginning of the year...................................................................... 3,483 1,918 4,019
------- -------- -------
End of the year............................................................................ $ 1,867 $ 4,019 $ 3,334
======= ======== =======
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest................................................................................. $ 1,418 $ 2,202 $ 4,320
Income taxes............................................................................. 747 707 758
Disclosure of noncash investing and financing activities
Net transfers of property.................................................................. 81 (14)
Workers compensation premiums financed through
issuance of notes payable................................................................ 738
Acquisition of property and equipment through
issuance of notes payable................................................................ 624 149 121
Stock grants to key employees.............................................................. 38 315 960
Non-cash distributions to stockholders..................................................... 2,024
Other non-cash transactions:
Consulting agreement....................................................................... 75
======= ======== =======
Supplemental schedule of noncash investing and financing activities
In conjunction with Courier Dispatch's acquisitions, liabilities were assumed as follows:
Fair value of assets acquired.............................................................. $ 3,095 $ 13,540 $ 3,150
Cash paid for capital stock and assets..................................................... (2,115) (12,127) (2,881)
------- -------- -------
Liabilities assumed...................................................................... $ 980 $ 1,413 $ 269
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE> 97
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Each 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") entered into definitive merger agreements with United
TransNet, Inc. (the "Company") pursuant to which wholly-owned subsidiaries of
the Company were, in separate transactions, merged with each of the Founding
Companies (the "Mergers"). Under the merger agreements, all outstanding shares
of the Founding Companies' capital stock were converted into shares of the
Company's Common Stock concurrently with the consummation of the initial public
offering (the "Offering") of such Common Stock. The Founding Companies are
considered predecessor companies to the Company.
The Founding Companies are in the business of providing scheduled and
non-scheduled ground and air courier services.
2. BASIS OF PRESENTATION
The accompanying combined financial statements and related notes to
combined financial statements are presented on a combined basis without giving
effect to the Mergers or the Offering. The assets and liabilities of the
Combined Founding Companies are reflected at their historical amounts.
3D changed its fiscal year end from October 31 to December 31 effective for
the year ended December 31, 1993. Accordingly, its accounts for the year ended
October 31, 1993 have been combined with the accounts of the other Founding
Companies for the year ended December 31, 1993. 3D's results of operations for
the two months ended December 31, 1993 have been reflected as an adjustment to
retained earnings.
On June 30, 1995, Lanter agreed to include its Iowa, Nebraska and Wisconsin
operations (the "Districts") in the Mergers. Lanter provided certain selling,
general and administrative services to the Districts including cash management,
accounting and finance, legal services, employee benefits administration, and
shared sales and distribution support. All cash, investments and borrowings for
Lanter's Districts (including Lanter) are maintained on a consolidated basis;
accordingly, amounts specifically related to Lanter are accounted for in the
equity section of Lanter's balance sheets. For purposes of consolidation, the
balance of Lanter's equity investment account is reflected as additional paid-in
capital.
Estimates
The preparation of combined 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Combined Founding Companies have assumed that the carrying amount approximates
fair value for cash and cash equivalents, accounts receivable, short-term
investments, short-term debt and accounts payable. The fair values of long-term
debt instruments are based upon the current interest rate environment and
remaining term to maturity (see
F-30
<PAGE> 98
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Note 7). The Combined Founding Companies feel that the carrying value of
long-term debt approximates the fair value.
Business Combinations
In May 1993, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Alabama in exchange for $1,964, which included notes of $500
for the acquisition of a non-compete agreement with the company's stockholder.
The acquired company provides statewide ground courier service for customers.
The allocation of purchase price included the assignment of approximately $1,964
to intangible assets.
In October 1992 and April 1993, Courier Dispatch acquired all the customer
agreements and certain other records and the air banking division of delivery
services in Minnesota and Missouri in exchange for $320 and $1,131,
respectively, which included notes of $100 and $480, respectively, for
non-compete agreements entered into with certain stockholders and employees of
these companies. The allocation of purchase price included the assignment of
approximately $320 and $1,131 to intangible assets.
Effective March 28, 1994, Courier Dispatch acquired all of the outstanding
common stock of a delivery service in Florida and non-compete agreements entered
into with certain stockholders of the company in exchange for $2,575 in cash
plus the issuance of $1,103 in notes in consideration of the non-compete
agreements. The allocation of purchase price included the assignment of
approximately $2,657 to intangible assets.
Effective June 30, 1994, Courier Dispatch acquired all of the outstanding
common stock of two delivery services in North Carolina and Minnesota in
exchange for $9,700 and $1,265, respectively, which includes the issuance of
$300 and $10 in notes, respectively, for the entry into non-compete agreements
with certain stockholders and employees of these companies. The allocation of
purchase price included the assignment of approximately $8,525 and $1,045,
respectively, to intangible assets.
In April 1995, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Minnesota in exchange for $150 in cash and $350 in notes.
Courier Dispatch also acquired all of the assets of a related delivery service
in Minnesota in exchange for $2,650, of which $400 was paid in cash, and the
balance of which was paid by delivery of a 9% promissory note payable in
quarterly installments until maturity on March 31, 1999, and the assumption of
$269 of the company's liabilities. As part of these acquisitions, Courier
Dispatch entered into non-compete agreements with certain stockholders of each
of the companies. The allocation of purchase price for these purchases included
the assignment of approximately $448 and $1,992, respectively, to intangible
assets.
These acquisitions were accounted for under the purchase method of
accounting which requires allocation of the acquisition cost to assets acquired
and liabilities assumed based upon their fair values at the date of acquisition.
Under purchase accounting, the excess of the acquisition costs over the fair
value of the acquired assets less assumed liabilities is recorded as goodwill.
The intangible assets acquired in the business combinations above are amortized
over periods ranging from 1 to 15 years, depending on the life of the asset. The
results of these combinations are included in the consolidated statements from
the date of acquisition.
F-31
<PAGE> 99
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The following table presents the unaudited results of operations of the
Combined Founding Companies for the years ended December 31, 1993 and 1994 as if
the June 30, 1994 North Carolina acquisition had occurred on January 1, 1994.
The pro forma information below also includes certain adjustments, including the
effects of amortization of intangible assets and interest expense related to
additional borrowings to fund the acquisition. The impact of other acquisitions
made by the Combined Founding Companies in 1993, 1994 and 1995 is not reflected
in the accompanying pro forma information because it is not material.
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1993 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................... $198,543 $227,458
Net income..................................................... 3,166 3,250
</TABLE>
The more significant accounting policies followed by the Combined Founding
Companies are described below:
Cash and Cash Equivalents and Short-Term Investments
The Combined Founding Companies consider all highly liquid investments with
original maturities of three months or less to be cash equivalents. Cash
equivalents are carried at cost, which approximates fair market value.
Short-term investments, which consist of certificates with original maturities
of less than one year, are accounted for at fair market value which approximates
cost.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to thirty-one and a
half years. The cost and accumulated depreciation of property retired or
otherwise disposed of are removed from the amounts and any gain or loss is
included in other income. Assets subject to capital leases are amortized using
the straight-line method over the terms of the leases.
Goodwill and Other Intangible Assets
Goodwill and intangible assets are amortized on a straight-line basis over
periods ranging from 1 to 20 years. The carrying value of intangible assets is
evaluated for indications of possible impairment whenever events or changes in
circumstances indicate that the carrying value of an intangible asset may not be
recoverable. Events or changes in circumstances which may indicate impairment
include a significant adverse change in legal factors, business climate or
government regulation and current cash flow losses combined with a history of
cash flow losses or forecasted continuing cash flow losses associated with an
acquired company. The review is based on comparing the carrying amount to the
undiscounted estimated cash flows before interest charges from operations over
the remaining amortization period.
Goodwill was $9,754 and $18,075 at December 31, 1993 and 1994,
respectively. Related accumulated amortization totaled $1,633 and $2,573 at
December 31, 1993 and 1994.
Restricted Certificates of Deposit
Sunbelt has two certificates of deposits pledged to its workers
compensation and auto liability carrier in accordance with the collateral
requirements specified by its insurer. The certificates total $637 and $200,
respectively, bear interest at a weighted average rate and mature on July 9,
1995 and August 12, 1995,
F-32
<PAGE> 100
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
respectively. Sunbelt is required to maintain this collateral throughout the
term of its relationship with this carrier.
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Insurance Claims
Certain of the Combined Founding Companies are self-insured with respect to
certain aspects of their workers' compensation, general liability, automobile
and physical damage on vehicles and group health insurance. The accompanying
financial statements include an insurance accrual based upon third party
administrators' and managements' evaluations of estimated future ultimate costs
of outstanding claims and an estimated liability for claims incurred but not
reported on an undiscounted basis. The ultimate cost of these claims will depend
on the outcome of individual claims given the potential for the claims to
increase or decrease over time.
Revenue Recognition
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
The Combined Founding Companies determine taxes on income by using the
liability method as prescribed by Statement of Financial Accounting Standards
No. 109 ("FAS 109"), "Accounting for Income Taxes," except for Tricor and
Lanter, which are organized as subchapter S corporations. This approach requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Combined Founding
Companies' financial statements or tax returns. In estimating future tax
consequences, FAS 109 requires the consideration of all expected future events
other than enactments of changes in the tax laws or rates. See Note 15 for pro
forma income tax information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
4. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Land........................................................... $ 1,777 $ 1,924
Buildings...................................................... 4,598 4,610
Delivery vehicles.............................................. 11,376 15,936
Equipment and furnishings...................................... 5,648 7,305
Leasehold improvements......................................... 1,849 2,206
-------- --------
25,248 31,981
Less accumulated depreciation and amortization................. (12,024) (16,816)
-------- --------
$ 13,224 $ 15,165
======== ========
</TABLE>
F-33
<PAGE> 101
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. OTHER INTANGIBLE ASSETS
<TABLE>
Other intangible assets consists of the following:
<CAPTION>
ESTIMATED
AMORTIZABLE DECEMBER 31,
LIVES -------------------
(YEARS) 1993 1994
----------- ------- -------
<S> <C> <C> <C>
Customer lists...................................... 5-12 $ 2,036 $ 6,566
Noncompete agreements............................... 1-8 5,406 6,833
Operating certificates.............................. 5-11 812 --
Other intangible assets............................. 6 1,070 1,070
------- -------
9,324 14,469
Less accumulated amortization....................... (3,861) (5,465)
------- -------
$ 5,463 $ 9,004
======= =======
</TABLE>
6. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------ -------
<S> <C> <C>
Accrued payroll and related benefits.............................. $2,589 $ 3,217
Accrued insurance................................................. 2,105 2,180
Other accrued liabilities......................................... 3,872 4,950
------ -------
$8,566 $10,347
====== =======
</TABLE>
7. SHORT-TERM AND LONG-TERM DEBT
<TABLE>
Short-term and long-term obligations consist of the following:
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- --------
<S> <C> <C>
Term loans payable in varying monthly installments, plus
interest varying from 6% to 16%............................... $5,019 $3,857
Revolving lines of credit with interest varying from 9% to 16%
including $500 and $500 due to a related party................ 1,885 6,648
Series A Senior Subordinated Notes, due to related parties, net
of imputed interest of approximately $544 at December 31,
1994, due February 1999; interest payable quarterly at 10%.... -- 2,656
Series B Amended and Restated Junior Subordinated Notes, due to
a related party, net of imputed interest of approximately
$1,477 and $1,088 at December 31, 1993 and 1994, respectively,
due September 1996; interest payable quarterly at 11.5%....... 2,173 2,562
Series C Amended and Restated Junior Subordinated Notes, due to
a related party, net of imputed interest of approximately $920
and $702 at December 31, 1993 and 1994, respectively, due
September 1996; interest payable quarterly at 15%............. 1,080 1,298
</TABLE>
F-34
<PAGE> 102
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
<TABLE>
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- --------
<S> <C> <C>
Term note payable to related party due October 31, 1999; with
interest at 3.5%.............................................. 5,295 5,785
Acquisition loans payable in varying monthly installments, plus
interest at the prime rate (8.5% at December 31, 1994) plus
1/2%.......................................................... -- 11,708
Guarantee of term promissory note for management's purchase of
common stock payable in varying annual installments plus
interest at the rate of prime (8.5% at December 31, 1994) plus
1%; final payment due February 1997........................... -- 510
Notes payable, net of imputed interest of approximately $67 and
$10 at December 31, 1993 and 1994, respectively............... 657 426
Premium loan, Workers' Compensation Insurance, payable in
varying monthly installments, plus interest payable at 6%..... 693 312
Contracts payable in varying monthly installments, plus interest
ranging from 6.5% to 16.88%................................... 299 189
Other notes payable including $75 and $75 due to a related
party......................................................... 439 521
Other non-compete agreements.................................... 251 127
------- --------
17,791 36,599
Less current portion............................................ (3,510) (10,057)
Less current portion -- related parties......................... (575) (575)
------- --------
13,706 25,967
Long-term debt -- related parties............................... (8,548) (12,301)
------- --------
$ 5,158 $ 13,666
======= ========
</TABLE>
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................. $10,632
1996............................................. 13,568
1997............................................. 4,005
1998............................................. 1,625
1999 and thereafter.............................. 6,769
-------
$36,599
=======
</TABLE>
F-35
<PAGE> 103
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMON STOCK WARRANTS
<TABLE>
In connection with the issuance of the subordinated notes, warrants for the
purchase of common stock of Courier Dispatch were issued to the lenders as
follows:
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- --------
<S> <C> <C>
Series A Senior Notes 4 through 6............................. 666,666 $ 667
Series A Senior Notes 1 through 3............................. 653,146 653
Series B Junior Notes......................................... 752,381 1,731
Series C Junior Notes......................................... 551,746 1,269
</TABLE>
These warrants are exercisable in whole or in part at any time and expire
upon the earliest of September 30, 2002 or the sixth anniversary of the
prepayment in full of the related subordinated note. The warrants provide for
various rights, including the right to require Courier Dispatch to purchase the
warrants after September 30, 1996 for the warrants issued in connection with the
Series B and C Notes and February 18, 1999 for the warrants issued in connection
with the Series A Notes or upon the occurrence of an event of default, at the
greater of a formula price as defined in the securities purchase agreement
("formula price") or fair market value (as determined by negotiation or
appraisal). At any time after the later of September 30, 1998, for the warrants
issued in connection with the Series B and C Notes, and February 18, 2001, for
the warrants issued in connection with the Series A Notes, or, in either case,
payment in full of all subordinated notes issued pursuant to the securities
purchase agreement, Courier Dispatch may purchase, at its option, all of the
warrants at the greater of the formula price or fair market value. The warrants
are exercisable at a nominal exercise price. The valuation of these warrants
resulted in an original issue discount on the related debt which is being
amortized using the interest method over the term of the related debt.
In connection with the restructuring of certain of its bank debt in July
1995, 12,500 warrants for the purchase of common stock of Courier Dispatch were
issued to the lender.
<TABLE>
Transactions related to common stock warrants for each of the two years
ended December 31, 1994 and the period ended December 19, 1995 are as follows:
<CAPTION>
NUMBER OF ASSIGNED
WARRANTS VALUE
---------- --------
<S> <C> <C>
Balance at December 31, 1992................................. 1,304,127 $ 4,561
Issuance................................................... -- --
Accretion.................................................. -- 131
---------- --------
Balance at December 31, 1993................................. 1,304,127 4,692
Issuance................................................... 653,146 653
Accretion.................................................. -- 527
---------- --------
Balance at December 31, 1994................................. 1,957,273 5,872
Issuance................................................... 679,166 667
Accretion.................................................. -- 19,430
Exercise................................................... (2,636,439) (25,969)
---------- --------
Balance at December 19, 1995................................. -- $ --
========== ========
</TABLE>
9. INCOME TAXES
The Combined Founding Companies will file a consolidated federal income tax
return for periods subsequent to the Mergers described in Notes 1 and 2. Each
Combined Founding Company will file a "short-period" federal tax return through
the date of the Mergers.
F-36
<PAGE> 104
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Combined Founding Companies have implemented FAS 109 for all periods.
This statement provides for a liability approach to accounting for income taxes.
<TABLE>
Combined federal and state income taxes are as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ----- ------------
<S> <C> <C> <C>
Current tax expense
Federal......................................................... $ 374 $ 483 $ 522
State........................................................... 170 165 116
Deferred tax expense (benefit)
Federal......................................................... 450 (274) 320
State........................................................... 73 (38) 63
------ ----- ------
Total provision......................................... $1,067 $ 336 $1,021
====== ===== ======
</TABLE>
<TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------ ------- ------------
<S> <C> <C> <C>
Tax at federal statutory rate.................................... $ 1,421 $ 1,429 $ 1,237
State income taxes, net of federal income tax benefit............ 153 105 84
Effect of valuation allowance.................................... 160 (18) 276
Nondeductible expenses........................................... 352 685 960
Income not subject to corporate level taxation................... (1,028) (1,890) (1,445)
Other............................................................ 9 25 (91)
------- ------- -------
$ 1,067 $ 336 $ 1,021
======= ======= =======
</TABLE>
<TABLE>
The components of deferred income taxes are as follows:
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets
Insurance accrual...................................................... $ 2,545 $ 2,732
Deferred compensation.................................................. 403 293
Vacation accrual....................................................... 212 261
Accounts receivable allowance.......................................... 163 164
Other.................................................................. 336 418
------- -------
3,659 3,868
------- -------
Deferred tax liabilities
Accumulated depreciation............................................... (973) (832)
Other.................................................................. (98) (154)
------- -------
(1,071) (986)
------- -------
Valuation allowance...................................................... (1,985) (1,967)
------- -------
$ 603 $ 915
======= =======
</TABLE>
F-37
<PAGE> 105
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Tricor and Lanter are organized as subchapter S corporations and, as a
result, the tax on each company's income is the responsibility of the individual
stockholders. See the combined statements of operations for unaudited pro forma
income tax information.
In 1993 and 1994, the Combined Founding Companies utilized approximately
$128 and $125 of alternative minimum tax credits which were generated in 1991
and 1992, respectively, to reduce their current federal income tax expense.
<TABLE>
10. STOCKHOLDERS' EQUITY
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- ----
<S> <C> <C>
COURIER DISPATCH
Class A Common Stock; $.001 par value; 3,750,000 shares authorized; 550,664
issued and outstanding....................................................... $ 1 $ 1
Class B Common Stock; $.001 par value; 3,750,000 shares authorized; 0 shares
issued and outstanding....................................................... -- --
TRICOR
Tricor California, Inc. -- Common Stock; no par value; 10,000 shares
authorized; 22.5 shares issued and outstanding............................... -- --
Tricor International -- Common Stock; no par value; 10,000 shares authorized;
225 shares issued and outstanding............................................ 43 43
Tricor America, Inc. -- Common Stock; no par value; 10,000 shares authorized;
75 shares issued and outstanding............................................. 21 21
Tricor Nevada, Inc. -- Common Stock; no par value; 2,500 shares authorized; 45
shares issued and outstanding................................................ 1 1
FILM TRANSIT
Class A Common Stock; $50 par value; 500 shares authorized; 197.33 shares
issued and outstanding....................................................... 10 10
Class B Common Stock; $50 par value; 500 shares authorized; 308 shares issued
and outstanding.............................................................. 15 15
SUNBELT
Common Stock; no par value; 1,000 shares authorized; 400 shares issued and
outstanding.................................................................. 1 1
3D
Common Stock; $.01 par value; 100,000,000 shares authorized; 70,875 shares
issued and outstanding....................................................... 1 1
--- ---
$93 $93
=== ===
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rent expense related to operating leases amounted to approximately $10,218,
$12,959, and $14,044 for the years ended December 31, 1993 and 1994 and the
period ended December 19, 1995, respectively.
F-38
<PAGE> 106
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The following are the approximate future minimum lease payments required by
operating leases:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995.......................................... $2,657
1996.......................................... 2,281
1997.......................................... 1,635
1998.......................................... 1,042
1999 and thereafter........................... 1,689
------
$9,304
======
</TABLE>
Litigation
The Combined Founding Companies are, from time to time, parties to
litigation arising in the normal course of their business, most of which involve
claims for personal injury and property damage incurred in connection with their
respective operations. Management believes that none of these actions will have
a material adverse effect on the financial position or results of operations of
the Combined Founding Companies.
Self-Insurance Program
The Combined Founding Companies are self-insured with respect to workers'
compensation, general liability and automobile insurance and physical damage on
vehicles claims. In accordance with the terms of the insurance policy, Courier
Dispatch maintains a $1,240 letter of credit with a commercial bank in favor of
the insurer. Management believes that any claims as of December 19, 1995,
arising under this self-insurance program will not have a material adverse
effect on the financial position or results of operations of the Combined
Founding Companies.
12. RELATED PARTY TRANSACTIONS
At December 31, 1993 and 1994, Courier Dispatch had outstanding $2,173 and
$3,890 of its subordinated notes, net of imputed interest, with a bank. In
connection with the notes, the bank acquired warrants to purchase 1,412,287
shares of common stock of Courier Dispatch. A managing director of the bank is a
director of Courier Dispatch.
At December 31, 1993 and 1994, Courier Dispatch had outstanding $1,080 and
$2,626 of its subordinated notes, net of imputed interest, with another bank. In
connection with the notes, the bank acquired warrants to purchase 1,211,652
shares of the common stock of Courier Dispatch. An executive vice president of
the bank is a director of Courier Dispatch. An affiliate of the bank is a
significant customer of Courier Dispatch. At December 31, 1993 and 1994, Courier
Dispatch had an accounts receivable balance of approximately $250 and $1,184,
respectively, from this customer. Sales to this customer approximated $4,972,
$5,513 and $6,458 for the years ended December 31, 1993 and 1994 and the period
ended December 19, 1995, respectively.
In April 1992, Sunbelt began maintaining workers' compensation and auto
liability coverage through a captive insurance company owned by relatives of
Sunbelt's stockholders. The accounts between Sunbelt and the insurance carrier
are settled in the ordinary course of business and are governed by state
insurance regulations. Sunbelt has pledged two certificates of deposit to the
insurance carrier in accordance with collateral requirements specified in the
above policies. Sunbelt is required to maintain the collateral throughout the
term of its relationship with the insurance carrier. Premiums paid to the
insurance carrier were
F-39
<PAGE> 107
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
approximately $698, $827 and $932 during the years ended December 31, 1993 and
1994 and the period ended December 19, 1995.
Lanter Company, an affiliate of Lanter, provides certain administrative
services to Lanter and therefore allocates and charges a portion of its
corporate service expenses to Lanter. These expenses are allocated to Lanter
based upon estimated time incurred. These allocations were $700, $646 and $630
for the years ended December 31, 1993 and 1994 and the period ended December 19,
1995, respectively.
At December 31, 1993 and 1994, 3D had a revolving line of credit with a
former stockholder and officer of 3D of approximately $500 and $500,
respectively. Additionally, 3D had notes payable to this officer at December 31,
1993 and 1994 of $75 and $75, respectively.
Sunbelt had an unsecured note payable of $5,295 and $5,785 at December 31,
1993 and 1994, respectively, to a related party. The note matures on December
31, 1999. Accrued interest on these notes was $1,217 and $1,569 as of December
31, 1993 and 1994, respectively.
Sunbelt uses two facilities owned by a related party for which no rent is
charged. Sunbelt shares one of its facilities with this entity at no charge to
the entity.
Film Transit leases two facilities from a partnership consisting of two
stockholders of Film Transit. Rent paid to the partnership for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995 were $186,
$207, and $193, respectively.
13. EMPLOYEE BENEFIT PLANS
Several of the Combined Founding Companies have qualified defined
contribution plans, which allow for voluntary pretax contributions by the
employees. The Combined Founding Companies pay all general and administrative
expenses of the plans and in some cases make matching contributions on behalf of
the employees. For the years ended December 31, 1993 and 1994, and the period
ended December 19, 1995, the Combined Founding Companies had expenses totaling
$116, $152 and $832, respectively, related to these plans.
Courier Dispatch, Lanter and Tricor have defined contribution 401(k) Plans
which allow for voluntary pretax contributions by their employees. Each company
may also contribute an additional amount at its discretion. Employer
contributions totaled $129, $116 and $194 during the years ended December 31,
1993 and 1994 and the period ended December 19, 1995, respectively, for these
three companies.
Film Transit has a noncontributory profit sharing plan for the benefit of
qualifying employees. Contributions by Film Transit are calculated at graduated
percentages of net income before taxes and employee bonuses. During the years
ended December 31, 1993 and 1994 and the period ended December 19, 1995, Film
Transit contributed $752, $904 and $591 to the plan.
14. STOCK OPTION PLAN
Courier Dispatch has in place a stock option plan whereby selected members
of Courier Dispatch's management have been granted options to purchase shares of
Courier Dispatch's common stock. Transactions
F-40
<PAGE> 108
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
related to stock options for each of the two years ended December 31, 1994 and
the period ended December 19, 1995 are as follows:
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1992............................. 29,343 $ 1.40
Granted...................................................... 48,163 1.40
Exercised.................................................... -- --
Cancelled or expired......................................... -- --
------- ------------
Outstanding at December 31, 1993............................. 77,506 1.40
Granted...................................................... 94,535 1.40 - 3.00
Exercised.................................................... -- --
Cancelled or expired......................................... -- --
------- ------------
Outstanding at December 31, 1994............................. 172,041 1.40 - 3.00
Granted...................................................... 167,503 1.40 - 3.00
Exercised.................................................... 19,669 1.40
Cancelled or expired......................................... -- --
------- ------------
Outstanding at December 19, 1995............................. 319,875 $1.40 - 3.00
======= ============
</TABLE>
Compensation expense related to the stock options for the years ended
December 31, 1993, 1994 and the period ended December 19, 1995 approximately $0,
$154, and $500, respectively.
15. UNAUDITED PRO FORMA INFORMATION
Income Taxes
<TABLE>
The following unaudited pro forma tax information is presented in
accordance with FAS 109, as if Tricor and Lanter, each subchapter S
corporations, had been subject to federal and state income taxes throughout the
periods presented.
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Earnings before pro forma adjustments, per combined statements
of operations................................................. $4,178 $4,201 $3,637
Pro forma provision for income taxes............................ 2,278 1,754 2,750
------ ------ ------
Pro forma earnings as above..................................... $1,900 $2,447 $ 887
====== ====== ======
</TABLE>
16. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash,
wholly-owned subsidiaries of the Company, in separate transactions, merged with
each of the Founding Companies.
F-41
<PAGE> 109
(This page intentionally left blank)
F-42
<PAGE> 110
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CDG Holding Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
CDG Holding Corp. and its subsidiary, Courier Dispatch Group, Inc.
(collectively, "Courier Dispatch") at December 31, 1993 and 1994, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1994 and for the period ended December 19, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Courier Dispatch's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-43
<PAGE> 111
CDG HOLDING CORP.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................................... $ 329 $ 1,122
Accounts receivable, less allowance of $223 and $331......................................... 4,286 9,160
Prepaids and other assets.................................................................... 603 780
------- -------
Total current assets................................................................... 5,218 11,062
Property and equipment, net.................................................................. 4,348 5,558
Goodwill, net................................................................................ 5,902 13,442
Intangible assets, net....................................................................... 4,061 8,096
Other assets................................................................................. 99 712
Deferred tax assets.......................................................................... 936 1,090
------- -------
$20,564 $39,960
======= =======
LIABILITIES, COMMON STOCK WARRANTS AND STOCKHOLDERS' DEFICIT
Current liabilities
Short-term debt.............................................................................. $ 1,819 $ 8,725
Accrued interest-related parties............................................................. 184 268
Accounts payable............................................................................. 1,986 5,731
Accrued liabilities.......................................................................... 2,850 3,993
Income taxes payable......................................................................... 115 17
------- -------
Total current liabilities.............................................................. 6,954 18,734
Long-term debt, net of current maturities
Senior....................................................................................... 2,029 11,855
Subordinated -- related parties.............................................................. 3,253 6,516
Deferred compensation.......................................................................... 768 619
Long-term portion of accrued insurance......................................................... 2,879 2,236
------- -------
15,883 39,960
------- -------
Common stock warrants.......................................................................... 4,692 5,872
------- -------
Stockholders' equity (deficit)
Class A common stock, $.001 par value; 3,750,000 shares authorized; 550,664 shares issued and
outstanding................................................................................ 1 1
Class B common stock, $.001 par value; 3,750,000 shares authorized; 0 shares issued and
outstanding................................................................................ -- --
Paid-in capital.............................................................................. 1,159 1,875
Retained earnings (deficit).................................................................. 245 (5,822)
Common stock -- subscriptions receivable..................................................... -- (510)
Predecessor basis adjustment................................................................. (1,416) (1,416)
------- -------
(11) (5,872)
------- -------
Commitments and contingencies.................................................................. -- --
------- -------
$20,564 $39,960
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 112
CDG HOLDING CORP.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------ ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Net revenues.................................................. $70,631 $104,614 $133,701
Cost of delivery.............................................. 49,960 76,685 99,796
------- -------- --------
Gross profit........................................ 20,671 27,929 33,905
Selling, general and administrative expenses.................. 17,443 24,060 28,533
Amortization of intangible assets............................. 1,454 2,722 2,538
------- -------- --------
Operating income.................................... 1,774 1,147 2,834
Other income (expense)
Interest expense-related party.............................. (1,151) (1,728) (2,147)
Interest expense............................................ (372) (1,219) (2,421)
Interest income and other, net.............................. 22 2 1
------- -------- --------
Income (loss) before income taxes............................. 273 (1,798) (1,733)
Provision (benefit) for income taxes.......................... 592 (30) 343
------- -------- --------
Net loss...................................................... (319) (1,768) (2,076)
Warrant accretion............................................. (131) (527) (19,430)
------- -------- --------
Net loss available for common stockholders.................... $ (450) $ (2,295) $(21,506)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 113
CDG HOLDING CORP.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK PREDECESSOR
------------------ PAID-IN SUBSCRIPTIONS RETAINED BASIS
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
--------- ------ ------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992........................... 1,203,810 $ 1 $ 1,159 $ -- $ 695 $(1,416) $ 439
Warrant accretion................ -- -- -- -- (131) -- (131)
Net loss......................... -- -- -- -- (319) -- (319)
--------- --- ------- ----- -------- ------- --------
Balance at December 31,
1993........................... 1,203,810 1 1,159 -- 245 (1,416) (11)
Issuance of common stock......... 300,952 1 716 (556) -- -- 161
Purchase and retirement of
stock.......................... (954,098) (1) -- -- (3,772) -- (3,773)
Subscription payment............. -- -- -- 46 -- -- 46
Warrant accretion................ -- -- -- -- (527) -- (527)
Net loss......................... -- -- -- -- (1,768) -- (1,768)
--------- --- ------- ----- -------- ------- --------
Balance at December 31,
1994........................... 550,664 1 1,875 (510) (5,822) (1,416) (5,872)
Exercise of common stock
options........................ 19,669 -- 27 -- -- -- 27
Warrant accretion................ -- -- -- -- (19,430) -- (19,430)
Exercise of common stock
warrants....................... 2,636,439 2 25,969 -- -- -- 25,971
Subscription payment............. -- -- -- 510 -- -- 510
Purchase and retirement of
stock.......................... (85,331) -- (782) -- -- -- (782)
Net loss......................... -- -- -- -- (2,076) -- (2,076)
--------- --- ------- ----- -------- ------- --------
Balance at December 19,
1995........................... 3,121,441 $ 3 $27,089 $ -- $(27,328) $(1,416) $ (1,652)
========= === ======= ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE> 114
CDG HOLDING CORP.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------ ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.............................................................. $ (319) $ (1,768) $(2,076)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization...................................... 775 1,101 1,090
Provision for bad debts............................................ 126 119 (85)
Amortization of goodwill and other intangible assets............... 1,454 2,068 2,538
Amortization of discount on long-term debt......................... 421 707 999
Deferred income taxes.............................................. 386 (154) 509
Write-off of operating certificates................................ -- 654 --
Noncash employee compensation...................................... -- 154 500
Change in operating assets and liabilities
Accounts receivable.............................................. (722) (2,577) (1,415)
Other assets..................................................... 115 (738) (6,248)
Accounts payable................................................. 1,506 3,381 3,210
Accrued liabilities.............................................. (1,036) (1,725) 2,444
Income taxes payable............................................. (101) (95) (447)
Deferred compensation............................................ (202) (149) (260)
------- -------- -------
Net cash provided by operating activities..................... 2,403 978 759
------- -------- -------
Cash flows from investing activities
Capital expenditures, net of disposals................................ (1,132) 880 (616)
Purchase of companies, net of cash acquired........................... (3,123) (14,391) (3,502)
------- -------- -------
Net cash used in investing activities......................... (4,255) (13,511) (4,118)
------- -------- -------
Cash flows from financing activities
Net increase in revolving line of credit.............................. 1,385 4,763 347
Payments of debt...................................................... (865) (4,240) (2,705)
Proceeds from issuance of debt........................................ -- 15,208 6,551
Purchase/retirement of common stock................................... -- (2,961) (782)
Proceeds from sale of common stock.................................... -- 556 --
Exercise of stock options............................................. -- -- 27
Exercise of stock warrants............................................ -- -- 2
------- -------- -------
Net cash provided by financing activities..................... 520 13,326 3,440
------- -------- -------
Net (decrease) increase in cash and cash equivalents.................... (1,332) 793 81
Cash and cash equivalents
Beginning of the period............................................... 1,661 329 1,122
------- -------- -------
End of the period..................................................... $ 329 $ 1,122 $ 1,203
======= ======== =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest........................................................... $ 925 $ 1,733 $ 3,795
Income taxes....................................................... 297 501 224
Disclosure of noncash investing and financing activities
Non-cash employee compensation........................................ 315 500
Supplemental schedule of noncash investing and financing activities
In conjunction with the Courier Dispatch's acquisitions, liabilities
were assumed as follows:
Fair value of assets acquired......................................... $ 3,095 $ 13,540 $ 3,150
Cash paid for capital stock and assets................................ (2,115) (12,127) (2,881)
------- -------- -------
Liabilities assumed................................................ $ 980 $ 1,413 $ 269
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE> 115
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
CDG Holding Corp. ("Holding") and its subsidiary, Courier Dispatch Group,
Inc. ("CDG"), collectively, "Courier Dispatch", provide air and ground courier
services for customers requesting delivery of time-sensitive documents. Courier
Dispatch operates in the southeast, northeast, and midwest.
Courier Dispatch and its stockholders entered into a definitive merger
agreement with United TransNet, Inc. (the "Company") pursuant to which a
wholly-owned subsidiary of the Company merged with Courier Dispatch. Under the
merger agreement, all outstanding shares of Courier Dispatch's capital stock
were converted into shares of the Company's Common Stock concurrently with the
consummation of an initial public offering of such Common Stock. Simultaneously
with the entry by Courier Dispatch into such merger agreement, five other
companies, 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 with Courier Dispatch, the
"Founding Companies") entered into substantially similar merger agreements with
the Company, pursuant to which wholly-owned subsidiaries of the Company merged
with such Founding Companies (the "Mergers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Courier Dispatch are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Courier
Dispatch and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Estimates
The preparation of consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Courier Dispatch has assumed that the carrying amount approximates fair value
for cash and cash equivalents, accounts receivable, short-term debt and accounts
payable. The fair value of long-term debt instruments is based upon the current
interest rate environment and remaining term to maturity (see Note 6). Courier
Dispatch feels that the carrying value of long-term debt approximates the fair
value.
Cash and Cash Equivalents
Courier Dispatch considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates fair market value.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty-five
years. The cost
F-48
<PAGE> 116
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
and accumulated depreciation of property retired or otherwise disposed of are
removed from the accounts and any gain or loss is included in income.
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Goodwill and Intangible Assets
Goodwill and intangible assets are amortized on a straight-line basis over
periods ranging from 1 to 15 years. The carrying value of intangible assets is
evaluated for indications of possible impairment whenever events or changes in
circumstances indicate that the carrying value of an intangible asset may not be
recoverable. Events or changes in circumstances which may indicate impairment
include a significant adverse change in legal factors, business climate or
government regulation and current cash flow losses combined with a history of
cash flow losses or forecasted continuing cash flow losses associated with an
acquired company. The review is based on comparing the carrying amount to the
undiscounted estimated cash flows before interest charges from operations over
the remaining amortization period.
Goodwill was $6,874 and $15,195 at December 31, 1993 and 1994. Related
accumulated amortization totaled $972 and $1,753, respectively.
Insurance Claims
Courier Dispatch is self-insured with respect to certain aspects of its
workers' compensation, general liability and automobile and physical damage on
vehicles. The accompanying financial statements include an insurance accrual
based upon the third party administrator's and management's evaluations of
estimated future ultimate costs of outstanding claims and an estimated liability
for claims incurred but not reported on an undiscounted basis. The ultimate cost
of these claims will depend on the outcome of individual claims given the
potential for these claims to increase or decrease over time.
Deferred Compensation
Courier Dispatch has an agreement with its former chairman that provides
for minimum specified annual payments until his death. The accrual for these
payments at December 31, 1993 and 1994 was approximately $1,090 and $732,
respectively.
Revenue
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes." This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in Courier Dispatch's financial statements or tax returns. In
estimating future tax consequences, FAS 109 requires the consideration of all
expected future events other than enactments of changes in the tax laws or
rates.
F-49
<PAGE> 117
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
Business Combinations
In May 1993, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Alabama in exchange for $1,964, which included notes of $500
for the acquisition of a non-compete agreement with the company's stockholder.
The acquired company provides statewide ground courier service for customers.
The allocation of purchase price included the assignment of approximately $1,964
to intangible assets.
In October 1992 and April 1993, Courier Dispatch acquired all the customer
agreements and certain other records and the air banking division of delivery
services in Minnesota and Missouri in exchange for $320 and $1,131,
respectively, which included notes of $100 and $480, respectively, for
non-compete agreements entered into with certain stockholders and employees of
these companies. The allocation of purchase price included the assignment of
approximately $320 and $1,131 to intangible assets.
Effective March 28, 1994, Courier Dispatch acquired all of the outstanding
common stock of a delivery service in Florida and non-compete agreements entered
into with certain stockholders of the acquired company in exchange for $2,575 in
cash plus the issuance of $1,103 in notes in consideration of the non-compete
agreements. The allocation of purchase price included the assignment of
approximately $2,657 to intangible assets.
Effective June 30, 1994, Courier Dispatch acquired all of the outstanding
common stock of two delivery services in North Carolina and Minnesota in
exchange for $9,700 and $1,265, respectively, which includes the issuance of
$300 and $10 in notes, respectively, for the entry into non-compete agreements
with certain stockholders and employees of these companies. The allocation of
purchase price included the assignment of approximately $8,525 and $1,045,
respectively, to intangible assets.
In April 1995, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Minnesota in exchange for $150 in cash and $350 in notes.
Courier Dispatch also acquired all of the assets of a related delivery service
in Minnesota in exchange for $2,650, of which $400 was paid in cash and the
balance of which was paid by delivery of a 9% promissory note, payable in
quarterly installments until maturity on March 31, 1999, plus the assumption of
$269 of the company's liabilities. As part of these acquisitions, Courier
Dispatch entered into non-compete agreements with certain stockholders of each
of the acquired companies. The allocation of purchase price for these purchases
included the assignment of approximately $448 and $1,992, respectively, to
intangible assets.
These acquisitions were accounted for under the purchase method of
accounting which requires allocation of the acquisition cost to assets acquired
and liabilities assumed based upon their fair values at the date of acquisition.
Under purchase accounting, the excess of the acquisition costs over the fair
value of the acquired assets less assumed liabilities is recorded as goodwill.
The intangible assets acquired in the business combinations above are amortized
over periods ranging from 3 to 15 years, depending on the life of the asset. The
results of these combinations are included in the consolidated statements from
the date of acquisition.
The following presents the unaudited results of operations of Courier
Dispatch for the years ended December 31, 1993 and 1994 as if the June 30, 1994
North Carolina acquisition had occurred on January 1, 1994. The pro forma
information below also includes certain adjustments, including the effects of
amortization of intangible assets and interest expense related to additional
borrowings to fund the acquisition. The impact of
F-50
<PAGE> 118
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
other acquisitions made by Courier Dispatch in 1993, 1994 and 1995 is not
reflected in the accompanying pro forma information because it is not material.
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1993 1994
------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues........................................... $97,284 $117,985
Net (loss)............................................. (263) (2,583)
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- -------
<S> <C> <C>
Land............................................................ $ 577 $ 577
Buildings....................................................... 1,995 2,007
Delivery vehicles............................................... 173 2,921
Equipment and furnishings....................................... 2,355 3,740
Leasehold improvements.......................................... 916 1,269
------ -------
6,016 10,514
Less accumulated depreciation and amortization.................. (1,668) (4,956)
------ -------
$ 4,348 $ 5,558
====== =======
</TABLE>
4. INTANGIBLE ASSETS
<TABLE>
Intangible assets consists of the following:
<CAPTION>
ESTIMATED
AMORTIZABLE DECEMBER 31,
LIVES -------------------
(YEARS) 1993 1994
----------- ------- -------
<S> <C> <C> <C>
Customer lists...................................... 5-12 $ 2,036 $ 6,566
Noncompete agreements............................... 1-7 2,515 3,942
Operating certificates.............................. 5-11 812 --
Other intangibles................................... 6 1,070 1,070
------- -------
6,433 11,578
Less accumulated amortization....................... (2,372) (3,482)
------- -------
$ 4,061 $ 8,096
======= =======
</TABLE>
F-51
<PAGE> 119
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits............................ $ 942 $1,503
Accrued vacation................................................ 387 440
Accrued insurance............................................... 793 498
Other accrued liabilities....................................... 728 1,552
------ ------
$2,850 $3,993
====== ======
</TABLE>
6. SHORT-TERM AND LONG-TERM DEBT
<TABLE>
Short-term and long-term debt consist of the following:
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- -------
<S> <C> <C>
Term loan payable in varying monthly installments, plus interest
at the prime rate (8.5% at December 31, 1994) plus 1/2%...... $ 1,676 $ 1,552
Revolving line of credit with interest payable monthly at the
prime rate (8.5% at December 31, 1994) plus 1/2%............. 1,385 6,148
Series A Senior Subordinated Notes, due to related parties, net
of imputed interest of approximately $544 at December 31,
1994, due February 1999; interest payable quarterly at 10%.... -- 2,656
Series B Amended and Restated Junior Subordinated Notes, due to
a related party, net of imputed interest of approximately
$1,477 and $1,088 at December 31, 1993 and 1994, respectively,
due September 1996; interest payable quarterly at 11.5%....... 2,173 2,562
Series C Amended and Restated Junior Subordinated Notes, due to
a related party, net of imputed interest of approximately $920
and $702 at December 31, 1993 and 1994, respectively, due
September 1996, interest payable quarterly at 15%............. 1,080 1,298
Acquisition loans payable in varying monthly installments, plus
interest at the prime rate (8.5% at December 31, 1994) plus
1/2%......................................................... -- 11,708
Guarantee of term promissory note for management's purchase of
common stock payable in varying annual installments, plus
interest at the rate of prime (8.5% at December 31, 1994) plus
1%; final payment due February 1997........................... -- 510
Notes payable, net of imputed interest of approximately $67 and
$10 at December 31, 1993 and 1994, respectively............... 657 426
Other notes payable............................................. 66 201
Other non-compete agreements.................................... 64 35
------- -------
7,101 27,096
Less current portion............................................ (1,819) (8,725)
------- -------
5,282 18,371
Less subordinated debt to related parties....................... (3,253) (6,516)
------- -------
$ 2,029 $11,855
======= =======
</TABLE>
F-52
<PAGE> 120
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Term Loan
On September 30, 1991, Courier Dispatch entered into a loan agreement (the
"Agreement") with a bank. The Agreement provides Courier Dispatch with a $5,400
credit facility consisting of a $3,000 revolving line of credit, a $600 senior
term loan and a $1,800 senior term loan. During 1992, the $600 senior term loan
was paid. The revolving line of credit expires in March 1997, and is revocable
upon the occurrence of certain events. At December 31, 1994, the balance
outstanding under the line of credit was approximately $6,148. During 1993,
Courier Dispatch entered into a second loan agreement (the "Amendment") with the
bank. The Amendment provides Courier Dispatch with an additional $500 under the
revolving line of credit, amends the original amortization period of the $1,800
term loan, changes its maturity date and amends certain financial loan
covenants.
During 1994, Courier Dispatch entered into two loan agreements (the
"Restated Agreement" and the "New Agreement") with the bank. Together these
agreements provided Courier Dispatch with an additional $1,500 under the
revolving line of credit, extended the term of the revolving line of credit
three years, provided for acquisition loans in the aggregate amount of $12,500
for the purchases of the Florida, North Carolina and Minnesota entities and
amended certain financial loan covenants.
Borrowings under the line of credit averaged approximately $1,131 and
$3,869, respectively, with corresponding average interest rates of 6.25% and
7.29% for the years ended December 31, 1993 and 1994. Maximum borrowings were
approximately $1,600 and $6,148, respectively for the years ended December 31,
1993 and 1994.
Borrowings under the line of credit are subject to certain percentage
limitations of eligible accounts receivable as specified in the Restated
Agreement and the New Agreement. Courier Dispatch may elect on any October 1
through loan maturity to pay interest at a fixed rate as set by the lender for
any one-year period beginning October 1 for the term loan. Borrowings under the
facility are secured by substantially all of the assets of Courier Dispatch. The
Restated Agreement and the New Agreement also provide for the issuance of
standby letters of credit in the amount of approximately $1,600. The letters of
credit expire at various dates through March 1997.
The Restated Agreement and the New Agreement contain numerous covenants,
including but not limited to, the maintenance of specified financial ratios,
limitations on capital additions and disposals and limitations on additional
borrowings. At December 31, 1994, Courier Dispatch was in compliance with or had
obtained waivers for noncompliance of all of the financial ratio covenants.
During 1995, Courier Dispatch restructured certain of its existing debt
with a bank by combining certain of its acquisition loans into one instrument.
Courier Dispatch also borrowed an additional $1,300 under this new facility. The
new note bears interest at the rate of prime plus 1% and matures on January 15,
1997.
Subordinated Notes
The Series B Amended and Restated Junior Subordinated and C Amended and
Restated Junior Subordinated Notes ("Series B and C Notes") of $2,452 and
$1,235, respectively, are payable in full on September 30, 1996 or upon the
occurrence of certain capital transactions as specified in the loan agreements,
as amended. The Series A Senior Subordinated Notes ("Series A Notes") of $2,626
related to Courier Dispatch's repurchase and retirement of common stock in 1994
and is payable in full on February 18, 1999. During 1995, Courier Dispatch
issued additional Series A Senior Subordinated Notes ("Series A Notes Four, Five
and Six"). The Series A Notes Four, Five and Six are payable in full on February
18, 1999. The Series A Note, and Series A Notes Four, Five and Six and Series B
and Series C Notes are secured by a priority interest in substantially all of
the assets of Courier Dispatch.
F-53
<PAGE> 121
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................ $ 8,725
1996............................................ 12,243
1997............................................ 3,862
1998............................................ 1,515
1999 and thereafter............................. 751
-------
$27,096
=======
</TABLE>
7. COMMON STOCK WARRANTS
<TABLE>
In connection with the issuance of the Subordinated Notes, warrants for the
purchase of common stock of Courier Dispatch were issued to the lenders as
follows:
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- ------
<S> <C> <C>
Series A Senior Notes 4 through 6....................... 666,666 $ 667
Series A Senior Notes 1 through 3....................... 653,146 653
Series B Junior Notes................................... 752,381 1,731
Series C Junior Notes................................... 551,746 1,269
</TABLE>
These warrants are exercisable in whole or in part at any time and expire upon
the earliest of September 30, 2002 or the sixth anniversary of the prepayment in
full of the related subordinated debt. The warrants provide for various rights,
including the right to require Courier Dispatch to purchase the warrants after
September 30, 1996 for the warrants issued in connection with the Series B and C
Notes and February 18, 1999 for the warrants issued in connection with the
Series A Notes or upon the occurrence of an event of default, at the greater of
a formula price as defined in the securities purchase agreement ("formula
price") or fair market value (as determined by negotiation or appraisal). At any
time after the later of September 30, 1998 for the warrants issued in connection
with the Series B and C Notes and February 18, 2001 for the warrants issued in
connection with the Series A Notes, or, in either case, payment in full of all
subordinated notes issued pursuant to the securities purchase agreement, Courier
Dispatch may purchase, at its option, all of the warrants at the greater of the
formula price or fair market value. The warrants are exercisable at a nominal
exercise price. The valuation of these warrants resulted in an original issue
discount on the related debt which is being amortized using the interest method
over the term of the related debt.
In connection with the restructuring of certain of its bank debt in July
1995, 12,500 warrants for the purchase of common stock of Courier Dispatch were
issued to the lender.
F-54
<PAGE> 122
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Transactions related to common stock warrants for each of the two years
ended December 31, 1994 and the period ended December 19, 1995 are as follows:
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- --------
<S> <C> <C>
Balance at December 31, 1992......................... 1,304,127 $ 4,561
Issuance........................................... -- --
Accretion.......................................... -- 131
----------- --------
Balance At December 31, 1993......................... 1,304,127 4,692
Issuance........................................... 653,146 653
Accretion.......................................... -- 527
----------- --------
Balance at December 31, 1994......................... 1,957,273 5,872
Issuance........................................... 679,166 667
Accretion.......................................... -- 19,430
Exercise........................................... (2,636,439) (25,969)
----------- --------
Balance at December 19, 1995......................... -- $ --
=========== ========
</TABLE>
8. STOCKHOLDERS' EQUITY
In February 1994, Courier Dispatch repurchased and retired 954,098 shares
of common stock from minority owners. Immediately upon completion of the
purchase of the common stock and the placement of the related indebtedness to
fund such purchase, Courier Dispatch sold 300,952 shares of common stock to
certain members of Courier Dispatch's management. After these transactions there
were 550,664 shares of common stock issued and outstanding.
Management's purchase of common stock was financed through bank loans to
management which Courier Dispatch has guaranteed. Courier Dispatch has recorded
these loans in its accounts and the stock subscriptions receivable in its
equity. The loan and stock subscriptions receivable are reduced as management
makes principal payments.
In February 1994, Courier Dispatch recapitalized its existing equity
structure, resulting in a change in the authorized common stock from 3,000,000
shares authorized at December 31, 1993 to 3,750,000 shares of Class A voting
common stock authorized and 3,750,000 shares of Class B non-voting common stock
authorized. Subsequent to the recapitalization, total shares issued and
outstanding remained at 550,664 shares of Class A voting stock.
F-55
<PAGE> 123
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. INCOME TAXES
<TABLE>
The provision (benefit) for income taxes is as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
---- ----- ------------
<S> <C> <C> <C>
Current tax provision (benefit)
Federal.......................................................... $121 $ 30 $(166)
State............................................................ 85 94 --
---- ----- -----
206 124 (166)
---- ----- -----
Deferred tax provision (benefit)
Federal.......................................................... 330 (131) 433
State............................................................ 56 (23) 76
---- ----- -----
386 (154) 509
---- ----- ------
Total provision (benefit).......................................... $592 $ (30) $ 343
==== ===== ======
</TABLE>
In 1993 and 1994, Courier Dispatch utilized approximately $128 and $125,
respectively, of alternative minimum tax credits which were generated in 1991
and 1992 to reduce its current federal income tax expense.
<TABLE>
The deferred tax assets (liabilities) consist of the following:
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets
Insurance accrual.............................................. $ 2,545 $ 2,513
Deferred compensation.......................................... 403 293
Vacation accrual............................................... 118 139
Accounts receivable allowance.................................. 137 132
Other.......................................................... 290 349
------- -------
3,493 3,426
------- -------
Deferred tax liabilities
Accumulated depreciation....................................... (572) (448)
------- -------
(572) (448)
------- -------
Valuation allowance.............................................. (1,985) (1,888)
------- -------
$ 936 $ 1,090
======= =======
</TABLE>
<TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
---- ----- ------------
<S> <C> <C> <C>
Tax provision (benefit) at federal statutory rate.................. $ 93 $(611) $(589)
State income taxes, net of federal income tax benefit.............. 71 63 --
Nondeductible expenses, primarily goodwill......................... 268 615 656
Effect of valuation allowance...................................... 160 (97) 276
---- ----- -----
$592 $ (30) $ 343
==== ===== =====
</TABLE>
F-56
<PAGE> 124
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. STOCK OPTION PLAN
<TABLE>
Courier Dispatch has in place a stock option plan whereby selected members
of Courier Dispatch's management have been granted options to purchase shares of
Courier Dispatch's common stock. Transactions related to stock options for each
of the two years ended December 31, 1994 and the period ended December 19, 1995
are as follows:
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1992.............................. 29,343 $ 1.40
Granted....................................................... 48,163 1.40
Exercised..................................................... -- --
Canceled or expired........................................... -- --
------- ------------
Outstanding at December 31, 1993.............................. 77,506 1.40
Granted....................................................... 94,535 1.40 - 3.00
Exercised..................................................... -- --
Canceled or expired........................................... -- --
------- ------------
Outstanding at December 31, 1994.............................. 172,041 1.40 - 3.00
Granted....................................................... 167,503 1.40 - 3.00
Exercised..................................................... 19,669 1.40
Canceled or expired........................................... -- --
------- ------------
Outstanding at December 19, 1995.............................. 319,875 $1.40 - 3.00
======= ============
</TABLE>
Compensation expense related to the stock options for the years ended
December 31, 1993, 1994 and the period ended December 19, 1995 was approximately
$0, $154, and $500, respectively.
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
Courier Dispatch leases office and operating facilities and certain
equipment under noncancelable operating leases with terms in excess of one year.
Future minimum lease payments required by operating leases approximate the
following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................. $1,540
1996............................................. 1,352
1997............................................. 1,076
1998............................................. 860
1999 and thereafter.............................. 617
------
$5,445
======
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index. In addition, Courier
Dispatch leases office and operating facilities and certain vehicles and
equipment on a month-to-month basis. Lease expense for the years ended December
31, 1993 and 1994 and for the period ended December 19, 1995 were approximately
$4,494, $7,061 and $8,322, respectively.
F-57
<PAGE> 125
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Litigation
Courier Dispatch is, from time to time, a party to litigation arising in
the normal course of its business, most of which involves claims for personal
injury and property damage incurred in connection with its operations.
Management believes that none of these actions will have a material adverse
effect on the financial position or results of operations of Courier Dispatch.
Self-Insurance Program
Courier Dispatch is self-insured with respect to certain aspects of its
workers' compensation, general liability and automobile and physical damage on
vehicles claims. The self-insured risk is $100 per general liability claim and
$250 per workers compensation and automobile and vehicle damage claims. In
accordance with the terms of the insurance policy, Courier Dispatch maintains a
$1,240 letter of credit with a commercial bank in favor of the insurer.
Management believes that any claims as of December 19, 1995 arising under this
self-insurance program will not have a material adverse effect on the financial
position or results of operations of Courier Dispatch.
12. RELATED PARTY TRANSACTIONS
At December 31, 1993 and 1994, Courier Dispatch had outstanding $2,173 and
$3,890 of its subordinated notes, net of imputed interest, with a bank. In
connection with the notes, the bank acquired warrants to purchase 1,412,287
shares of Courier Dispatch's common stock. A managing director of the bank is a
director of Courier Dispatch.
At December 31, 1993 and 1994, Courier Dispatch had outstanding $1,080 and
$2,626 of its subordinated notes, net of imputed interest, with another bank. In
connection with the notes, the bank acquired warrants to purchase 1,211,652
shares of Courier Dispatch's common stock. An executive vice president of the
bank is a director of Courier Dispatch. An affiliate of the bank is a
significant customer of Courier Dispatch. At December 31, 1993 and 1994, Courier
Dispatch had an account receivable balance of approximately $250 and $1,184,
respectively, from this customer. Sales to this customer approximated $4,972,
$5,513 and $6,458 for the years ended December 31, 1993 and 1994 and the period
ended December 19, 1995, respectively.
13. EMPLOYEE BENEFIT PLANS
Effective October 1, 1994, Courier Dispatch adopted a defined contribution
plan. Courier Dispatch pays all general and administrative expenses of the plan
and has the option to make contributions to the plan at its sole discretion. For
the year ended December 31, 1994 and the period ended December 19, 1995, Courier
Dispatch made no contributions to the plan. General and administrative expenses
related to the plan for the year ended December 31, 1994 and the period ended
December 19, 1995 were $23 and $47, respectively.
14. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994 and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of Courier Dispatch. Courier Dispatch operates primarily in the
southeast, northeast and midwest. Services to financial institutions comprised
approximately 55% of total sales for each of the years ended December 31, 1993
and 1994 and the period ended December 19, 1995, with the remainder of sales
primarily relating to pharmaceutical and other. Although Courier Dispatch is
affected by the creditworthiness of its customers, management does not believe
significant
F-58
<PAGE> 126
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
credit risk exists at December 19, 1995. Courier Dispatch generally does not
require collateral, and maintains reserves for potential credit losses.
Historically, such losses have been within management's expectations.
15. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock, Courier
Dispatch merged with a wholly-owned subsidiary of the Company.
F-59
<PAGE> 127
(This page intentionally left blank)
F-60
<PAGE> 128
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholder
of Tricor America, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of Tricor
America, Inc. ("Tricor") at December 31, 1993 and 1994, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1994, and for the period ended December 19, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Tricor's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Sacramento, California
March 12, 1996
F-61
<PAGE> 129
TRICOR
<TABLE>
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 834 $ 2,411
Accounts receivable, less allowance of $229 and $230................... 3,988 4,421
Short-term investments................................................. -- 500
Prepaid workers' compensation.......................................... 685 --
Prepaids and other assets.............................................. 368 206
------- -------
Total current assets........................................... 5,875 7,538
Property and equipment, net.............................................. 3,902 3,808
Other assets............................................................. 668 485
------- -------
$10,445 $11,831
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt................................... $ 975 $ 688
Accounts payable....................................................... 725 595
Accrued liabilities.................................................... 1,552 1,523
Income taxes payable................................................... 26 2
------- -------
Total current liabilities...................................... 3,278 2,808
Long-term debt, net of current maturities................................ 2,209 1,533
------- -------
5,487 4,341
------- -------
Stockholder's equity
Common stock........................................................... 65 65
Retained earnings...................................................... 4,893 7,425
------- -------
4,958 7,490
------- -------
Commitments and contingencies............................................ -- --
------- -------
$10,445 $11,831
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE> 130
TRICOR
<TABLE>
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues................................................... $32,504 $34,288 $37,252
Cost of delivery............................................... 23,726 24,846 27,172
------- ------- -------
Gross profit................................................. 8,778 9,442 10,080
Selling, general and administrative
expenses..................................................... 6,789 7,058 6,898
Amortization of intangible assets.............................. 100 172 --
------- ------- -------
Operating income............................................. 1,889 2,212 3,182
Other income (expense)
Interest expense............................................. (249) (276) (186)
Interest income and other, net............................... 67 2,191 178
------- ------- -------
Income before income taxes..................................... 1,707 4,127 3,174
Provision for income taxes..................................... 41 15 18
------- ------- -------
Net income..................................................... $ 1,666 $ 4,112 $ 3,156
======= ======= =======
Unaudited pro forma data (Note 9)
Income before income taxes................................... $ 1,707 $ 4,127 $ 3,174
Pro forma provision for income taxes......................... 703 851 1,293
------- ------- -------
Net income..................................................... $ 1,004 $ 3,276 $ 1,881
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE> 131
TRICOR
<TABLE>
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.......................... 368 $65 $ 3,835 $ 3,900
Distributions to stockholder.......................... -- -- (608) (608)
Net income............................................ -- -- 1,666 1,666
--- --- -------- -------
Balance at December 31, 1993.......................... 368 65 4,893 4,958
Distributions to stockholder.......................... -- -- (1,580) (1,580)
Net income............................................ -- -- 4,112 4,112
--- --- -------- -------
Balance at December 31, 1994.......................... 368 65 7,425 7,490
Distributions to stockholder.......................... -- -- (7,128) (7,128)
Net income............................................ -- -- 3,156 3,156
--- --- ------- -------
Balance at December 19, 1995.......................... 368 $65 $ 3,453 $ 3,518
=== === ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-64
<PAGE> 132
TRICOR
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................................... $ 1,666 $ 4,112 $ 3,156
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation................................................. 541 574 543
Provision for bad debts...................................... 23 79 --
Amortization of intangible assets............................ 100 105 --
Write-off of intangible assets............................... -- 67 --
Change in operating assets and liabilities
Accounts receivable....................................... (832) (512) (331)
Prepaid workers' compensation............................. -- 685 --
Deferred and other assets................................. (244) 173 (180)
Accounts payable.......................................... (217) (130) 1,271
Income taxes payable...................................... -- (24) --
Accrued liabilities....................................... 443 (29) 199
Dividend payable.......................................... -- -- 402
------- ------- -------
Net cash provided by operating activities...................... 1,480 5,100 5,060
------- ------- -------
Cash flows from investing activities
Net (purchases) sales of short-term investments.............. -- (500) 500
Capital expenditures, net of disposals....................... (437) (348) (407)
------- ------- -------
Net cash (used in) provided by investing activities............ (437) (848) 93
------- ------- -------
Cash flows from financing activities
Payments of debt............................................. (812) (1,095) (716)
Distributions to stockholder................................. (608) (1,580) (5,424)
------- ------- -------
Net cash used in financing activities.......................... (1,420) (2,675) (6,140)
------- ------- -------
Net (decrease) increase in cash and cash equivalents........... (377) 1,577 (987)
Cash and cash equivalents
Beginning of the period...................................... 1,211 834 2,411
------- ------- -------
End of the period............................................ $ 834 $ 2,411 $ 1,424
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest.................................................. $ 249 $ 276 $ 186
Income taxes.............................................. 41 41
Disclosure of non-cash investing and financing activities
Capital expenditures financed through issuance of notes
payable................................................... 213 132
Workers' compensation premiums financed through issuance of
notes payable............................................. 738
Non-cash distributions to stockholder........................ 1,302
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-65
<PAGE> 133
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Tricor America, Inc. ("Tricor") is engaged in interstate, intrastate and
international courier services for customers requiring delivery of
time-sensitive documents, using air and surface transportation. Tricor primarily
operates in the Western United States and Pacific Rim with the bulk of its
business concentrated with large banks and other financial services companies.
Tricor is closely held and commonly controlled by one individual, the
"stockholder." In October 1995, Tricor California, Inc. ("California"), Tricor
International ("International") and Tricor Nevada, Inc. ("Nevada") were merged
into and with Tricor America, Inc. Prior to this merger America, California, and
International were S corporations and Nevada was a C corporation. California had
authorized 10,000 shares of no par value common stock with 22.5 shares issued
and outstanding, International had authorized 10,000 shares of no par value
common stock with 225 shares issued and outstanding, and Nevada had authorized
2,500 shares of no par value common stock with 45 shares issued and outstanding.
Tricor and its stockholder entered into a definitive merger agreement with
United TransNet, Inc. (the "Company")pursuant to which a wholly-owned subsidiary
of the Company merged with Tricor. Under the merger agreement, all outstanding
shares of Tricor's capital stock were converted into shares of the Company's
Common Stock and cash concurrently with the consummation of an initial public
offering of such Common Stock. Simultaneously with the entry by Tricor into such
merger agreement, five other companies, CDG Holding Corp. and its operating
subsidiary, Courier Dispatch Group, Inc. (collectively, "Courier Dispatch");
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
with Tricor, the "Founding Companies") entered into substantially similar merger
agreements with the Company, pursuant to which wholly-owned subsidiaries of the
Company merged with such Founding Companies (the "Mergers"). Prior to
consummating the Mergers, Tricor distributed certain assets with a book value of
$2,791, net of related indebtedness of $1,489, to its stockholder as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Tricor are summarized
below:
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Tricor has assumed that the carrying amount approximates fair value for cash and
cash equivalents, accounts receivable, short-term investments, short-term debt
and accounts payable. The fair value of long-term debt instruments is based upon
the current interest rate environment and remaining term to maturity (see Note
5). Tricor feels that the carrying value of long-term debt approximates the fair
value.
F-66
<PAGE> 134
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash and Cash Equivalents and Short-Term Investments
Cash and equivalents include certificates of deposit and money market
accounts, all of which have original maturities of three months or less.
Short-term investments, which consist of certificates of deposit with original
maturities between three months and one year, are accounted for at fair market
value, which approximates cost.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Tricor computes depreciation using the double-declining balance method
over the estimated useful lives of the assets, which range from 5 - 31.5 years.
The cost and accumulated depreciation of property retired or otherwise disposed
of are removed from the accounts and any gain or loss is included in income.
Other Assets
Other assets is comprised primarily of prepaid expenses, other receivables
and a non-compete agreement with a stockholder which was written off in 1994.
Insurance Claims
Tricor is self-insured with respect to group health coverage and automobile
and physical damage on vehicles up to specified per claim and aggregate amounts.
The accompanying financial statements include an insurance accrual based upon a
third party administrator's and management's evaluations of estimated future
ultimate costs of outstanding claims and an estimated liability for claims
incurred but not reported on an undiscounted basis. The ultimate cost of these
claims will depend on the outcome of individual claims given the potential for
these claims to increase or decrease over time.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
America, California, and International elected S corporation status for
federal and state tax purposes. Under S corporation rules, all income tax
liability flows through to Tricor's stockholder with the exception of certain
state taxes. Effective January 1, 1994, the state tax rate applicable to Tricor
changed from 2.5% to 1.5%. Nevada accounts for federal and state income taxes in
accordance with Statement of Financial Standards No. 109 (SFAS 109), "Accounting
for Income Taxes". See Note 9 for pro forma income tax information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
F-67
<PAGE> 135
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Land............................................................. $ 846 $ 846
Buildings........................................................ 1,728 1,728
Delivery vehicles................................................ 1,776 1,915
Equipment and furnishings........................................ 1,280 1,392
Leasehold improvements........................................... 722 722
------- -------
6,352 6,603
Less accumulated depreciation and amortization................... (2,450) (2,795)
------- -------
$ 3,902 $ 3,808
======= =======
</TABLE>
<TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits............................... $ 775 $ 697
Accrued insurance.................................................. 479 414
Other accrued liabilities.......................................... 298 412
------ ------
$1,552 $1,523
====== ======
</TABLE>
<TABLE>
5. LONG-TERM DEBT
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Long-term debt consists of the following:
Note payable, secured by land and building in Los Angeles,
California; payable in monthly principal and interest
installments of $3 to $5; bearing interest based on the cost of
funds for the 11th District savings institutions plus a margin of
2.25%; interest at December 31, 1994 was 7.26%................... $398 $361
Note payable, secured by land and building in Irving, Texas;
payable in monthly principal installments of $2 plus interest at
an adjustable rate indexed to prime rate; interest at December
31, 1994 was 9.75%............................................... 178 135
Contracts payable, secured by property and equipment payable in
monthly installments ranging from $22 to $23 including principal
and interest at rates from 6.5% to 16.88%........................ 299 189
Note payable, secured by land and building in South San Francisco,
California, repaid in 1994....................................... 236 --
Note payable, secured by land and building in South San Francisco,
California, payable in monthly installments of $8 including
principal and interest; bearing interest at 9.1%; payable in full
at January 1, 1996............................................... 899 890
</TABLE>
F-68
<PAGE> 136
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
------ ------
<S> <C> <C>
Premium loan, Workers' Compensation Insurance, payable in monthly
installments ranging from $26 to $79 including principal and
interest, bearing interest at 6%................................. $ 693 $ 312
Note payable to former stockholder, in connection with covenant not
to compete, secured by a pledge of 25% of Tricor's stock, payable
in monthly installments of $8, non-interest bearing.............. 187 92
Note payable to former stockholder, in connection with stock
redemption, secured by the pledge of 25% of the Tricor's stock,
payable in monthly installments of $6 to $14; bearing interest at
12%; payable in full at January 1, 1996.......................... 280 238
Other notes payable................................................ 14 4
------ ------
3,184 2,221
Less -- current portion.......................................... (975) (688)
------ ------
$2,209 $1,533
====== ======
</TABLE>
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995.......................................... $ 688
1996.......................................... 1,057
1997.......................................... 133
1998.......................................... 110
1999 and thereafter........................... 233
------
$2,221
======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
Tricor leases office and operating facilities from related parties and
non-related parties and certain equipment from non-related parties under
noncancelable operating leases with terms in excess of one year. Future minimum
lease payments required by operating leases approximate the following:
<CAPTION>
YEAR ENDED RELATED NON-RELATED
DECEMBER 31, PARTIES PARTIES
------------ ------- -----------
<S> <C> <C>
1995............................... $ 140 $203
1996............................... 140 134
1997............................... 50 64
1998............................... 50 30
1999 and thereafter................ 983 36
------ ----
$1,363 $467
====== ====
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index and for Tricor's share of
real estate taxes and building operating expenses. Lease
F-69
<PAGE> 137
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
expense to related parties for the years December 31, 1993, and 1994 and for the
period ended December 19, 1995 totaled approximately $115, $140 and $65,
respectively. Lease expense to non-related parties for the same periods totaled
approximately $244, $250 and $372, respectively.
Litigation
Tricor is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will have
a material adverse effect on the financial position or results of operations of
Tricor.
7. EMPLOYEE RETIREMENT PLAN
Tricor has a Qualified 401(k) Employee Savings and Profit Sharing Plan for
the benefit of all eligible employees. Employees are eligible to participate in
the plan if they have been employed by Tricor for one year and work at least 20
hours per week. Generally, employees can defer up to 15% of their salary under
the plan. Tricor can make a discretionary matching contribution based on a
percentage of the deferral up to 5% of the yearly compensation. Employer
contributions for the plan for the year ended December 31, 1993 and 1994, and
for the period ended December 19, 1995, totaled approximately $101, $103, and
$165, respectively.
8. LIFE INSURANCE PROCEEDS
During 1994, Tricor received life insurance proceeds totaling approximately
$2,015 upon the death of a former officer of Tricor, which are recorded as other
income.
9. UNAUDITED PRO FORMA INFORMATION
Income Taxes
Tricor has calculated the December 31, 1993 and 1994 and the December 19,
1995 pro forma provision for income taxes under Financial Accounting Standards
Board Statement No. 109 (SFAS 109).
<TABLE>
The pro forma income tax provision is as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
---- ---- ------------
<S> <C> <C> <C>
Current tax provision
Federal......................................................... $568 $649 $1,037
State........................................................... 170 194 301
---- ---- ------
738 843 1,338
---- ---- ------
Deferred tax (benefit) provision
Federal......................................................... (28) 4 (43)
State........................................................... (7) 4 (2)
---- ---- ------
(35) 8 (45)
---- ---- ------
Total provision......................................... $703 $851 $1,293
==== ==== ======
</TABLE>
F-70
<PAGE> 138
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The differences in pro forma income taxes provided and the amounts
determined by applying the federal statutory tax rate to income before income
taxes result from the following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
---- ------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate................................... $581 $1,403 $1,079
State income taxes, net of federal income tax benefit........... 108 133 193
Life insurance proceeds......................................... -- (685) --
Other........................................................... 14 -- 21
---- ------ ------
$703 $ 851 $1,293
==== ====== ======
</TABLE>
Pro forma deferred income taxes result from temporary differences in the
recognition of certain expenses for financial and income tax reporting purposes.
<TABLE>
Deferred taxes would be provided for the temporary differences between the
financial reporting basis and the tax basis of Tricor's assets and liabilities.
Pro forma deferred tax assets would consist of the following:
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- ----
<S> <C> <C>
Compensated absence accrual........................................... $132 $144
Self-insurance accrual................................................ 208 179
State income taxes.................................................... 25 35
Other................................................................. 104 103
---- ----
$469 $461
==== ====
</TABLE>
10. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash,
Tricor merged with a wholly-owned subsidiary of the Company.
F-71
<PAGE> 139
(This page intentionally left blank)
F-72
<PAGE> 140
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Film Transit, Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Film Transit, Incorporated and its subsidiary (collectively, "Film Transit") at
December 31, 1993 and 1994, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1994 and for
the period ended December 19, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of Film
Transit's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Memphis, Tennessee
March 12, 1996
F-73
<PAGE> 141
FILM TRANSIT, INCORPORATED
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 425 $ 101
Short-term investments............................................... -- 400
Accounts receivable, less allowance of $60 and $60................... 1,476 1,559
Deferred tax assets.................................................. 55 229
Prepaids and other assets............................................ 417 416
------- -------
Total current assets......................................... 2,373 2,705
Property and equipment, net............................................ 2,190 2,082
Intangibles and other assets, net...................................... 256 187
------- -------
$ 4,819 $ 4,974
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt...................................................... $ 527 $ 470
Accounts payable..................................................... 435 438
Accrued liabilities.................................................. 2,235 2,656
Income taxes payable................................................. 12 79
------- -------
Total current liabilities.................................... 3,209 3,643
Long-term debt, net of current maturities.............................. 624 141
Deferred tax liabilities............................................... 364 317
Other liabilities...................................................... 60 58
------- -------
4,257 4,159
------- -------
Stockholders' equity
Class "A" common stock, $50 par value; 500 shares authorized; 197
shares issued and outstanding..................................... 10 10
Class "B" common stock, $50 par value; 500 shares authorized; 308
shares issued and outstanding..................................... 15 15
Paid-in capital...................................................... 100 100
Retained earnings.................................................... 7,428 7,681
Treasury stock (144 Class "A" Shares and 308 Class "B" Shares)....... (6,991) (6,991)
------- -------
562 815
------- -------
Commitments and contingencies.......................................... -- --
------- -------
$ 4,819 $ 4,974
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-74
<PAGE> 142
FILM TRANSIT, INCORPORATED
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues................................................... $24,692 $24,717 $22,352
Cost of delivery............................................... 16,079 16,829 14,566
------- ------- -------
Gross profit.............................................. 8,613 7,888 7,786
Selling, general and administrative expenses................... 7,348 7,351 7,155
Amortization of intangible assets.............................. 37 91 --
------- ------- -------
Operating income.......................................... 1,228 446 631
Other income (expense).........................................
Interest expense.......................................... (97) (62) (43)
Interest income and other, net............................ 7 19 49
------- ------- -------
Income before income taxes..................................... 1,138 403 637
Provision for income taxes..................................... 450 150 241
------- ------- -------
Net income..................................................... $ 688 $ 253 $ 396
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-75
<PAGE> 143
FILM TRANSIT, INCORPORATED
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
CLASS "A" CLASS "B"
COMMON STOCK COMMON STOCK
--------------- --------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ------ ------ ------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992.... 197 $10 308 $15 $100 $6,740 $(6,991) $(126)
Net income...................... -- -- -- -- -- 688 -- 688
--- --- --- --- ---- ------ ------- -----
Balance at December 31, 1993.... 197 10 308 15 100 7,428 (6,991) 562
Net income...................... -- -- -- -- -- 253 -- 253
--- --- --- --- ---- ------ ------- -----
Balance at December 31, 1994.... 197 10 308 15 100 7,681 (6,991) 815
Distributions to stockholders... -- -- -- -- -- (519) -- (519)
Net income...................... -- -- -- -- -- 396 -- 396
--- --- --- --- ---- ------ ------- -----
Balance at December 19, 1995.... 197 $10 308 $15 $100 $7,558 $(6,991) $ 692
=== === === === ==== ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-76
<PAGE> 144
FILM TRANSIT, INCORPORATED
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
--------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................................... $ 688 $ 253 $ 396
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................... 498 483 462
Provision for bad debts..................................... 14 43 61
Amortization of intangible assets........................... 33 -- --
Loss (gain) on sale of assets............................... 18 15 (3)
Amortization/write off of authority licenses................ 4 91 --
Deferred income taxes....................................... 131 (221) 64
Change in operating assets and liabilities
Accounts receivable....................................... 138 (126) (78)
Other assets.............................................. (101) (20) (346)
Accounts payable.......................................... 127 3 60
Accrued liabilities....................................... (281) 421 (162)
Income taxes payable...................................... (90) 67 (111)
Other liabilities......................................... 4 (2) --
------ ------ -----
Net cash provided by operating activities.............. 1,183 1,007 343
------ ------ -----
Cash flows from investing activities
(Purchases) sales of short-term investments.................... -- (400) 400
Capital expenditures, net of disposals......................... (529) (391) (441)
------ ------ -----
Net cash used in investing activities.................. (529) (791) (41)
------ ------ -----
Cash flows from financing activities
Payments of debt............................................... (502) (540) (879)
Proceeds from issuance of debt................................. -- -- 494
------ ------ -----
Net cash used in financing activities.................. (502) (540) (385)
------ ------ -----
Net increase (decrease) in cash and cash equivalents............. 152 (324) (83)
Cash and cash equivalents
Beginning of the period........................................ 273 425 101
------ ------ -----
End of the period.............................................. $ 425 $ 101 $ 18
====== ====== =====
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest.................................................... $ 97 $ 62 $ 32
Income taxes................................................ 408 303 288
Disclosure of non-cash investing and financing activities
Non-cash distributions to stockholder.......................... $ 519
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-77
<PAGE> 145
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Film Transit, Incorporated, including its subsidiary, (collectively, "Film
Transit") is a Class I common carrier specializing in the transportation of
motion picture film and theater supplies, magazines, surface movement of air
freight and general commodities. A large proportion of Film Transit's revenues
are developed from the transportation of small package shipments. Film Transit
operates in the mid-south.
Film Transit and its stockholders entered into a definitive merger
agreement with United TransNet, Inc. (the "Company") pursuant to which a
wholly-owned subsidiary of the Company merged with Film Transit. Under the
merger agreement, all outstanding shares of Film Transit's capital stock were
converted into shares of the Company's Common Stock concurrently with the
consummation of an initial public offering of such Common Stock. Simultaneously
with the entry by Film Transit into such merger agreement, five other companies,
CDG Holding Corp. and its operating subsidiary, Courier Dispatch Group, Inc.
(collectively "Courier Dispatch"); Tricor America, Inc. ("Tricor"); 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 with Film
Transit, the "Founding Companies") entered into substantially similar merger
agreements with the Company, pursuant to which wholly-owned subsidiaries of the
Company merged with such Founding Companies (the "Mergers"). Prior to
consummating the agreement, Film Transit distributed certain assets to its
stockholders as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Film Transit are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Film Transit,
Incorporated and its wholly-owned subsidiary, Commonwealth Associates. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Film Transit has assumed that the carrying amount approximates fair value for
cash and cash equivalents, accounts receivable, short-term investments,
short-term debt and accounts payable. The fair value of long-term debt
instruments is based upon the current interest rate environment and remaining
term to maturity (see Notes 5 and 6). Film Transit feels that the carrying value
of long-term debt approximates the fair value.
Cash and Cash Equivalents and Short-Term Investments
Cash on hand, amounts due from banks and certificates of deposit and
repurchase agreements having original maturities of three months or less are
classified as cash and cash equivalents by Film Transit. Short-term investments
consist of certificates of deposit with original maturities of less than one
year and are recorded at market which approximates cost.
F-78
<PAGE> 146
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Film Transit computes depreciation using the straight-line method over
the estimated useful life of the assets. Average depreciable lives are: building
and improvements 31.5 years; fixtures and equipment 7-15 years; and vehicles and
accessories 3-5 years. The cost and accumulated depreciation of property retired
or otherwise disposed of are removed from the accounts and any gain or loss is
included in income.
Insurance Claims
Film Transit is self-insured with respect to workers' compensation up to
the deductible of $200 a claim and $950 in aggregate at December 19, 1995. The
aggregate deductible at December 31, 1993 and 1994 was $1,550 and $1,450,
respectively. The accompanying financial statements include an insurance accrual
based upon the third party administrator's and management's evaluations of
estimated future ultimate costs outstanding claims and an estimated liability
for claims incurred but not reported on an undiscounted basis.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes." This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in Film Transit's financial statements or tax returns. In
estimating future tax consequences, FAS 109 requires the consideration of all
expected future events other than enactments of changes in the tax laws or
rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Land............................................................. $ 56 $ 56
Buildings........................................................ 232 232
Delivery vehicles................................................ 5,827 5,731
Equipment and furnishings........................................ 1,297 1,343
Leasehold improvements........................................... 54 53
------- -------
7,466 7,415
Less accumulated depreciation and amortization................... (5,276) (5,333)
------- -------
$ 2,190 $ 2,082
======= =======
</TABLE>
F-79
<PAGE> 147
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------- -------
<S> <C> <C>
Accrued payroll and related benefits............................... $1,002 $1,154
Accrued vacation................................................... 175 175
Accrued insurance.................................................. 686 805
Other accrued liabilities.......................................... 372 522
------ ------
$2,235 $2,656
====== ======
</TABLE>
5. SHORT-TERM DEBT
On September 8, 1988, Film Transit and a bank entered into a note, amended
November 1, 1992, which provides Film Transit with an available line of credit
of $1,700 and bears interest at the bank's prime (8.5% at December 31, 1994).
The note matures May 1, 1996. Borrowings under the note are cross collateralized
with the long-term note described below and are secured by accounts receivable,
inventory and property and equipment.
6. LONG-TERM DEBT
<TABLE>
Long-term debt consists of the following:
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------ -----
<S> <C> <C>
Note payable to a financial institution, payable in monthly
installments of $45 including principal and interest at 6.65%
with a final payment in March 1996. Secured by substantially all
assets of Film Transit and certain stockholder guarantees........ $1,151 $ 611
Less current portion............................................... (527) (470)
------ -----
$ 624 $ 141
====== =====
</TABLE>
Under the most restrictive covenants of this note, Film Transit cannot pay
dividends or incur losses for two consecutive quarters.
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................ $470
1996................................................ 141
----
$611
====
</TABLE>
F-80
<PAGE> 148
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES
<TABLE>
The provision for income taxes is as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
---- ----- ------------
<S> <C> <C> <C>
Current tax provision
Federal.................................................. $275 $ 319 $149
State.................................................... 44 52 28
---- ----- ----
319 371 177
---- ----- ----
Deferred tax provision (benefit)
Federal.................................................. 113 (189) 56
State.................................................... 18 (32) 8
---- ----- ----
131 (221) 64
---- ----- ----
Total provision.................................. $450 $ 150 $241
==== ===== ====
</TABLE>
<TABLE>
Deferred tax assets (liabilities) consist of the following:
<CAPTION>
DECEMBER 31,
---------------
1993 1994
----- -----
<S> <C> <C>
Deferred tax assets
Insurance accrual..................................................... $ -- $ 140
Vacation accrual...................................................... 66 66
Accounts receivable allowance......................................... 23 23
Authority rights/permits.............................................. 22 57
----- -----
111 286
----- -----
Deferred tax liabilities
Accumulated depreciation.............................................. (386) (374)
Other................................................................. (34) --
----- -----
(420) (374)
----- -----
$(309) $ (88)
===== =====
</TABLE>
<TABLE>
The differences in income taxes provided and the amounts determined by the
federal statutory tax rate to income before income taxes result from the
following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
---- ---- ------------
<S> <C> <C> <C>
Tax at federal statutory rate............................. $387 $137 $217
State income taxes, net of federal income tax benefit..... 40 13 18
Nondeductible expenses.................................... 11 -- 4
Other..................................................... 12 -- 2
---- ---- ----
$450 $150 $241
==== ==== ====
</TABLE>
F-81
<PAGE> 149
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
Film Transit leases office and operating facilities and certain equipment
under noncancelable operating leases with terms in excess of one year. Future
minimum lease payments required by operating leases approximate the following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................ $267
1996................................................ 205
1997................................................ 137
1998................................................ 18
----
$627
====
</TABLE>
In addition, Film Transit leases office and operating facilities, and
certain vehicles and equipment on a month-to-month basis. Film Transit leases
automotive equipment furnished by employees contracting for the delivery service
of the Film Transit. Lease expense for the years ended December 31, 1993 and
1994 and for the period ended December 19, 1995, was $3,542, $3,415 and $3,069,
respectively.
Litigation
Film Transit is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of Film Transit.
Contingencies
At December 19, 1995, Film Transit was contingently liable for $320 as
endorser of employee notes from Film Transit, Incorporated Employees Profit
Sharing Plan and Trust (the "Plan"). The notes are secured by the vested
interest in the Plan and/or chattel mortgage where applicable.
A standby letter of credit is outstanding at December 19, 1995 for $672 as
security for the insurance carrier in connection with Film Transit's workers'
compensation policy.
9. RELATED PARTY TRANSACTIONS
Film Transit leases two facilities from a partnership consisting of two
stockholders of Film Transit. Monthly rent expense is $15 plus an allocated
portion of the real estate tax, insurance and maintenance expense. Rent expense
paid to the partnership for the years ended December 31, 1993 and 1994 and for
the period ended December 19, 1995, was $186, $207 and $193, respectively.
10. EMPLOYEE PROFIT SHARING PLAN AND TRUST
Film Transit has a noncontributory profit sharing plan for the benefit of
qualifying employees who have completed six months of service and attained the
age of 18. Contributions by Film Transit are calculated at graduated percentages
of net income before taxes and employee bonuses, as specified in the Plan.
During the years ended December 31, 1993 and 1994, and the period ended December
19, 1995, Film Transit's profit sharing expense was $752, $904, and $591,
respectively.
F-82
<PAGE> 150
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994, and the period ended
December 19, 1995, no one customer represented greater than 10% of the total
sales revenue of Film Transit. Film Transit operates primarily in Alabama,
Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. Services to the
automotive and farm implement industry comprise approximately 65% of total sales
for the three year period ended December 31, 1994 and the period ended December
19, 1995. Although Film Transit is affected by the creditworthiness of its
customers, management does not believe significant credit risk exists at
December 19, 1995. Film Transit maintains reserves for potential credit losses,
and historically, such losses have been within management's expectations.
12. SUBSEQUENT EVENT
On December 20, 1995, in exchange for shares of Common Stock and cash, Film
Transit merged with a wholly-owned subsidiary of the Company.
F-83
<PAGE> 151
(This page intentionally left blank)
F-84
<PAGE> 152
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Stockholders of
Lanter Courier Corporation
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of Lanter Courier Corporation ("Lanter")
equity investment and of cash flows present fairly, in all material respects,
the financial position of the Iowa, Nebraska and Wisconsin operations (the
"Districts") of Lanter as described in Note 1 to the combined financial
statements, at December 31, 1993 and 1994, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1994 and for the period ended December 19, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Lanter's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
March 12, 1996
F-85
<PAGE> 153
THE DISTRICTS OF LANTER COURIER CORPORATION
<TABLE>
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable, less allowance of $41 and $31....................... $1,163 $1,103
Prepaids and other assets................................................ 82 54
------ ------
Total current assets............................................. 1,245 1,157
Property and equipment, net................................................ 265 204
Intangibles, net........................................................... 851 498
Other assets............................................................... 248 220
------ ------
$2,609 $2,079
====== ======
LIABILITIES AND LANTER EQUITY INVESTMENT
Current liabilities
Accounts payable......................................................... $ 172 $ 369
Accrued liabilities...................................................... 1,021 1,151
------ ------
Total current liabilities........................................ 1,193 1,520
------ ------
Lanter equity investment................................................... 1,416 559
------ ------
Commitments and contingencies.............................................. -- --
------ ------
$2,609 $2,079
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-86
<PAGE> 154
THE DISTRICTS OF LANTER COURIER CORPORATION
<TABLE>
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues................................................... $19,647 $21,431 $21,777
Cost of delivery............................................... 14,452 15,802 16,468
------- ------- -------
Gross profit.............................................. 5,195 5,629 5,309
Selling, general and administrative expenses................... 3,511 3,816 3,845
Amortization of intangible assets.............................. 367 382 369
------- ------- -------
Net income................................................... $ 1,317 $ 1,431 $ 1,095
======= ======= =======
Unaudited pro forma data (Note 10)
Income before income taxes................................... $ 1,317 $ 1,431 $ 1,095
Pro forma provision for income taxes......................... 534 582 454
------- ------- -------
Pro forma net income...................................... $ 783 $ 849 $ 641
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-87
<PAGE> 155
THE DISTRICTS OF LANTER COURIER CORPORATION
<TABLE>
COMBINED STATEMENTS OF LANTER EQUITY INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C>
Balance at December 31, 1992....................................................... $ 2,218
Net income......................................................................... 1,317
Net cash transactions with Lanter.................................................. (2,200)
Net non-cash transactions with Lanter.............................................. 81
-------
Balance at December 31, 1993....................................................... 1,416
Net income......................................................................... 1,431
Net cash transactions with Lanter.................................................. (2,274)
Net non-cash transactions with Lanter.............................................. (14)
-------
Balance at December 31, 1994....................................................... 559
Distributions to stockholder....................................................... (143)
Contributions from stockholder..................................................... 586
Net cash transactions with Lanter.................................................. (2,062)
Net non-cash transactions with Lanter.............................................. (26)
Net income......................................................................... 1,095
-------
Balance at December 19, 1995....................................................... $ 9
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-88
<PAGE> 156
THE DISTRICTS OF LANTER COURIER CORPORATION
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.......................................................... $ 1,317 $ 1,431 $ 1,095
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization..................................... 290 158 116
Provision for bad debts........................................... 65 20 --
Amortization of intangible assets................................. 367 382 369
Loss on sale of property.......................................... -- -- (14)
Change in operating assets and liabilities
Accounts receivable............................................. (125) 40 (80)
Other assets.................................................... (122) 28 (120)
Accounts payable................................................ 49 197 235
Accrued liabilities............................................. 462 130 585
------- ------- -------
Net cash provided by operating
activities................................................. 2,303 2,386 2,186
------- ------- -------
Cash flows from investing activities
Capital expenditures, net of disposals.............................. (103) (112) (24)
------- ------- -------
Net cash used in investing activities........................ (103) (112) (24)
------- ------- -------
Cash flows from financing activities
Net transactions with Lanter........................................ (2,200) (2,274) (2,062)
------- ------- -------
Net cash used in financing activities........................ (2,200) (2,274) (2,062)
------- ------- -------
Net increase in cash and cash equivalents............................. -- -- 100
Cash and cash equivalents
Beginning of the period........................................... -- -- --
------- ------- -------
End of the period................................................. $ -- $ -- $ 100
======= ======= =======
Disclosure of non-cash investing and financing activities
Net transfers of property with Lanter............................... $ 81 $ (14) $ (26)
Other non-cash transactions:
Addition of consulting agreement.................................... $ 75
Non-cash distributions to stockholder............................... (143)
Non-cash contribution from stockholder.............................. 586
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-89
<PAGE> 157
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Lanter Courier Corporation ("Lanter") has operations in Iowa, Nebraska and
Wisconsin (collectively referred to as the "Districts"). The Districts are
engaged in the business of providing courier and delivery services to customers
primarily within Iowa, Nebraska and Wisconsin. Other Lanter operations were to
be transferred to another company owned by Lanter stockholders in connection
with the merger discussed below. The transferred operations were not a part of
the planned Mergers.
Lanter and its stockholders entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company will merge with Lanter. Under the merger agreement,
all outstanding shares of Lanter's capital stock were converted into cash and
shares of the Company's Common Stock concurrently with the consummation of an
initial public offering of such Common Stock. Simultaneously with the entry by
Lanter into such merger agreement, five other companies, CDG Holding Corp. and
its operating subsidiary, Courier Dispatch Group, Inc. (collectively, "Courier
Dispatch"); Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film
Transit"); 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
with Lanter, the "Founding Companies") entered into substantially similar merger
agreements with the Company pursuant to which wholly-owned subsidiaries of the
Company merged with such Founding Companies (the "Mergers"). Prior to the
closing of the agreement, Lanter distributed certain assets to its stockholders
as a dividend in conjunction with the transfer of other Lanter operations
discussed above.
The combined statements of income and cash flows of the Districts were
derived from the accounting records of Lanter and include the revenue, expenses
and cash flows directly attributable to the Districts' operations, as well as an
allocation of Lanter corporate expenses (see Note 7). The combined balance
sheets include assets and liabilities at Lanter's historical cost basis which
are specifically identifiable to the Districts. All cash, investments and
borrowings were maintained on a consolidated basis for all of Lanter's
districts; accordingly, cash, investments and borrowings and related interest
income and expense are not reflected in the combined financial statements of the
Districts for the years ended December 31, 1993 and 1994 and for the period
ended December 19, 1995. All debt and certain other obligations of Lanter will
be included with the transferred operations discussed above. The Company has
received indemnification from Lanter's stockholders for all debt and certain
other obligations of Lanter. Accordingly, such amounts will not be obligations
of the Districts included in the Mergers.
The accompanying combined financial statements have been prepared on a
historical basis. The financial information in these combined financial
statements is not necessarily indicative of results that would have occurred if
the Districts had been a separate stand-alone entity during the periods
presented or of future results of the Districts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The District's significant accounting policies which conform to generally
accepted accounting principles and are applied on a consistent basis among years
are described below:
Basis of Presentation
These combined financial statements include the historical accounts of the
Districts. The Districts do not have intercompany transactions.
F-90
<PAGE> 158
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Districts have assumed that the carrying amount approximates fair value for
accounts receivable and accounts payable.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Lanter computes depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to thirty-one and a
half years. The cost and accumulated depreciation of property retired or
otherwise disposed of are removed from the accounts and any gain or loss is
included in income.
Intangible Assets
On each of December 31, 1990 and June 30, 1992, Lanter entered into
separate non-compete agreements with third parties. Pursuant to such agreements,
such third parties agreed not to compete with Lanter's courier and delivery
service for a period of five years. The non-compete agreements were allocated to
the Districts based upon the geographic areas involved. Non-compete agreements
are amortized on a straight-line basis over the term of each agreement.
Accumulated amortization of non-compete agreements was $915 and $1,268 at
December 31, 1993 and 1994, respectively.
The carrying value of intangible assets is evaluated for indications of
possible impairment. The review is based on comparing the carrying amount to the
undiscounted estimated cash flows from operations over the remaining
amortization period.
Consulting Agreement
On June 30, 1992, Lanter entered into a consulting agreement with a third
party pursuant to which the third party agreed to provide advisory and
consulting services to Lanter in connection with its operations for a period of
124 months. The consulting agreement has been allocated to the Districts based
upon the geographic location involved. The consulting agreement is amortized on
a straight-line basis over the 124 month term of the agreement. Accumulated
amortization of the consulting agreement was $7 and $29 at December 31, 1993 and
1994, respectively.
Insurance Claims
The Districts are self-insured with respect to workers' compensation,
general liability and automobile claims and medical benefits. Prior to 1993 and
1994, the Districts were fully insured by an insurance company for workers'
compensation and automobile claims, respectively. The accompanying financial
statements include an insurance accrual for automobile, workers' compensation
and medical claims based upon the third-party administrator's and management's
evaluations of estimated future ultimate costs of outstanding claims and an
estimated liability for claims incurred but not reported on an undiscounted
basis. The ultimate cost of
F-91
<PAGE> 159
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
these claims will depend on the outcome of individual claims given the potential
for these claims to increase or decrease over time.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Lanter is a subchapter S corporation. Therefore, the Districts' income is
included in Lanter's stockholders' income for federal income tax purposes. While
the Districts are not subject to federal income tax, they are subject to certain
state and local taxes. See Note 10 for unaudited pro forma income tax
information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Delivery vehicles.................................................. $ 735 $ 879
Machinery, equipment and furnishings............................... 66 105
Leasehold improvements............................................. 10 15
----- -----
811 999
Less accumulated depreciation and amortization..................... (546) (795)
----- -----
$ 265 $ 204
===== =====
</TABLE>
4. OTHER ASSETS
<TABLE>
Other assets consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Consulting agreement............................................... $218 $196
Other.............................................................. 30 24
---- ----
$248 $220
==== ====
</TABLE>
F-92
<PAGE> 160
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits............................... $ 329 $ 390
Accrued insurance.................................................. 436 670
Accrued sales and use taxes........................................ 100 --
Other accrued liabilities.......................................... 156 91
------ ------
$1,021 $1,151
====== ======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
The Districts lease certain office and warehouse space in various locations
throughout Iowa, Nebraska and Wisconsin and certain vehicles for use in
operations. Future minimum lease payments required by noncancellable operating
leases approximate the following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................... $157
1996............................................... 275
1997............................................... 216
1998............................................... 75
1999............................................... 53
----
Total minimum lease payments....................... $776
====
</TABLE>
Lease expense for all operating leases was $1,211, $1,500 and $1,706 for
the years ended December 1993 and 1994 and the period ended December 19, 1995,
respectively.
Receivables of the Districts of $1,204 and $1,134 at December 31, 1993 and
1994 are pledged as collateral on Lanter's term loan with a financial
institution.
Litigation
Lanter is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will have
a material adverse effect on the financial position or results of operations of
Lanter. The Company has received indemnification from Lanter's stockholders for
damages and expenses related to certain liabilities of the Districts.
7. RELATED PARTY TRANSACTIONS
Lanter uses a centralized cash management system to finance its operations.
Cash receipts related to the Districts' operations are received by Lanter and
cash disbursements of the Districts are paid by Lanter. No interest has been
charged on transactions with Lanter.
As part of the merger agreement, Lanter was required to maintain a minimum
equity investment. In order to meet this requirement at December 19, 1995,
Lanter contributed $443, net of distributions, in the form of a note receivable
which is payable to the Districts by Lanter upon demand.
F-93
<PAGE> 161
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The net intercompany balance with Lanter resulting from the funding of all
financial transactions will not be settled. As a result, the net intercompany
balance has been included as a Lanter Equity Investment in the combined balance
sheets of the Districts.
Lanter provides certain selling, general and administrative services to the
Districts including cash management, accounting and finance, legal services,
employee benefits administration, and shared sales and distribution support.
These expenses were allocated to the Districts primarily based on estimated time
incurred which management believes to be reasonable. These allocations were
$428, $377 and $630, for the years ended December 31, 1993 and 1994, and the
period ended December 19, 1995, respectively. Such allocations are included in
selling, general and administrative expenses in the combined statements of
operations of the Districts.
Lanter Company, an affiliate of Lanter, provides certain administrative
services to Lanter and therefore allocates and charges a portion of its
corporate service expenses to Lanter. These expenses are allocated to the
Districts primarily based upon estimated time incurred which management believes
to be reasonable. These allocations were $272, $269 and $18 for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995, respectively.
Such allocations are included in selling, general and administrative expenses in
the combined statements of operations of the Districts.
8. EMPLOYEE RETIREMENT PLANS
The Districts participate in Lanter's voluntary defined contribution 401(k)
Plan (the "Plan") which is available to substantially all employees of the
Districts. Prior to January 1, 1995, the Plan was jointly sponsored by Lanter
Company, an affiliate of Lanter. On January 1, 1995, the assets related to
Lanter employees were transferred to a new plan sponsored solely by Lanter. The
cost of these benefits has historically been allocated to the Districts as
incurred. Lanter matches up to 50% of the employees' contribution and may
contribute a discretionary amount and/or a profit sharing amount to the Plan.
The Districts have been allocated expenses of $15, $26 and $29 for 401(k)
expenses related to employees of the Districts during the years ended December
31, 1993 and 1994 and the period ended December 19, 1995, respectively.
9. SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994 and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of the Districts. The Districts operate primarily in Iowa, Nebraska and
Wisconsin. Services to financial institutions comprised approximately 40%, 38%
and 36% of total sales for the years ended December 31, 1993 and 1994 and the
period ended December 19, 1995, respectively, with the remainder relating to
parcel service. Although the Districts are affected by the creditworthiness of
its customers, management does not believe significant credit risk exists at
December 19, 1995. The Districts generally do not require collateral. The
Districts maintain reserves for potential credit losses and historically such
losses have been within management's expectations.
10. UNAUDITED PRO FORMA INFORMATION
Income Taxes
The Districts have calculated the December 31, 1993 and 1994 and the
December 19, 1995 pro forma provision for income taxes under Statement of
Financial Accounting Standards No. 109 ("FAS 109") "Accounting for Income
Taxes."
F-94
<PAGE> 162
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The pro forma income tax provision is as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current tax provision
Federal.......................................................... $ 528 $511 $375
State............................................................ 168 163 118
----- ---- ----
696 674 493
----- ---- ----
Deferred tax provision (benefit)
Federal.......................................................... (123) (70) (30)
State............................................................ (39) (22) (9)
----- ---- ----
(162) (92) (39)
----- ---- ----
Total provision.......................................... $ 534 $582 $454
===== ==== ====
</TABLE>
<TABLE>
The differences in pro forma income taxes provided and the amounts
determined by applying the federal statutory tax rate to income before income
taxes result from the following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- -------------
1993 1994 1995
---- ---- -------------
<S> <C> <C> <C>
Tax at federal statutory rate................................. $448 $487 $372
State income taxes, net of federal income tax benefit......... 85 93 72
Other......................................................... 1 2 10
---- ---- ----
$534 $582 $454
==== ==== ====
</TABLE>
Pro forma deferred income taxes result from temporary differences in the
recognition of certain expenses for financial and income tax reporting purposes.
<TABLE>
Deferred taxes would be provided for the temporary differences between the
financial reporting basis and the tax basis of the Districts' assets and
liabilities. Pro forma deferred tax assets (liabilities) would consist of the
following:
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- ----
<S> <C> <C>
Self-insurance accrual................................................ $178 $275
Accounts receivable allowance......................................... 18 14
Other................................................................. (33) (21)
---- ----
Total....................................................... $163 $268
==== ====
</TABLE>
11. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash, the
Districts merged with a wholly-owned subsidiary of the Company.
F-95
<PAGE> 163
(This page intentionally left blank)
F-96
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Salmon Acquisition Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Salmon Acquisition Corporation and its subsidiary (collectively,
"Sunbelt") at December 31, 1993 and 1994 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1994, and for the period ended December 19, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Sunbelt's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Memphis, Tennessee
March 12, 1996
F-97
<PAGE> 165
SALMON ACQUISITION CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................ $ 276 $ 382
Accounts receivable, less allowance of
$19 and $24........................................................... 1,086 1,308
Income taxes refundable.................................................. 87 --
Deferred tax assets...................................................... 31 65
Prepaids and other assets................................................ 15 52
------ ------
Total current assets............................................. 1,495 1,807
Property and equipment, net................................................ 1,890 3,078
Goodwill, net.............................................................. 2,219 2,060
Intangible assets, net..................................................... 551 410
Restricted certificates of deposit......................................... 1,037 837
Other assets............................................................... 7 15
------ ------
$7,199 $8,207
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accrued interest -- related party........................................ $1,217 $1,569
Accounts payable......................................................... 64 103
Accrued liabilities...................................................... 442 438
Obligations under non-compete agreement.................................. 206 --
Income taxes payable..................................................... -- 177
------ ------
Total current liabilities........................................ 1,929 2,287
Long-term debt -- related party............................................ 5,295 5,785
Deferred tax liabilities................................................... 50 156
------ ------
7,274 8,228
------ ------
Stockholders' deficit
Common stock, no par value; 1,000 shares authorized; 400 shares issued
and outstanding....................................................... 1 1
Retained deficit......................................................... (76) (22)
------ ------
(75) (21)
------ ------
Commitments and contingencies.............................................. -- --
------ ------
$7,199 $8,207
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-98
<PAGE> 166
SALMON ACQUISITION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------ ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues................................................. $11,882 $14,187 $16,629
Cost of delivery............................................. 9,266 11,203 13,087
------- ------- -------
Gross profit.......................................... 2,616 2,984 3,542
Selling, general and administrative expenses................. 2,135 2,096 2,320
Amortization of intangible assets............................ 300 300 297
------- ------- -------
Operating income...................................... 181 588 925
Other income (expense)
Interest expense -- related party.......................... (403) (373) (428)
Interest income and other, net............................. 31 33 35
------- ------- -------
Income (loss) before income taxes............................ (191) 248 532
Provision (benefit) for income taxes......................... (15) 194 260
------- ------- -------
Net (loss) income..................................... $ (176) $ 54 $ 272
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-99
<PAGE> 167
SALMON ACQUISITION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK RETAINED
----------------- (DEFICIT)
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1992............................ 400 $1 $ 100 $ 101
Net loss................................................ -- -- (176) (176)
--- -- ----- -----
Balance at December 31, 1993............................ 400 1 (76) (75)
Net income.............................................. -- -- 54 54
--- -- ----- -----
Balance at December 31, 1994............................ 400 1 (22) (21)
Distributions to stockholders........................... -- -- (59) (59)
Net income.............................................. -- -- 272 272
--- -- ----- -----
Balance at December 19, 1995............................ 400 $1 $ 191 $ 192
=== == ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-100
<PAGE> 168
SALMON ACQUISITION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income............................................ $ (176) $ 54 $ 272
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation and amortization............................. 553 754 1,009
Provision for bad debts................................... 25 25 11
Amortization of goodwill and other intangible assets...... 300 300 297
Loss on sale of assets.................................... 20 12 5
Deferred income taxes..................................... 10 72 (95)
Change in operating assets and liabilities
Accounts receivable..................................... (183) (247) (236)
Other assets............................................ 34 (45) 32
Income taxes refundable................................. -- 87 146
Accrued interest -- related party....................... 372 352 (232)
Accounts payable........................................ (33) 39 119
Accrued liabilities..................................... 45 (4) --
Obligations under non-compete agreement................. (225) (206) --
Income taxes payable.................................... (27) 177 --
------- ------- -------
Net cash provided by operating activities............ 715 1,370 1,328
------- ------- -------
Cash flows from investing activities
Sale of restricted certificates of deposit................... -- 200 837
Capital expenditures, net of disposals....................... (1,092) (1,954) (791)
------- ------- -------
Net cash (used in) provided by investing
activities......................................... (1,092) (1,754) 46
------- ------- -------
Cash flows from financing activities
Payments on long-term debt -- related party.................. (110) (160) (1,249)
Proceeds from long-term debt -- related party................ 428 650 --
------- ------- -------
Net cash provided by (used in) financing
activities......................................... 318 490 (1,249)
------- ------- -------
Net (decrease) increase in cash and cash equivalents........... (59) 106 125
Cash and cash equivalents
Beginning of the period...................................... 335 276 382
------- ------- -------
End of the period............................................ $ 276 $ 382 $ 507
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest.................................................. $ 32 $ 20 $ 221
Income taxes.............................................. 1 (140) 199
Supplemental schedule of non-cash investing and financing
activities
Distribution of assets for payment of interest............... $ 1,337
Distribution of assets for payment of dividends.............. 59
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-101
<PAGE> 169
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Salmon Acquisition Corporation, including its subsidiary (collectively,
"Sunbelt") is a contract courier service providing ground courier services for
customers requiring delivery of time-sensitive documents. The Company operates
in the Mid-South.
Sunbelt and its stockholders entered into a definitive merger agreement
with United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with Sunbelt. Under the merger agreement, all
outstanding shares of Sunbelt's capital stock were converted into shares of the
Company's Common Stock concurrently with the consummation of an initial public
offering of such Common Stock. Simultaneously with the entry by Sunbelt into
such merger agreement, five other companies, 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"); and 3D Distribution Systems, Inc. and its
affiliated corporations and subsidiaries (collectively, "3D") (collectively with
Sunbelt, the "Founding Companies") entered into substantially similar merger
agreements with the Company, pursuant to which wholly-owned subsidiaries of the
Company merged with such Founding Companies (the "Mergers"). Prior to
consummating the agreement, Sunbelt distributed certain assets to its
stockholders as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by the Company are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Salmon
Acquisition Corporation and its wholly-owned subsidiary, Sunbelt Courier, Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Sunbelt has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable and accounts payable. The fair value
of long-term debt instruments is based upon the current interest rate
environment and remaining term to maturity (see Note 5). Sunbelt feels that the
carrying value of long-term debt approximates the fair value.
Cash and Cash Equivalents
Cash on hand, amounts due from banks and certificates of deposit and
repurchase agreements having original maturities of three months or less are
classified as cash and cash equivalents by Sunbelt.
F-102
<PAGE> 170
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Sunbelt computes depreciation using the straight-line method over the
estimated useful lives of the assets. Average depreciable lives are: building
and improvements 31.5 years; fixtures and equipment 7 - 15 years; and vehicles
and accessories 3 - 5 years. The cost and accumulated depreciation of property
retired or otherwise disposed of are removed from the accounts and any gain or
loss is included in income.
Goodwill and Other Intangible Assets
Goodwill in connection with a business acquired in October 1989 aggregated
approximately $2,880 and is being amortized over 20 years. Accumulated
amortization totaled $661 and $820 at December 31, 1993 and 1994, respectively.
The carrying value of intangible assets is evaluated for indications of possible
impairment whenever events or changes in circumstances indicate that the
carrying value of an intangible asset may not be recoverable. Events or changes
in circumstances which may indicate impairment include a significant adverse
change in legal factors, business climate or government regulation and current
cash flow losses combined with a history of cash flow losses or forecasted
continuing cash flow losses associated with an acquired company. The review is
based on comparing the carrying amount to the undiscounted estimated cash flows
before interest charges from operations over the remaining amortization period.
In connection with the acquisition, Sunbelt entered into a non-compete
agreement for a period of eight years with the sellers. Sunbelt paid the
liability resulting from this agreement totaling $1,125 over a five-year period.
The related asset is being amortized over eight years, the life of the
agreement. Accumulated amortization totaled $574 and $715 at December 31, 1993
and 1994, respectively.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes are provided on substantially all income and expense items included
in income, regardless of the period in which such items are recognized for tax
purposes. Taxes on income are determined by using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in Sunbelt's financial statements or tax
returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes in
the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
F-103
<PAGE> 171
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- -------
<S> <C> <C>
Land............................................................. $ 298 $ 445
Buildings........................................................ 643 643
Delivery vehicles................................................ 1,997 3,548
Equipment and furnishings........................................ 347 384
Construction in progress......................................... -- 26
------- -------
3,285 5,046
Less accumulated depreciation and amortization................... (1,395) (1,968)
------- -------
$ 1,890 $ 3,078
======= =======
</TABLE>
<TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- ----
<S> <C> <C>
Accrued payroll and related benefits.................................. $145 $194
Accrued vacation...................................................... 150 150
Accrued insurance..................................................... 147 94
---- ----
$442 $438
==== ====
</TABLE>
5. LONG-TERM DEBT -- RELATED PARTY
Sunbelt has an unsecured note payable with a company owned by relatives of
Sunbelt's stockholders. This agreement, as amended, has no specific repayment
terms and provides for a maturity date of October 31, 1999. The balance has been
classified long term based on the agreement from the related party that no
payment will be demanded during the next twelve months; however, the note is
payable immediately upon a change in ownership. The accrued interest-related
party is associated with this outstanding debt, and the related interest expense
associated with these notes totaled $403, $373 and $428 during 1993 and 1994,
and the period ended December 19, 1995, respectively.
F-104
<PAGE> 172
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INCOME TAXES
<TABLE>
The provision (benefit) for income taxes is as follows:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
---- ---- ------------
<S> <C> <C> <C>
Current tax (benefit) provision
Federal............................................... $(25) $118 $308
State................................................. -- 4 47
---- ---- ----
(25) 122 355
Deferred tax provision (benefit)
Federal............................................... 11 55 (81)
State................................................. (1) 17 (14)
---- ---- ----
10 72 (95)
---- ---- ----
Total (benefit) provision..................... $(15) $194 $260
==== ==== ====
</TABLE>
<TABLE>
Deferred tax assets (liabilities) consist of the following:
<CAPTION>
DECEMBER 31,
--------------
1993 1994
---- -----
<S> <C> <C>
Deferred tax assets
Accounts receivable allowance...................................... $ 3 $ 9
Vacation accrual................................................... 28 56
Accumulated depreciation........................................... 1 --
Net operating loss carryforward.................................... 13 --
---- -----
45 65
---- -----
Deferred tax liabilities
Accumulated depreciation........................................... -- (2)
Non-compete agreement.............................................. (64) (154)
---- -----
(64) (156)
---- -----
$(19) $ (91)
==== =====
</TABLE>
<TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
---- ---- ------------
<S> <C> <C> <C>
Tax at federal statutory rate............................ $(65) $ 84 $181
State income taxes, net of federal income tax benefit.... 1 14 31
Effect of goodwill amortization.......................... 54 54 56
Change in effective rate used for deferred taxes......... -- 33 --
Other.................................................... (5) 9 (8)
---- ---- ----
$(15) $194 $260
==== ==== ====
</TABLE>
F-105
<PAGE> 173
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the year ended December 31, 1993, Sunbelt was able to utilize the
surtax exemptions, whereby its federal tax expense (benefit) was based upon
income tax rates less than the maximum statutory income tax rates. Likewise, the
deferred tax expense (benefit) was based upon the lower rates at which the
temporary differences were expected to reverse. Beginning with the year ended
December 31, 1994, the rate was increased from the surtax to statutory rate
based on a change in earnings levels and the rate the temporary differences were
expected to reverse.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
Sunbelt leases office and operating facilities and certain equipment under
noncancelable operating leases with terms in excess of one year. Future minimum
lease payments required by operating leases approximate the following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................. $16
1996................................................. 4
---
$20
===
</TABLE>
In addition, Sunbelt leases office and operating facilities, and certain
vehicles and equipment on a month-to-month basis. Lease expense for the years
ended December 31, 1993 and 1994 and the period ended December 19, 1995 was $66,
$62 and $150, respectively.
Litigation
Sunbelt is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will have
a material adverse effect on the financial position or results of operations of
Sunbelt.
8. RELATED PARTY TRANSACTIONS
Sunbelt uses office space and maintenance facilities in buildings in three
locations owned by an entity which is owned by relatives of Sunbelt's
stockholders. Sunbelt stores delivery vehicles on the premises owned by this
related party and conducts daily operations at these facilities and does not pay
for these services. Sunbelt also shares its Baton Rouge facilities with this
entity in reciprocity. Additionally, Sunbelt allows this related party to store
its vehicles at the Baton Rouge site at no charge.
In April 1992, Sunbelt began maintaining its workers' compensation and auto
liability coverage through a captive insurance company owned by relatives of
Sunbelt's stockholders. The accounts between Sunbelt and the insurance carrier
are settled in the ordinary course of business and are governed by state
insurance regulations. Sunbelt has pledged two certificates of deposit of $200
and $637 which mature on August 12, 1995 and July 9, 1995, respectively, and
bear interest at a weighted average rate to the insurance carrier in accordance
with collateral requirements specified in the above policies. Sunbelt is
required to maintain this collateral throughout the term of their relationship
with the insurance carrier. Premiums paid to the insurance carrier were
approximately $698, $827 and $932 during 1993, 1994 and the period ended
December 19, 1995, respectively.
See Note 5 for additional related party disclosures of the long-term debt
and accrued interest.
F-106
<PAGE> 174
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994, and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of Sunbelt. Sunbelt operates primarily in Alabama, Arkansas, Louisiana,
Mississippi and Tennessee. Services to the financial institutions comprise
approximately 77%, 74% and 63% of total sales for the years ended December 31,
1993 and 1994, and the period ended December 19, 1995, respectively. Although
Sunbelt is affected by the creditworthiness of its customers, management does
not believe significant credit risk exists at December 19, 1995. Sunbelt
maintains reserves for potential credit losses, and historically, such losses
have been within management's expectations.
10. SUBSEQUENT EVENT
On December 20, 1995, in exchange for shares of Common Stock and cash,
Sunbelt merged with a wholly-owned subsidiary of the Company.
F-107
<PAGE> 175
(This page intentionally left blank)
F-108
<PAGE> 176
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
3D Distribution Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
3D Distribution Systems, Inc. and its subsidiaries (collectively, "3D") at
December 31, 1993 and 1994 and the results of their operations and their cash
flows for the year ended October 31, 1993, for the two months ended December 31,
1993, for the year ended December 31, 1994 and for the period ended December 19,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of 3D's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Dallas, Texas
March 12, 1996
F-109
<PAGE> 177
3D DISTRIBUTION SYSTEMS, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................................ $ 54 $ 3
Accounts receivable...................................................... 1,115 1,317
Other receivables........................................................ 5 10
Deferred tax assets...................................................... 5 12
Prepaids and other assets................................................ 81 42
------ ------
Total current assets............................................. 1,260 1,384
Property and equipment, net................................................ 629 435
Other assets............................................................... 29 34
------ ------
$1,918 $1,853
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt..................................... $ 189 $ 174
Accounts payable......................................................... 286 279
Accrued liabilities...................................................... 260 586
Income taxes payable..................................................... -- 9
Notes payable to former stockholder...................................... 575 575
------ ------
Total current liabilities........................................ 1,310 1,623
Long-term debt, net of current maturities.................................. 296 137
Deferred tax liabilities................................................... 10 8
------ ------
1,616 1,768
------ ------
Stockholders' equity
Common stock, $.01 par value; 100,000,000 shares authorized; 70,312
shares issued and outstanding............................................ 1 1
Paid-in capital.......................................................... 38 38
Retained earnings........................................................ 322 105
Treasury stock at cost, 33,400 shares.................................... (59) (59)
------ ------
302 85
------ ------
Commitments and contingencies -- --
------ ------
$1,918 $1,853
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-110
<PAGE> 178
3D DISTRIBUTION SYSTEMS, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19,
1993 1993 1994 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues.......................................... $12,545 $2,202 $14,862 $14,815
Cost of delivery...................................... 8,627 1,460 10,958 10,128
------- ------ ------- -------
Gross profit...................................... 3,918 742 3,904 4,687
Selling, general and administrative expenses.......... 3,869 733 4,014 4,693
------- ------ ------- -------
Operating (loss) income........................... 49 9 (110) (6)
Other income (expense)
Interest expense-related party...................... (37) (5) (45) --
Interest expense.................................... (78) (13) (55) (63)
Interest income and other, net...................... -- 11 -- 1
------- ------ ------- -------
(Loss) income before
income taxes........................................ (66) 2 (210) (68)
Provision (benefit) for
income taxes........................................ (1) 14 7 159
------- ------ ------- -------
Net loss.............................................. $ (65) $ (12) $ (217) $ (227)
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-111
<PAGE> 179
3D DISTRIBUTION SYSTEMS, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
COMMON STOCK
----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------- ------ -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992............. 67,362 $ 1 $ -- $ 399 $(59) $ 341
Issuance of common stock................ 2,950 -- 38 -- -- 38
Net loss................................ -- -- -- (65) -- (65)
------- --- ---- ----- ---- -----
Balance at October 31, 1993............. 70,312 1 38 334 (59) 314
Net loss for two months ended
December 31, 1993..................... -- -- -- (12) -- (12)
------- --- ---- ----- ---- -----
Balance at December 31, 1993............ 70,312 1 38 322 (59) 302
Net loss................................ -- -- -- (217) -- (217)
------- --- ---- ----- ---- -----
Balance at December 31, 1994............ 70,312 1 38 105 (59) 85
Issuance of common stock................ 2,837 -- 699 -- -- 699
Retirement of treasury stock............ (33,688) (1) (59) -- 59 (1)
Net loss................................ -- -- -- (227) -- (227)
------- --- ---- ----- ---- -----
Balance at December 19,1995............. 39,461 $-- $678 $(122) $ -- $ 556
======= === ==== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-112
<PAGE> 180
3D DISTRIBUTION SYSTEMS, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19,
1993 1993 1994 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss................................. $ (65) $ (12) $(217) $(227)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Depreciation and amortization......... 292 43 288 237
Provision for bad debts............... 17 -- 2 21
Gain from disposal of assets.......... -- -- -- (57)
Deferred income taxes................. (11) 1 (9) (95)
Noncash employee compensation......... 38 -- -- 699
Change in operating assets and
liabilities
Accounts receivable................. (247) 183 (204) 20
Other receivables................... 4 -- (5) 8
Other assets........................ (9) 15 34 (76)
Accounts payable.................... 270 (290) (7) (191)
Accrued liabilities................. (7) 47 326 (117)
Income taxes payable................ -- -- 9 191
----- ----- ----- -----
Net cash provided by (used in)
operating activities........... 282 (13) 217 413
----- ----- ----- -----
Cash flows from investing activities
Capital expenditures, net of disposals... (12) (10) (76) 14
----- ----- ----- -----
Net cash (used in) provided by
investing activities........... (12) (10) (76) 14
----- ----- ----- -----
Cash flows from financing activities
Net increase in revolving line
of credit............................. 150 100 150 --
Payments of debt......................... (420) (26) (342) (348)
----- ----- ----- -----
Net cash (used in) provided by
financing activities........... (270) 74 (192) (348)
----- ----- ----- -----
Net increase (decrease) in cash and cash
equivalents.............................. -- 51 (51) 79
Cash and cash equivalents
Beginning of the period.................. 3 3 54 3
----- ----- ----- -----
End of the period........................ $ 3 $ 54 $ 3 $ 82
===== ===== ===== =====
Supplemental disclosure of cash flow
information
Cash paid during the period for
Interest.............................. $ 115 $ 19 $ 111 $ 86
Income taxes.......................... 2 40
Disclosure of noncash investing and
financing activities
Acquisition of property and equipment for
notes payable......................... 411 17 121
Stock grants to key employees............ 38 699
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-113
<PAGE> 181
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
3D Distribution Systems, Inc. and its subsidiary, MDH Couriers, Inc., and
its affiliates, Texas Package Express, Inc., 3D Consolidation and Distribution
Systems, Inc., 3D Freight, Inc. and 3D Package Express, Inc. (collectively,
"3D") provide air and ground courier services for customers requiring delivery
of time-sensitive documents. 3D operates in the southeast, midwest, and Texas.
3D and its stockholders entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with 3D. Under the merger agreement, all
outstanding shares of 3D's capital stock were converted into shares of the
Company Common Stock concurrently with the consummation of an initial public
offering of such Common Stock. Simultaneously with the entry by 3D into such
merger agreement, five other companies, 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"); and Salmon Acquisition Corporation and
its operating subsidiary, Sunbelt Courier, Inc. (collectively, "Sunbelt")
(collectively with 3D, the "Founding Companies") entered into substantially
similar merger agreements with the Company pursuant to which wholly-owned
subsidiaries of the Company merged with such Founding Companies (the "Mergers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by 3D are summarized
below:
Basis of Presentation
The consolidated financial statements include the accounts of 3D
Distribution Systems, Inc., MDH Couriers, Inc., Texas Package Express, Inc., 3D
Consolidation and Distribution Systems, Inc., 3D Freight, Inc. and 3D Package
Express, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company changed its fiscal year end from
October 31 to December 31 effective for the year ended December 31, 1993.
Therefore, the results of operations for the period from November 1, 1993
through December 31, 1993 have been recorded to retained earnings at December
31, 1993.
The following table shows comparative information for the two months ended
December 31, 1992 and 1993:
<TABLE>
<CAPTION>
TWO MONTHS ENDED
DECEMBER 31,
----------------------
1992 1993
----------- ------
(UNAUDITED)
<S> <C> <C>
Net revenues............................................ $1,948 $2,202
Gross profit............................................ 640 742
Provision (benefit) for income taxes.................... (11) 14
Net income (loss)....................................... (24) (12)
</TABLE>
Estimates
The preparation of consolidated 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are related
to insurance accruals. Actual results could differ from those estimates.
F-114
<PAGE> 182
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, 3D
has assumed that the carrying amount approximates fair value for cash and cash
equivalents, accounts receivable, short-term debt and accounts payable. The fair
value of long-term debt instruments is based upon the current interest rate
environment and remaining term to maturity (see Note 5). 3D feels that the
carrying value of long-term debt approximates the fair value.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. 3D computes depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty-five
years. The cost and accumulated depreciation of property retired or otherwise
disposed of are removed from the accounts and any gain or loss is included in
income.
Other Assets
Other assets consist principally of deposits.
Insurance Claims
3D is self-insured with respect to workers' compensation in Texas. The
accompanying financial statements include an insurance accrual based upon
management's evaluations of estimated future ultimate costs of outstanding
claims and an estimated liability for claims incurred but not reported on an
undiscounted basis. The ultimate cost of these claims will depend on the outcome
of individual claims given the potential for these claims to increase or
decrease over time.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes." This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in 3D's financial statements or tax returns. In estimating
future tax consequences, FAS 109 requires the consideration of all expected
future events other than enactments of changes in the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
F-115
<PAGE> 183
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Delivery vehicles.................................................. $ 868 $ 942
Equipment and furnishings.......................................... 207 164
Computer equipment................................................. 96 151
Leasehold improvements............................................. 147 147
------ ------
1,318 1,404
Less accumulated depreciation and amortization..................... (689) (969)
------ ------
$ 629 $ 435
====== ======
</TABLE>
4. ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits............................... $165 $222
Accrued insurance.................................................. -- 233
Other accrued liabilities.......................................... 95 131
---- ----
$260 $586
==== ====
</TABLE>
5. DUE TO FORMER STOCKHOLDER AND LONG-TERM DEBT
<TABLE>
Due to former stockholder consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Revolving line of credit with a variable rate of interest. See Note
8................................................................ $500 $500
Unsecured notes payable plus interest at prime rate (8.5% at
December 31, 1994) plus 2%. See Note 8........................... 75 75
---- ----
$575 $575
==== ====
</TABLE>
<TABLE>
Long-term debt consists of the following:
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------ ------
<S> <C> <C>
Notes payable for vehicles. This debt is collateralized by vehicles
and has varying interest rates of 8.5% to 11.5%.................. $ 481 $ 308
Other notes payable................................................ 4 3
----- -----
485 311
Less current portion............................................... (189) (174)
----- -----
$ 296 $ 137
===== =====
</TABLE>
F-116
<PAGE> 184
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Debt maturities are as follows:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................. $174
1996............................................. 127
1997............................................. 10
----
$311
====
</TABLE>
The line of credit and unsecured note payable are due from a related party
and are due on demand. Upon consummation of the Mergers, this debt will be
repaid.
6. INCOME TAXES
<TABLE>
The provision (benefit) for income taxes is as follows:
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 19,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Current tax provision (benefit):
Federal.......................................... $ 3 $16 $231
State............................................ -- -- 23
--- --- ---
3 16 254
Deferred tax (benefit) provision:
Federal.......................................... (4) (9) (88)
State............................................ -- -- (7)
--- --- ---
(4) (9) (95)
--- --- ---
Total (benefit) provision.......................... $(1) $ 7 $159
=== === ====
</TABLE>
The differences between taxable income for financial reporting and income
tax purposes are primarily attributable to depreciation expense.
<TABLE>
The deferred tax assets (liabilities) consist of the following:
<CAPTION>
DECEMBER 31,
-------------
1993 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Insurance accrual................................................... $ -- $ 79
Other............................................................... 10 12
---- ----
10 91
---- ----
Deferred tax liabilities:
Accumulated depreciation............................................ (15) (8)
---- ----
Valuation allowance................................................... -- (79)
---- ----
$ (5) $ 4
==== ====
</TABLE>
F-117
<PAGE> 185
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 19,
1993 1994 1995
----------- ------------ --------------
<S> <C> <C> <C>
Tax at federal statutory rate..................... $(22) $(71) $(23)
State income taxes, net of federal income tax
benefit......................................... -- -- 17
Nondeductible expenses............................ 19 7 244
Effect of graduated rates......................... (3) (11) --
Effect of rate change on deferred tax............. 5 3 --
Effect of valuation allowance..................... -- 79 (79)
---- ---- ----
$ (1) $ 7 $159
==== ==== ====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
<TABLE>
3D leases office and operating facilities and certain equipment under
noncancellable operating leases with terms in excess of one year. Future minimum
lease payments required by operating leases approximate the following:
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................ $334
1996................................................ 171
1997................................................ 92
1998................................................ 9
----
$606
====
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index. In addition, 3D leases
office and operating facilities and certain vehicles and equipment on a
month-to-month basis. Lease expense for the years ended October 31, 1993, and
December 31, 1994 and for the period ended December 19, 1995 was $686, $710 and
$751, respectively.
3D leases a number of its delivery vehicles under lease agreements bearing
a 12 month initial noncancellable lease term, at the end of which the agreements
are month-to-month. Operating lease expense related to these agreements and
included in total lease expense was $140, $179 and $201 for the years ended
October 31, 1993, December 31, 1994 and for the period ended December 19, 1995,
respectively.
Litigation
3D is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will have
a material adverse effect on the financial position or results of operations of
3D.
8. RELATED PARTY TRANSACTIONS
3D has a revolving line of credit and notes payable with a former
stockholder and officer of 3D which are due upon demand. Both the revolving line
of credit and notes payable are to be paid in full upon consummation of the
Mergers.
3D pays consulting fees of approximately $95 per year to a former
stockholder and officer of 3D. The consulting fees are to be discontinued upon
completion of the Mergers.
F-118
<PAGE> 186
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. CONCENTRATION OF CREDIT RISK
During the year ended October 31, 1993, one customer accounted for
approximately $1,300, or 10.1% of revenues. During the year ended December 31,
1994, no individual customer accounted for greater than 10% of revenues however,
four customers accounted for approximately 31% of revenues. During the period
ended December 19, 1995, one customer accounted for $1,634 or 10.7% of revenue.
Although 3D is affected by the creditworthiness of its customers,
management does not believe significant concentration of credit risk exists at
December 19, 1995. 3D generally does not require collateral. 3D does not
maintain reserves for potential credit losses as historically such losses have
been insignificant.
10. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash, 3D
merged with a wholly-owned subsidiary of the Company.
F-119
<PAGE> 187
(This page intentionally left blank)
F-120
<PAGE> 188
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Eddy Messenger Service, Inc.
We have audited the accompanying balance sheet of Eddy Messenger Service,
Inc. as of December 31, 1995, and the related statements of income, retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eddy Messenger Service, Inc.
at December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
White Plains, New York
May 1, 1996
F-121
<PAGE> 189
EDDY MESSENGER SERVICE, INC.
<TABLE>
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 142 $ 161
Accounts receivable, less allowance for doubtful accounts of $78
and $78....................................................... 968 803
Loans receivable from employees.................................. 12 14
Deferred income taxes............................................ 265 265
Refundable income taxes.......................................... 236 615
Other current assets............................................. 2 --
------ ------
Total current assets............................................... 1,625 1,858
Fixed assets, at cost, net of accumulated depreciation of $451 and
720, respectively................................................ 272 45
Real estate held for sale, at net realizable value................. 100 100
Security deposits.................................................. 271 37
Deferred income taxes.............................................. 46 16
Other assets....................................................... 12 68
------ ------
$2,326 $2,124
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 678 $1,182
Due to stockholders.............................................. 207 124
Working capital borrowings....................................... 100 100
Current portion of long-term debt................................ 28 2
------ ------
Total current liabilities.......................................... 1,013 1,408
Long-term debt, less current portion............................... 101 88
Security deposits.................................................. 21 19
Stockholders' equity:
Common stock, no par value
200 shares authorized and issued; 190 shares outstanding (no
change from prior year)...................................... -- --
Retained earnings................................................ 1,207 625
Less: treasury stock, 10 shares; at cost (no change from prior
year)......................................................... (16) (16)
------ ------
Total stockholders' equity......................................... 1,191 609
------ ------
$2,326 $2,124
====== ======
</TABLE>
See accompanying notes.
F-122
<PAGE> 190
EDDY MESSENGER SERVICE, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, -----------------
1995 1995 1996
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Messenger service.......................................... $ 12,181 $3,170 $2,838
Other...................................................... 307 96 104
-------- ------ ------
12,488 3,266 2,942
Costs and expenses:
Messenger service.......................................... 9,628 2,407 2,330
Selling, general and administrative, including interest
expense of $6, $0, and $3, respectively................. 2,716 813 1,551
-------- ------ ------
12,344 3,220 3,881
Income (loss) before income taxes............................ 144 46 (939)
Provision (benefit) for income taxes......................... (62) 17 (357)
-------- ------ ------
Net income (loss)............................................ $ 82 $ 29 $ (582)
======== ====== ======
</TABLE>
See accompanying notes.
F-123
<PAGE> 191
EDDY MESSENGER SERVICE, INC.
<TABLE>
STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS)
<S> <C>
Retained earnings at January 1, 1995, as initially reported......................... $1,347
Adjustment.......................................................................... (222)
------
Retained earnings at January 1, 1995, as restated................................... 1,125
Net income.......................................................................... 82
------
Retained earnings at December 31, 1995.............................................. 1,207
Net loss (unaudited)................................................................ (582)
------
Retained earnings at March 31, 1996 (unaudited)..................................... $ 625
======
</TABLE>
See accompanying notes.
F-124
<PAGE> 192
EDDY MESSENGER SERVICE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31
DECEMBER 31, -----------------
1995 1995 1996
------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 82 $ 29 $(582)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 251 177 270
Deferred income taxes................................... 74 (156) 30
Gain on sale of fixed asset............................. (2) -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........... (180) (228) 165
(Increase) decrease in due from stockholders......... 76 8 (57)
(Increase) decrease in loans receivable from
employees.......................................... 3 (7) (2)
Decrease in other current assets..................... 17 18 2
(Increase) decrease in security deposits
receivable......................................... (1) -- 234
Decrease in other assets............................. -- -- 1
Increase (decrease) in accounts payable and accrued
expenses........................................... 36 (2) 504
Increase (decrease) in due to stockholders........... 46 -- (83)
Increase (decrease) in income taxes.................. (415) 15 (379)
Increase (decrease) in security deposits payable..... 2 -- (2)
----- ----- -----
Net cash provided by (used in) operating activities....... (11) (146) 101
----- ----- -----
INVESTING ACTIVITIES
Purchases of fixed assets................................. (95) (51) (43)
Proceeds from sale of fixed assets........................ 7 -- --
----- ----- -----
Net cash used in investing activities..................... (88) (51) (43)
----- ----- -----
FINANCING ACTIVITIES
Proceeds from working capital borrowings.................. 100 -- --
Payments on long-term debt................................ (55) (14) (39)
Advances on long-term debt................................ -- 179 --
----- ----- -----
Net cash used in financing activities..................... 45 165 (39)
----- ----- -----
Increase (decrease) in cash and cash equivalents.......... (54) (32) 19
Cash and cash equivalents at beginning of period.......... 196 196 142
----- ----- -----
Cash and cash equivalents at end of period................ $ 142 $ 164 $ 161
===== ===== =====
</TABLE>
See accompanying notes.
F-125
<PAGE> 193
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is in the business of providing package delivery services to
large and medium size companies in the New York Tri-State area, on either a
scheduled or emergency basis. Revenue is recognized as services are performed.
Credit is extended based on an evaluation of the customer's financial condition;
collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Amortization
Depreciation is computed principally on the straight-line method based on
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of 10 years or the life of the lease.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
2. FIXED ASSETS
<TABLE>
Fixed assets consist of the following:
<S> <C>
Leasehold improvements........................................... $ 244,512
Machinery and equipment.......................................... 178,456
Automobiles and trucks........................................... 237,339
Furniture and fixtures........................................... 62,876
---------
723,183
Less: accumulated depreciation................................... (450,945)
---------
$ 272,238
=========
</TABLE>
Substantially all leasehold improvements have been incurred in connection
with properties leased from related parties which, through 1994, were being
amortized over periods of 10 to 40 years. In 1995, the Company adjusted the life
used to amortize such assets to the lesser of 10 years or the life of the lease.
This resulted in a net adjustment to the January 1, 1995 retained earnings of
$222,570.
F-126
<PAGE> 194
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
Long-term debt consists of the following:
<S> <C>
Secured note payable to a finance company, with interest at 8.2%, due in
monthly installments of principal and interest of $1,572 through October
1997.................................................................... $ 30,643
Secured mortgage note payable to a bank, with an adjustable rate of
interest (8.5% at December 31, 1995), due in monthly installments of
principal and interest ($719 at December 31, 1995) through October
2019.................................................................... 88,156
Secured note payable to bank, with interest at 10%, due in monthly
installments of principal and interest of $616 through October 1996..... 5,888
Unsecured note payable to a finance company, with interest at 2%, due in
monthly installments of principal and interest of $1,948 through
February 1996........................................................... 3,892
--------
128,579
Less: current portion..................................................... 27,947
--------
$100,632
========
</TABLE>
Substantially all of the assets of the Company are pledged as collateral
under certain of the above notes.
<TABLE>
Maturities of long-term debt for years subsequent to December 31, 1995 are
as follows:
<S> <C>
1996...................................................... $ 27,947
1997...................................................... 14,966
1998...................................................... 1,413
1999...................................................... 1,537
2000...................................................... 1,674
Thereafter................................................ 81,042
--------
$128,579
========
</TABLE>
During 1995, interest payments amounted to $6,217.
At December 31, 1995, the Company has $100,000 outstanding under a $350,000
line of credit to fund working capital needs. The borrowings are to be repaid
within one year and accrue interest at prime. The remaining $250,000 under this
line of credit accrues interest at prime plus 1 1/2%. There is no expiration
date on this line of credit. At December 31, 1995 the prime rate was 8 1/2%.
The carrying value of the Company's borrowings under its working capital
loans, long-term debt and notes payable approximate their fair value.
4. LEASES
The Company leases its offices, warehouse, certain trucks and other
equipment under various operating leases. Security deposits of $231,100 have
been paid to current stockholders.
The Company leases office space and certain warehouses from its current
stockholders and third parties on a month-to-month basis. Portions of the
warehouse space are subleased to third parties through
F-127
<PAGE> 195
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASES (CONTINUED)
<TABLE>
noncancelable subleases expiring on various dates through the year 2000 and
other various month-to-month subleases. The aggregate income on the three
noncancelable subleases is as follows:
<S> <C>
1996.............................................................. $129,000
1997.............................................................. 112,500
1998.............................................................. 112,500
1999.............................................................. 112,500
2000.............................................................. 84,000
</TABLE>
The Company intends to continue to lease the property from its current
stockholders for at least the period covered by the subleases. Included in costs
and expenses is approximately $477,000 of rent expense paid to current
stockholders. During 1995, income from all the subleases noted above amounted to
approximately $150,000 and has been recorded as other revenue.
<TABLE>
The Company has commitments under an operating lease for office and
warehouse space. The lease expires in 1998. The Company has two month-to-month
subleases which generate income of $5,000 per month. Total aggregate minimum
lease commitments are as follows:
<S> <C>
1996.............................................................. $42,000
1997.............................................................. 42,000
1998.............................................................. 7,000
-------
$91,000
=======
</TABLE>
5. INCOME TAXES
Deferred taxes are provided when items of income or expense are recognized
in different periods for tax purposes. Cumulative temporary differences of
approximately $737,000 relate to the allowance for bad debts, amortization of
leasehold improvements and various accrued liabilities which are being deducted
for book purposes on a current basis, but will not be deducted for tax purposes
until a later date.
<TABLE>
The provision (benefit) for income taxes consists of the following:
<CAPTION>
CURRENT DEFERRED TOTAL
-------- ------- -------
<S> <C> <C> <C>
Federal...................................... $(21,500) $65,700 $44,200
State........................................ 10,000 8,200 18,200
-------- ------- -------
$(11,500) $73,900 $62,400
======== ======= =======
</TABLE>
In addition to federal income taxes, the Company pays state taxes in New
York State, New York City, New Jersey and Connecticut. The difference between
income taxes expense resulting from applying domestic federal statutory rates to
pretax income and the reported amount of income tax expense is attributable to
state taxes.
During 1995, the Company made income tax payments of approximately
$403,700.
F-128
<PAGE> 196
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
Sales of Business
On April 5, 1996, the Company entered into a letter of intent with United
TransNet, Inc. ("UTN") relating to the sale of 100% of the common stock or
substantially all of the assets relating to the provision of courier services of
the Company (the "Sale"). The letter of intent stipulates that the Company may
write-off leasehold improvements and automobiles with a net carrying amount of
approximately $240,000 at December 31, 1995. In addition, the Company will
write-off $231,100 of security deposits due from current shareholders (see Note
4). The letter of intent shall terminate on May 24, 1996 if the Sale is not
consummated by that date.
Debt Guaranty
During February 1996, the Company agreed to act as guarantor in connection
with a $2.2 million mortgage loan of an affiliate. In addition, the Company
entered into an agreement with the affiliate to lease the related property in
the event of the affiliate's default on the mortgage.
F-129
<PAGE> 197
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[UNITED TRANSNET, INC. LOGO]
COMMON STOCK
------------
PROSPECTUS
MAY 24, 1996
------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
- --------------------------------------------------------------------------------
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