SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 24, 1999
Date of report (Date of earliest event reported)
UNITED SHIPPING & TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Charter)
UTAH 000-28452 87-0355929
(State or Other (Commission File Number) (IRS Employer
Jurisdiction (Identification No.)
of Incorporation)
9850 51st Avenue North, Suite 110, Minneapolis, Minnesota 55442
---------------------------------------------------------------
(Address of Principal Executive Offices)
(612) 941-4080
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
United Shipping & Technology, Inc. (the "Company") filed with the
Commission a Current Report on Form 8-K on October 8, 1999. At Item 7 of the
Report, the Company indicated that it would file audited historical financial
statements of the business acquired and pro forma financial information at a
later date. Set forth below is Item 7 of such Report amended to include the
audited and unaudited financial statements of the business acquired and pro
forma financial information.
(a) Financial Statements of Business Acquired.
INDEX TO COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY
SYSTEMS, INC. FINANCIAL STATEMENTS
(1) Independent Auditor's Report.
(2) Combined Balance Sheets as of January 30, 1999 and
January 31, 1998.
(3) Combined Statement of Operations for the year ended
January 30, 1999, eleven months ended January 31,
1998 and year ended March 1, 1997.
(4) Combined Statements of Shareholder's Equity.
(5) Combined Statements of Cash Flows for the year ended
January 30, 1999, eleven months ended January 31,
1998 and year ended March 1, 1997.
(6) Notes to Combined Financial Statements.
(7) Condensed Combined Balance Sheet as of July 31, 1999.
(8) Condensed Combined Statements of Operations for the
six months ended July 31, 1999 and August 1, 1998.
(9) Condensed Combined Statements of Cash Flows for the
six months ended July 31, 1999 and August 1, 1998.
(10) Notes to Unaudited Condensed Combined Financial
Statements.
(b) Pro Forma Financial Information.
INDEX TO UNITED SHIPPING & TECHNOLOGY, INC. PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(1) Pro Forma Consolidated Statement of Operations for
the three months ended October 2, 1999.
(2) Pro Forma Consolidated Statement of Operations for
the year ended June 30, 1999.
<PAGE>
(3) Notes to Unaudited Pro Forma Consolidated Financial
Information.
(c) Exhibits
Consent of PricewaterhouseCoopers LLP
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholder of
Corporate Express Delivery Systems, Inc.
We have audited the accompanying combined balance sheets of the Courier
Operations of Corporate Express Delivery Systems, Inc. (as described in Note 1
to the combined financial statements) as of January 30, 1999 and January 31,
1998, and the related combined statements of operations, shareholder's equity
and cash flows for the year ended January 30, 1999, the eleven months ended
January 31, 1998 and the year ended March 1, 1997. These financial statements
are the responsibility of the management of Corporate Express Delivery Systems,
Inc. Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying combined financial statements were prepared to present the
combined financial position, results of operations and cash flows of the Courier
Operations of Corporate Express Delivery Systems, Inc. to be sold by CEX
Holdings, Inc., and is not intended to be a complete presentation of the
financial position, results of operations and cash flows of Corporate Express
Delivery Systems, Inc.
In our opinion, the accompanying combined financial statements present fairly,
in all material respects, the combined financial position of the Courier
Operations of Corporate Express Delivery Systems, Inc. at January 30, 1999 and
January 31, 1998, and the combined results of its operations and its cash flows
for the year ended January 30, 1999, the eleven months ended January 31, 1998
and the year ended March 1, 1997 in conformity with generally accepted
accounting principles.
Houston, Texas
August 27, 1999
(except for Note 11, for which the date is September 8, 1999)
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 3,868 $ 11,127
Accounts receivable, net of an allowance for doubtful
accounts of $4,328 and $3,148, respectively 72,667 81,054
Deferred income taxes 11,105 9,589
Other current assets 4,624 5,358
----------- -----------
Total current assets 92,264 107,128
Property and equipment:
Land 1,589 1,664
Buildings and leasehold improvements 12,231 12,117
Furniture, equipment and vehicles 55,437 57,408
----------- -----------
69,257 71,189
Less: accumulated depreciation (45,708) (44,545)
----------- -----------
23,549 26,644
Goodwill, net of accumulated amortization of $15,366
and $11,950, respectively 65,541 68,839
Other assets, net 6,847 7,960
----------- -----------
Total assets $ 188,201 $ 210,571
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 15,326 $ 23,841
Accrued payroll and benefits 12,789 16,061
Accrued auto and workers' compensation claims 20,123 12,456
Other accrued liabilities 10,808 18,207
Current portion of long-term debt and capital leases 1,442 553
----------- -----------
Total current liabilities 60,488 71,118
Amounts due to Corporate Express 60,977 57,845
Long-term debt and capital leases 3,298 4,703
Deferred income taxes 3,676 2,978
----------- -----------
Total liabilities 128,439 136,644
Commitments and contingencies (Notes 6 and 9)
Shareholder's equity:
Common stock, $0.001 par value, 3,000 shares
authorized and 1 share issued and outstanding -- --
Additional paid-in capital 61,708 61,708
Retained earnings (accumulated deficit) (1,824) 12,285
Accumulated other comprehensive income (loss) (122) (66)
----------- -----------
Total shareholder's equity 59,762 73,927
----------- -----------
Total liabilities and shareholder's equity $ 188,201 $ 210,571
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
-2-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eleven
Year Ended Months Ended Year Ended
January 30, January 31, March 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 648,319 $ 651,937 $ 694,992
Cost of services 517,403 510,928 516,413
----------- ----------- -----------
Gross profit 130,916 141,009 178,579
Selling, general and administrative expenses 144,393 129,365 152,479
Restructuring, merger and other nonrecurring charges 2,401 3,546 11,360
----------- ----------- -----------
Operating income (loss) (15,878) 8,098 14,740
Interest expense, net (6,920) (3,690) (6,169)
Other income, net 1,015 448 1,180
----------- ----------- -----------
Income (loss) before income taxes (21,783) 4,856 9,751
Income tax expense (benefit) (7,674) 2,288 5,988
----------- ----------- -----------
Net income (loss) $ (14,109) $ 2,568 $ 3,763
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
-3-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Other Retained Total
Common Stock Additional Comprehensive Earnings Total Comprehensive
----------------- Paid-in Income (Accumulated Shareholder's Income
Shares Amount Capital (Loss) Deficit) Equity (Loss)
------ -------- ---------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 2, 1996 1 $ -- $ 55,286 $ -- $ 5,200 $ 60,486
Net income -- -- -- -- 3,763 3,763 $ 3,763
----------
Comprehensive income $ 3,763
==========
Contributions -- -- 6,422 -- 754 7,176
----- --------- ---------- ---------- ---------- ----------
Balance at March 1, 1997 1 -- 61,708 -- 9,717 71,425
Net income -- -- -- -- 2,568 2,568 $ 2,568
Foreign currency translation adjustments -- -- -- (66) -- (66) (66)
----------
Comprehensive income $ 2,502
----- --------- ---------- ---------- ---------- ---------- ==========
Balance at January 31, 1998 1 -- 61,708 (66) 12,285 73,927
Net loss -- -- -- -- (14,109) (14,109) $ (14,109)
Foreign currency translation adjustments -- -- -- (56) -- (56) (56)
----------
Comprehensive income (loss) -- $ (14,165)
----- --------- ---------- ---------- ---------- ---------- ==========
Balance at January 30, 1999 1 $ -- $ 61,708 $ (122) $ (1,824) $ 59,762
===== ========= ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
-4-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eleven
Year Ended Months Ended Year Ended
January 30, January 31, March 1,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (14,109) $ 2,568 $ 3,763
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 8,749 9,426 8,853
Amortization 4,159 3,923 3,977
Deferred tax expense (benefit) (818) 2,487 (1,139)
Loss (gain) on disposal of assets (1,013) 1,627 296
Non-cash portion of merger and restructuring charge -- 1,951 2,515
Changes in assets and liabilities:
Accounts receivable 8,387 (8,139) 806
Other current assets 734 943 (2,584)
Other assets 474 526 (402)
Trade accounts payable (8,515) 8,911 (6,757)
Accrued liabilities (3,004) (376) (7,811)
----------- ----------- -----------
Net cash provided by (used in) operating activities (4,956) 23,847 1,517
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (7,263) (9,515) (3,427)
Payments for acquisitions, net of cash acquired -- (640) (14,532)
Proceeds from sales of assets 2,435 1,574 2,046
Other (35) (274) --
----------- ----------- -----------
Net cash used in investing activities (4,863) (8,855) (15,913)
----------- ----------- -----------
Cash flows from financing activities:
Payments on long-term debt and capital leases (516) (3,594) (39,567)
Net borrowings (repayments) to Corporate Express 3,132 (5,155) 57,035
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,616 (8,749) 17,468
----------- ----------- -----------
Effect of foreign currency exchange rate changes on cash (56) (66) --
----------- ----------- -----------
Net increase (decrease) in cash (7,259) 6,177 3,072
Cash, beginning of period 11,127 4,950 1,878
----------- ----------- -----------
Cash, end of period $ 3,868 $ 11,127 $ 4,950
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED
FINANCIAL STATEMENTS.
-5-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying combined financial statements of the Courier
Operations of Corporate Express Delivery Systems, Inc. include all of
the subsidiaries of Corporate Express Delivery Systems, Inc. except for
the expedited trucking and call center operations (the "Excluded
Operations"), referred herewith as the "Company". The financial
information included herein includes certain allocations based on
applicable historical activity levels to segregate the Excluded
Operations from those of the Company and may not necessarily reflect
the financial position, results of operations or cash flows of the
Company in the future, or the financial position, results of operations
or cash flows of the Company had it existed as a separate, stand-alone
company during the periods presented. Intercompany accounts and
transactions within the combined company have been eliminated.
The Company, a wholly-owned subsidiary of CEX Holdings, Inc. ("CEX
Holdings"), is a leading provider of same-day local delivery services.
The Company operates primarily in the United States including the
country's ten largest metropolitan areas. CEX Holdings is a
wholly-owned subsidiary of Corporate Express, Inc. ("Corporate
Express").
As used in these combined financial statements and notes thereto,
"fiscal 1998" refers to the twelve-month period ended January 30, 1999,
"fiscal 1997" refers to the eleven-month period ended January 31, 1998
and "fiscal 1996" refers to the twelve-month period ended March 1,
1997. In January 1998, the Company changed its fiscal year from the end
of February to January 31, 1998.
2. BUSINESS COMBINATIONS:
In fiscal 1996, Corporate Express acquired all of the outstanding stock
of United Transnet, Inc. ("United") and Midnite Express International
Couriers, Inc. ("Midnite Express") in transactions that were accounted
for as poolings of interests. Corporate Express contributed the net
assets of United and Midnite Express to the Company at historical cost.
The accompanying financial statements reflect the operations of United
and Midnite Express since March 2, 1996.
During fiscal 1996, acquisitions of twenty-two other domestic same-day
delivery service providers were completed. Eleven of these transactions
were accounted for as immaterial poolings of interests and the
remainder were accounted for as purchases. Included in these
transactions were three purchases and one immaterial pooling
consummated by United prior to its acquisition by Corporate Express.
Corporate Express contributed the net assets of these acquired entities
to the Company at historical cost.
There were no acquisitions by the Company in fiscal 1998 and 1997.
Acquisitions accounted for as purchases are included in the accounts
and operations of the Company as of the effective date of the
transaction. Immaterial acquisitions accounted for as poolings of
-6-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
interests are included in the accounts and operations of the Company as
of the beginning of the fiscal quarter in which the transaction became
effective.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets or leases for leasehold improvements. Buildings and leasehold
improvements are depreciated over periods of up to 40 years or the life
of the lease. Furniture, equipment and vehicles are depreciated over
terms ranging from three to seven years. Ordinary maintenance and
repairs are charged to operations, while expenditures that extend the
physical or economic life of property and equipment are capitalized.
Gains and losses on the disposition of property and equipment are
recognized in operations in the year of disposition.
CONCENTRATION OF CREDIT RISK
The Company places its cash with federally insured financial
institutions. At times, such investments may be in excess of the
federally insured limit.
Concentration of credit risk with respect to trade receivables is
limited due to the wide variety of customers to which the Company's
services are sold and the dispersion of those services across many
geographic areas. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company
maintains allowances for potential credit losses.
INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis over a period of 25
years. Customer lists and non-compete agreements, which are included as
other assets in the accompanying combined balance sheets, are amortized
on a straight-line basis over periods ranging from five to fifteen
years.
The Company evaluates intangible assets periodically in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121 to
determine whether they are properly reflected in the financial
statements based upon future undiscounted operating cash flows. If an
impairment is determined to exist, the impaired asset is written down
to fair value. No impairment losses were recorded during fiscal 1998,
1997 or 1996.
-7-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
INCOME TAXES
Income taxes are calculated using the liability method in accordance
with the provisions set forth in SFAS No. 109.
Corporate Express files a consolidated federal income tax return that
includes the operations of the Company. Income taxes have been
calculated as if the Company had filed a separate return for each of
the periods presented. Benefits of tax losses utilized by Corporate
Express are recorded as a reduction of amounts due to Corporate
Express.
REVENUE RECOGNITION
The Company recognizes revenue when services are rendered to customers.
COMPREHENSIVE INCOME(LOSS)
Comprehensive income (loss) consists of net income (loss) and foreign
currency translation adjustments and is presented in the combined
Statement of Shareholder's Equity. Balance sheet accounts are
translated using the year-end exchange rates and income statement
accounts are translated on a monthly basis using the average exchange
rates for the period. Unrealized gains and losses on translation
adjustments are recorded in shareholder's equity as other comprehensive
income (loss). The Company does not currently hedge foreign currency
risk exposure.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," the Company has estimated the fair value of its financial
instruments as follows:
* The carrying amounts of accounts receivable, accounts payable
and accrued liabilities approximate their fair values; and
* The carrying amounts of the Company's debt approximate their
fair values.
-8-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
4. RESTRUCTURING, MERGER AND OTHER NONRECURRING CHARGES:
The Company has recorded a charge for merger and restructuring related
activities in conjunction with its acquisitions accounted for as
pooling of interests transactions in fiscal 1996 and fiscal 1997
(primarily United in fiscal 1996). In fiscal 1998, the Company began
measures designed to lower its fixed operating cost structure by
reducing the number of its employees and accelerating facility
consolidations and closures. The Company anticipates further reductions
in employees and additional facility closures in fiscal 1999. The
merger and restructuring charges are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accrued Merger,
Severance and Other Asset
Facility Write Downs
Closure Costs(1) & Costs(2) Total
---------------- ----------- ----------
<S> <C> <C> <C>
Balance, March 2, 1996 $ 8,038 $ 1,478 $ 9,516
Additions 8,845 2,515 11,360
Payments (7,305) -- (7,305)
Non-cash usage -- (1,493) (1,493)
---------- ---------- ----------
Balance, March 1, 1997 9,578 2,500 12,078
Additions 1,595 1,951 3,546
Payments (6,323) -- (6,323)
Non-cash usage -- (3,010) (3,010)
---------- ---------- ----------
Balance, January 31, 1998 4,850 1,441 6,291
Additions 2,401 -- 2,401
Payments (5,867) -- (5,867)
Non-cash usage -- (1,418) (1,418)
---------- ---------- ----------
Balance, January 30, 1999 $ 1,384 $ 23 $ 1,407
========== ========== ==========
</TABLE>
(1) Reflects merger transaction costs, employee severance and
termination costs, and facility closure and consolidation
costs. Merger transactions costs are the direct costs from the
pooling of interests transactions and include legal,
accounting, investment banking, printing, contract buy-outs
and other related costs. Employee severance and termination
costs are the result of the elimination of duplicate
management positions, facility closures and consolidations,
and centralization of certain shared services. Facility
closure and consolidation costs are the estimated costs to
close redundant facilities, lease costs and other costs
associated with closed facilities. Remaining balances
represent employee severance continuation payments, contract
buy-outs in dispute and lease commitments which extend through
April 2005.
(2) Other asset write-downs and costs are recorded as contra
assets and include the expected loss on sale of assets and
leasehold improvements and equipment being abandoned or
written off as a result of the exit plans.
-9-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
5. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Term note payable due March 26, 1999; interest
payable quarterly at 5% per annum; uncollaterized $1,125 $1,125
6% Convertible Subordinated Note due January 31,
2000; interest payable quarterly; uncollateralized;
after December 7, 1996, convertible in whole or in
part into 283,800 shares of Corporate Express
common stock at the option of the holder 2,190 2,190
Note payable due April 2002; principal and interest
of $7,295 payable monthly at a rate per annum equal
to prime plus 1/2% (8.25% at January 30, 1999 and
9% at January 31, 1998); collateralized by land and
building 806 821
Note payable due November 2001; principal and
interest of $5,529 payable monthly at a rate per
annum equal to prime plus 2.2% (9.95% at January
30, 1999 and 10.7% at January 31, 1998);
collateralized by land and building 161 207
Various vehicle and equipment notes payable with
maturity dates ranging from February 1999 to
September 2000; principal and interest payable
monthly at rates ranging from 4.8% to 14.99% per
annum; collateralized by certain vehicles and
equipment 239 455
------- ------
Total 4,521 4,798
Less current portion (1,378) (336)
------- ------
Long-term portion $ 3,143 $4,462
======= ======
</TABLE>
-10-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Future principal payments of long-term debt at January 30, 1999 were as
follows (in thousands):
Fiscal Year Payments
----------- --------
1999 $1,378
2000 2,314
2001 79
2002 750
------
$4,521
======
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases equipment, vehicles and buildings under various
non-cancelable operating and capital lease agreements with terms
generally ranging from three to ten years. Future minimum lease
commitments under non-cancelable leases at January 30, 1999 were as
follows (in thousands):
Capital Operating
Fiscal Year Leases Leases
----------- ------ ---------
1999 $ 72 $24,641
2000 110 18,723
2001 51 13,130
2002 15 6,848
2003 -- 3,909
Thereafter -- 3,078
---- -------
Total minimum lease payments 248 $70,329
=======
Less amounts representing interest (29)
----
Present value of minimum lease payments 219
Less current portion of capital lease obligations (64)
----
Long-term portion of capital lease obligations $155
====
Rent expense was $34,387,000, $33,259,000 and $32,876,000 for fiscal
1998, 1997 and 1996, respectively.
AUTO AND WORKERS' COMPENSATION INSURANCE
The Company, through Corporate Express' insurance program, obtains
insurance for automobile and workers' compensation claims. However, the
Company has elected to retain a portion of expected losses through the
use of deductibles. Provisions for losses expected under these programs
are recorded based upon the Company's estimates of the aggregate
-11-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
liability for claims incurred. These estimates include the Company's
actual experience based on information received from the Company's
insurance carriers and historical assumptions of development of unpaid
liabilities over time.
EMPLOYEE BENEFIT PLANS
Corporate Express has a defined contribution retirement plan in
accordance with Section 401(k) of the Internal Revenue Code (the
"Plan"). Under the Plan, the Company matches a portion of each eligible
employee's salary. All full-time employees of Corporate Express and its
subsidiaries are eligible to participate in the Plan. The Company's
matching contribution expense was $2,260,000, $865,000 and $242,000 for
fiscal 1998, 1997 and 1996, respectively.
LITIGATION
In fiscal 1997, a competitor filed suit against the Company alleging
that the Company gained an unfair competitive advantage in the bidding
process for a customer by means of violations of various federal and
state laws. The suit also alleges that the Company tortuously
interfered with the contractual relationship between the competitor and
a customer. In fiscal 1998, certain current and former California
employee drivers of the Company filed a class action lawsuit against
the Company alleging various overtime wage, expense reimbursement and
minimum wage deficiencies. The Company is subject to other legal
proceedings arising in the normal course of business. In connection
with the litigation described above, the Company has accrued $1,000,000
and expects amounts in excess of the accrual, if any, will be covered
by insurance. Management does not believe the outcome of such
litigation will have a material adverse effect on the Company's
financial position or results of operations. However, the impact on
cash flows might be material in the periods such claims are settled.
7. INCOME TAXES:
Federal and state income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Eleven
Year Ended Months Ended Year Ended
January 30, January 31, March 1,
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal $(6,117) $(178) $6,271
State (739) (21) 856
Deferred:
Federal (730) 2,219 (1,016)
State (88) 268 (123)
------- ------ ------
Total income tax expense (benefit) $(7,674) $2,288 $5,988
======= ====== ======
</TABLE>
-12-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
The components of the net deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued restructuring, merger and other costs $ 542 $2,467
Allowance accounts 1,698 1,235
Insurance reserves 8,873 4,215
Vacation and benefits accrual 965 1,672
------- ------
Total deferred tax assets 12,078 9,589
------- ------
Deferred tax liabilities:
Intangible assets 1,584 548
Property and equipment 2,092 2,430
Other liabilities 973 --
------- ------
Total deferred tax liabilities 4,649 2,978
------- ------
Net deferred tax asset $7,429 $6,611
====== ======
Financial Statements:
Current deferred tax assets $11,105 $9,589
Non-current deferred tax liabilities (3,676) (2,978)
------- ------
Net deferred tax asset (liability) $ 7,429 $6,611
======= ======
</TABLE>
During fiscal 1998, the Company generated a tax net operating loss of
$21,386,000. The benefit derived by Corporate Express from using the
Company's net operating loss was recognized by the Company as a current
income tax benefit and a reduction of the intercompany payable to
Corporate Express.
There was no deferred tax asset valuation allowance for fiscal 1998 and
1997. Management believes it is more likely than not that the results
of future operations will generate sufficient taxable income combined
with the expected timing of temporary difference reversals to realize
the deferred tax assets.
The reconciliation of the differences between the Company's tax expense
(benefit) for income taxes and taxes at the statutory rate is as
follows (in thousands):
-13-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Eleven
Year Ended Months Ended Year Ended
January 30, January 31, March 1,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax
expense (benefit) $ (7,624) $ 1,699 $ 3,413
Adjustments:
State income taxes, net of federal
expense (benefit) (827) 246 475
Merger costs -- (279) 1,113
Amortization of non-deductible goodwill 503 393 480
Other non-deductible items 274 229 507
---------- ---------- ----------
Income tax expense (benefit) $ (7,674) $ 2,288 $ 5,988
========== ========== ==========
</TABLE>
8. STOCK-BASED COMPENSATION:
Corporate Express sponsors various stock-based incentive compensation
plans for certain of its employees, including employees of the Company.
These plans include various stock options and employee stock purchase
plans, all of which are exercisable into shares of Corporate Express
common stock. The Company does not sponsor its own stock-based
compensation plans.
EMPLOYEE STOCK PURCHASE PLAN
All full-time employees with 30 days service at the start of the annual
offering period are eligible to participate in the Corporate Express
1994 Employee Stock Purchase Plan ("ESPP") at contribution levels
ranging from 1% to 15% of compensation. Contributions are applied to
purchase Corporate Express common stock at a price equal to the lower
of the beginning of the offering periods or end of the offering periods
fair market value, less a discount of 10%. Contributions to this plan
in fiscal 1998, 1997 and 1996 totaled $539,000, $538,000 and $ 0,
respectively.
OPTIONS
Options granted under the Stock Option Plan vest as specified in
individual stock option agreements, which typically provide vesting in
equal monthly installments over a period of five years, beginning in
the month after the first anniversary of the grant date. The options
generally expire on the seventh anniversary of the grant date.
During fiscal 1998, Corporate Express twice offered employees the
opportunity to cancel existing stock options in exchange for fewer
replacement stock options priced at market value on the date of the new
grant (in February and December). As a result, 3,258,545 stock
-14-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
options were cancelled and new grants of 1,939,344 stock options were
issued as replacement stock options.
The summary of the status of the portion of the Corporate Express fixed
stock option plans attributable to the Company as of January 30, 1999,
January 31, 1998, and March 1, 1997, and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
January 30, 1999 January 31, 1998 March 1, 1997
---------------- ---------------- -------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000s) Price (000s) Price (000s) Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,118 $17.15 4,497 $19.52 3,716 $18.93
Granted 2,716 7.97 1,306 10.56 1,927 20.12
Exercised (99) 13.26 (137) 14.37 (312) 14.97
Forfeited (3,924) 16.58 (2,548) 18.09 (834) 19.96
------ ------ -----
Outstanding at end of year 1,811 7.01 3,118 17.15 4,497 19.52
====== ====== =====
Options vested and exercisable
at year end 146 666 983
Weighted-average fair value of
options granted during the year $2.31 $3.87 $6.80
Weighted-average fair value of
ESPP awards during the year $2.82 $4.28 N/A
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of January 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------- ------------------------------
Number Weighted-Average Number
Outstanding Remaining Exercisable
Range of at 1/30/99 Option Term Weighted-Average at 1/30/99 Weighted-Average
Exercise Prices (000s) (in Years) Exercise Price (000s) Exercise Price
--------------- ---------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$3.56 to 7.10 1,644 7.1 $ 6.45 106 $ 6.50
7.11 to 11.11 90 5.7 9.34 14 9.29
11.12 to 14.66 38 6.4 12.00 3 11.60
14.67 to 19.83 26 4.1 19.83 10 19.83
19.84 to 38.70 13 4.0 21.83 13 21.83
----- ---
$3.56 to 38.70 1,811 6.9 7.01 146 9.18
===== ===
</TABLE>
Corporate Express applies APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, neither Corporate Express nor its subsidiaries recognize
compensation cost for fixed stock-based compensation plans. Had
compensation cost been determined based on the fair value at the grant
dates for stock option grants in accordance with SFAS No. 123 and then
allocated to the Company based on the portion of total compensation
cost attributable to employees of the Company, the Company's net income
(loss) would have been adjusted to the pro forma amounts indicated
below (in thousands):
-15-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Eleven
Year Ended Months Ended Year Ended
January 30, January 31, March 1,
1999 1998 1997
---------- ------------ ----------
Net income (loss):
As reported $(14,109) $ 2,568 $3,763
Pro forma (18,933) (1,408) (491)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for 1998, 1997 and 1996: risk-free interest rates ranging
from 4.5% to 6.75%; expected life of four years; volatility of 40%, 35%
and 35% for 1998, 1997 and 1996, respectively; and dividend yield of
0%. The fair value of employee stock purchase awards was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions for 1998, 1997 and 1996: risk-free rates ranging
from 4.5% to 6.75%; expected life of 1/2 year, one year, and one year
for 1998, 1997 and 1996, respectively; and volatility of 45%.
9. RELATED PARTY TRANSACTIONS:
The Company has been dependent in part on cash advances from Corporate
Express for the funding of current operations. These advances, which
are reflected as amounts due to Corporate Express, bear no stated rate
of interest and are due and payable, in all instances, in periods
subsequent to January 29, 2000. In the event that Corporate Express
sells the Company, the intercompany payable is expected to be
contributed by Corporate Express to the Company's capital.
In connection with the Company's continuing operations, Corporate
Express has provided a financial commitment to fund the operations of
the Company as necessary such that it continues as or continues to be a
viable going concern. The extent to which the financing commitment will
be utilized cannot currently be predicted, due to the uncertainty
involving the timeframe of the sale of the Company.
Each period Corporate Express allocates a portion of the interest
expense on its debt to the Company. The amount of interest allocated is
based on the ratio that the Company's net assets bear to the total net
assets of Corporate Express. Interest expense allocated to the Company
was $6,634,000, $3,176,000 and $2,516,000 in fiscal 1998, 1997 and
1996, respectively.
Revenue recognized by the Company for services provided to the Excluded
Operations totaled $809,000, $366,000 and $250,000 for fiscal 1998,
1997 and 1996, respectively. Revenue recognized by the Company for
services provided to Corporate Express totaled $3,554,000, $6,529,000
and $5,412,000 for fiscal 1998, 1997 and 1996, respectively.
-16-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Certain debt of Corporate Express, which totaled $472,825,000 at
January 30, 1999, is guaranteed by substantially all domestic
subsidiaries of Corporate Express, including the Company, and is
collateralized by all tangible and intangible property of the
guarantors. In addition, certain other debt of Corporate Express, which
totaled $351,205,000 at January 30, 1999, is guaranteed on a
subordinated basis by certain subsidiaries of Corporate Express,
including the Company.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid to unrelated parties for interest during fiscal 1998, 1997
and 1996 was $331,000, $527,000 and $4,547,000, respectively. Cash paid
for state income taxes during fiscal 1998, 1997 and 1996 was $260,000,
$601,000 and $3,686,000, respectively.
Non-cash investing and financing activities during fiscal 1996 included
the acquisitions of twenty-two same-day delivery companies. As
described in Note 2, Corporate Express acquired the net assets of these
companies and contributed them to the Company at historical cost.
Assets of $21,826,000 were contributed to and liabilities of
$14,650,000 were assumed by the Company. There were no acquisitions by
the Company in fiscal 1998 and 1997.
11. SUBSEQUENT EVENT:
On September 8, 1999, CEX Holdings, Corporate Express Delivery Systems,
Inc. ("CEDS") and United Shipping & Technology ("US&T") entered into a
definitive merger agreement (the "Agreement") to sell CEDS (which had
previously disposed of substantially all of the operating assets and
liabilities of its expedited trucking operations, one of the Excluded
Operations described in Note 1) to US&T for a purchase price of
approximately $62.5 million (the "Merger Consideration"), subject to
adjustment as defined in the Agreement. In exchange for all of the
issued and outstanding common stock of CEDS, CEX Holdings is to receive
at closing the Merger Consideration in the form of $43 million in cash,
$7.5 million in a short-term secured note and $12 million in various
promissory notes of CEDS which are guaranteed by US&T. After the
closing date, which is to be during September 1999, CEDS will become a
wholly-owned subsidiary of US&T.
In connection with the Agreement and as a result of this merger of CEDS
into US&T, US&T will acquire and assume all of the assets and
liabilities of CEDS, and which, if consummated, will include
discharging the primary and excess automobile liability and statutory
workers' compensation insurance obligations (which have not been
included in the accompanying combined balance sheets) of the expedited
trucking operations, one of the Excluded Operations described in Note
1.
-17-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
Condensed Combined Balance Sheet
As of July 31, 1999
(In thousands except share data)
July 31, 1999
(UNAUDITED)
-------------
ASSETS
Current assets:
Cash and cash equivalents $ 723
Accounts receivable, net of allowance for
doubtful accounts of $4,444 63,605
Deferred income taxes 10,671
Other current assets 6,254
------------
Total current assets 81,253
Property and equipment:
Land 929
Buildings and leasehold improvements 9,729
Furniture, equipment and vehicles 54,541
------------
65,199
Less: accumulated depreciation (45,638)
------------
19,561
Goodwill, net of accumulated amortization of $16,225 63,979
Other assets, net 6,667
------------
Total assets $ 171,460
============
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Trade accounts payable $ 15,600
Accrued payroll and benefits 8,496
Accrued auto and workers' compensation claims 19,271
Other accrued liabilities 12,084
Current portion of long-term debt and capital leases 2,394
------------
Total current liabilities 57,845
Amounts due to Corporate Express, Inc. 64,561
Long-term debt and capital leases 214
Deferred income taxes 4,878
------------
Total liabilities 127,498
Contingencies --
Stockholder's equity:
Common stock, $0.001 par value, 3000 shares
authorized and 1 share issued and outstanding --
Additional paid-in capital 61,708
Accumulated deficit (17,635)
Accumulated other comprehensive loss (111)
------------
Total stockholder's equity 43,962
------------
Total liabilities and stockholder's equity $ 171,460
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED COMBINED
FINANCIAL STATEMENTS.
-18-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
Condensed Combined Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
July 31, 1999 August 1, 1998
------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue $ 292,825 $ 334,614
Cost of services 236,625 263,164
------------- -------------
Gross profit 56,200 71,450
Selling, general and administrative expenses 68,229 73,101
Restructuring, merger and other nonrecurring charges 8,831 --
------------- -------------
Operating loss (20,860) (1,651)
Other (income) expense:
Interest expense, net 3,383 2,949
Other, net 715 (359)
------------- -------------
Loss before income taxes and cumulative effect of a change in accounting principle (24,958) (4,241)
Income tax benefit (9,367) (1,240)
------------- -------------
Loss before cumulative effect of a change in accounting principle (15,591) (3,001)
Cumulative effect of a change in accounting principle, net of applicable income taxes of $142 220 --
------------- -------------
Net loss $ (15,811) $ (3,001)
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED COMBINED
FINANCIAL STATEMENTS.
-19-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
Condensed Combined Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
July 31,1999 August 1,1998
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,811) $ (3,001)
Adjustments to reconcile net income to net cash
Cash provided by (used in) operating activities:
Depreciation 3,772 4,564
Amortization 1,587 2,205
Deferred tax expense (benefit) 1,636 (763)
Loss on disposal of assets (140) (466)
Cumulative effect of a change in accounting principle 362 --
Non-cash portion of restructuring, merger and other nonrecurring charges 183 --
Changes in assets and liabilities:
Acounts receivable 9,062 5,148
Other current assets (1,630) (988)
Other assets (208) 186
Trade accounts payable 274 399
Accrued liabilities (3,868) (6,140)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (4,781) 1,144
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,995) (4,046)
Proceeds from sale of assets 1,362 1,703
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (633) (2,343)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt and capital leases (1,327) (253)
Net borrowings (repayments) to (from) Corporate Express, Inc. 3,584 (2,771)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,258 (3,024)
------------ ------------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH 11 (47)
------------ ------------
NET DECREASE IN CASH (3,145) (4,270)
CASH AT BEGINNING OF PERIOD 3,868 11,127
------------ ------------
CASH AT END OF PERIOD $ 723 $ 6,857
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED COMBINED
FINANCIAL STATEMENTS.
-20-
<PAGE>
COURIER OPERATIONS OF CORPORATE EXPRESS DELIVERY SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
The condensed combined financial statements of the Courier Operations of
Corporate Express Delivery Systems, Inc. (which include all the subsidiaries of
Corporate Express Delivery Systems, Inc. except for the expedited trucking and
call center operations (the "Excluded Operations") and shall be referred to
herein as the "Company") included herein have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of July 31, 1999, and the results of its operations and its cash
flows for the six months ended July 31, 1999 and August 1, 1998 have been
recorded. Certain information in disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed combined financial statements should
be read in conjunction with the financial statements for the year ended January
30, 1999, and the notes thereto, included elsewhere herein.
1. BASIS OF PRESENTATION
The financial information included herein includes certain allocations
based on applicable historical activity levels to segregate the
Excluded Operations from those of the Company and may not necessarily
reflect the financial position, results of operations or cash flows of
the Company in the future, or the financial position, results of
operations of cash flows of the Company had it existed as a separate,
stand-alone company during the periods presented. Intercompany accounts
and transactions within the combined company have been eliminated.
The Company, a wholly-owned subsidiary of CEX Holdings, Inc. ("CEX
Holdings"), is a leading provider of same-day local delivery services.
The Company operates primarily in the United States including the
country's ten largest metropolitan areas. CEX Holdings is a
wholly-owned subsidiary of Corporate Express, Inc. ("Corporate
Express").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities" ("SOP 98-5") effective January 31, 1999. This
resulted in the Company recording a $220 cumulative effect of a change
in accounting principle, net of tax.
COMPREHENSIVE LOSS
Comprehensive loss consists of net loss and foreign currency
translation adjustments. Total comprehensive loss was $15,920 and
$3,114 for the six months ended July 31, 1999 and August 1, 1998,
respectively.
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.
-21-
<PAGE>
3. RESTRUCTURING, MERGER AND OTHER NONRECURRING CHARGES
The Company has reserves established for merger and restructuring
related activities in conjunction with its acquisitions accounted for
as pooling of interest transactions in fiscal 1996 and fiscal 1997. In
the fourth quarter of fiscal 1998, the Company began measures designed
to lower its fixed operating cost structure by reducing the number of
its employees and accelerating facility consolidations and closures.
The Company made further reductions in employees and additional
facility closures in fiscal 1999. The merger and restructuring charges
are summarized as follows:
<TABLE>
<CAPTION>
Accrued Merger Other Asset
Severance & Facility Write Downs
Closure Costs(1) & Costs(2) Total
---------------- ---------- -----
<S> <C> <C> <C>
Balance, January 31, 1998 $4,850 $1,441 $6,291
Payments (3,250) -- (3,250)
Non-cash usage -- (659) (659)
------ ------ ------
Balance, August 1, 1998 $1,600 $782 $2,382
====== ====== ======
Balance, January 30, 1999 $1,384 $23 $1,407
Additions 8,648 183 8,831
Payments (7,806) -- (7,806)
Non-cash usage -- (206) (206)
------ ------ ------
Balance, July 31, 1999 $2,226 $0 $2,226
====== ====== ======
</TABLE>
(1) Reflects merger transaction costs, employee severance and
termination costs, and facility closure and consolidation
costs. Merger transaction costs are direct costs from the
pooling of interests transactions and include legal,
accounting, investment banking, printing, contract buy-outs
and other related costs. Employee severance and termination
costs are the result of the elimination of duplicate
management positions, facility closures and consolidations,
and centralization of certain shared services. Facility
closure and consolidation costs are the estimated costs to
close redundant facilities, lease costs and other costs
associated with closed facilities. Remaining balances
represent employee severance continuation payments, contract
buy-outs in dispute and lease commitments, which extend
through April 2005.
(2) Other asset write-downs and costs are recorded as contra
assets and include the expected loss on sale of assets and
leasehold improvements and equipment being abandoned or
written off as a result of the exit plans.
4. CONTINGENCIES
AUTO AND WORKERS' COMPENSATION INSURANCE
The Company, through Corporate Express' insurance program, obtains
insurance for automobile and workers' compensation claims. However, the
Company has elected to retain a portion of expected losses through the
use of deductibles. Provisions for losses expected under these programs
are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. These estimates include the Company's
actual experience based on information received from the Company's
insurance carriers and historical assumptions of development of unpaid
liabilities over time.
LITIGATION
In fiscal 1997, a competitor filed suit against the Company alleging
that the Company gained an unfair competitive advantage in the bidding
process for a customer by means of violations of
-22-
<PAGE>
various federal and state laws. The suit also alleges that the Company
tortuously interfered with the contractual relationship between the
competitor and a customer. In fiscal 1998, certain current and former
California employee drivers of the Company filed a class action lawsuit
against the Company alleging various overtime wage, expense
reimbursement and minimum wage deficiencies. The Company is subject to
other legal proceedings arising in the normal course of business.
Management does not believe the outcome of such litigation will have a
material adverse effect on the Company's financial position or results
of operations. However, the impact on cash flows might be material in
the periods such claims are settled.
5. RELATED PARTY TRANSACTIONS
The Company has been dependent in part on cash advances from Corporate
Express for the funding of current operations. These advances, which
are reflected as amounts due to Corporate Express, bear no stated rate
of interest. As a result of the sale of the Company (see Note 7), the
intercompany payable was contributed by Corporate Express to the
Company's capital.
In connection with the Company's continuing operations, Corporate
Express provided funding for the operations of the Company up to the
effective date of the sale of the Company.
Each period Corporate Express allocates a portion of the interest
expense on its debt to the Company. The amount of interest allocated is
based on the ratio that the Company's net assets bear to the total net
assets of Corporate Express. Interest expense allocated to the Company
was $2,944 and $2,428 for the six months ended July 31, 1999 and August
1, 1998, respectively.
Revenue recognized by the Company for services provided to the Excluded
Operations totaled $291 and $332 for the six months ended July 31, 1999
and August 1, 1998, respectively. Revenue recognized by the Company for
services provided to Corporate Express totaled $2,491 and $1,809 for
the six months ended July 31, 1999 and August 1, 1998, respectively.
6. INCOME TAXES
Differences between the effective tax rates reflected in the
accompanying statements of operations and statutory tax rates arose
primarily as a result of the amortization of nondeductible goodwill and
other nondeductible items.
7. SUBSEQUENT EVENT
On September 8, 1999, CEX Holdings, Corporate Express Delivery Systems,
Inc. ("CEDS") and United Shipping & Technology ("US&T") entered into a
definitive merger agreement (the "Agreement") to sell CEDS (which had
previously disposed of substantially all of the operating assets and
liabilities of its expedited trucking operations, one of the Excluded
Operations described in Note 1) to US&T for a purchase price of
approximately $62,500 (the "Merger Consideration"), subject to
adjustment as defined in the Agreement. In exchange for all of the
issued and outstanding common stock of CEDS, CEX Holdings received at
closing the Merger Consideration in the form of $43,000 in cash, and
the remainder in a combination of short and long-term notes. On the
September 28, 1999 closing date, CEDS became a wholly owned subsidiary
of US&T.
In connection with the Agreement and as a result of this merger of CEDS
into US&T, US&T acquired and assumed all of the assets and liabilities
of CEDS, which, included discharging the primary and excess automobile
liability and statutory workers' compensation insurance obligations
(which have not been included in the accompanying combined balance
sheets) of the expedited trucking operations, one of the Excluded
Operations described in Note 1.
-23-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Company will account for the acquisition (see Note 1) as a purchase business
combination. The pro forma consolidated financial statements are based on the
historical financial statements of the Company and the Courier Operations of
Corporate Express Delivery Systems, Inc. ("CEDS"). These pro forma consolidated
financial statements assume the acquisition occurred at the beginning of each
period presented.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the financial position or results of
operations that would have been reported if the acquisition had been consummated
as presented in the accompanying unaudited pro forma condensed combined
statements of operations, nor is it necessarily indicative of the Company's
future financial position or results of operations. The pro forma adjustments
and the assumptions on which they are based are described in the accompanying
notes.
These unaudited pro forma consolidated statements of operations are based on and
should be read in conjunction with the historical consolidated financial
statements and related notes thereto of the Company for the year ended June 30,
1999 as filed with the Securities and Exchange Commission and the financial
statements and notes thereto of CEDS for the three years ended January 30, 1999
included elsewhere herein.
-24-
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
Pro forma Consolidated Statement of Operations
Three months ended October 2, 1999
(In thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
US&T CEDS
Historical Historical
Three months Period from Purchase
Ended July 1 through Accounting
October 2, August 28, 1999 Adjustments Pro Forma
1999 (date of acquisition) (Note 2) Combined
------------ --------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue $ 53,724 $ 87,276 $ -- $ 141,000
Cost of services 42,439 73,061 115,500
------------ ------------ ------------ ------------
Gross profit 11,285 14,215 -- 25,500
Selling, general and administrative expenses 12,764 20,246 379 (a) 33,389
------------ ------------ ------------ ------------
Operating loss (1,479) (6,031) (379) (7,889)
Other (income) expense:
Interest expense, net 188 468 899 (b) 1,555
Other, net (51) 85 34
------------ ------------ ------------ ------------
Loss before income taxes (1,616) (6,584) (1,278) (9,478)
Provision for income taxes -- -- -- (c) --
------------ ------------ ------------ ------------
Net loss $ (1,616) $ (6,584) $ (1,278) $ (9,478)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.15) $ (0.86)
============ ============
Basic and diluted weighted average number
of common shares outstanding 11,027,010 11,027,010
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS.
-25-
<PAGE>
UNITED SHIPPING & TECHNOLOGY, INC.
Pro forma Consolidated Statement of Operations
Year ended June 30, 1999
(In thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
US&T CEDS
Historical Historical
Year Year Purchase
Ended Ended Accounting
June 30, July 31, Adjustments Pro Forma
1999 1999 (Note 2) Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 1,483 $ 605,415 $ -- $ 606,898
Cost of services 746 489,302 490,048
------------ ------------ ------------ ------------
Gross profit 737 116,113 -- 116,850
Selling, general and administrative expenses 3,628 136,023 2,276 (a) 141,927
Restructuring, merger and other nonrecurring charges 11,233 11,233
------------ ------------ ------------ ------------
Operating loss (2,891) (31,143) (2,276) (36,310)
Other (income) expense:
Interest expense, net 56 529 5,392 (b) 5,977
Other, net (53) 99 46
------------ ------------ ------------ ------------
Loss before income taxes (2,894) (31,771) (7,668) (42,333)
Income taxes -- -- -- (c) --
------------ ------------ ------------ ------------
Net loss $ (2,894) $ (31,771) $ (7,668) $ (42,333)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.42) $ (6.15)
============ ============
Basic and diluted weighted average number
of common shares outstanding 6,881,764 6,881,764
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS.
-26-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
1. GENERAL
Effective August 28, 1999, the Company acquired all the outstanding shares of
common stock of Corporate Express Delivery Systems, Inc. (CEDS), a provider of
same day delivery solutions. The purchase price was approximately $62,500,
subject to adjustment as defined in the purchase agreement. The purchase price
consists of $43,000 in cash provided by institutional debt financing, and the
remainder in a combination of short and long-term notes issued to the Seller.
The acquisition has been accounted for under the purchase method of accounting.
Preliminary estimates of fair value related to purchase accounting adjustments
were determined by the Company's management. The Company expects to make
adjustments to the allocation of the purchase price by the end of the current
fiscal year.
2. PRO FORMA ADJUSTMENTS
(a) To record amortization of goodwill on a straight-line basis
over 15 years.
(b) To record additional interest expense on debt related to the
acquisition.
(c) No amounts have been recorded for the net tax benefits in the
pro forma consolidated statements of operations, as the
benefits have been reduced by a valuation allowance in
accordance with SFAS 109 "Accounting for Income Taxes".
3. NET LOSS PER SHARE
The unaudited pro forma consolidated basic and diluted loss per common
share data is computed by dividing pro forma consolidated net loss by
the pro forma weighted average number of common shares outstanding.
Certain instruments were excluded from the net loss per share
calculations due to their antidilutive nature (1,007 and 1,030 shares
of stock options for the three months ended October 2, 1999 and the
year ended June 30, 1999, respectively, and 784 shares related to the
convertible debt for the three months ended October 2, 1999).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 8, 1999 By: /s/ Timothy G. Becker
-------------------------------------
Name: Timothy G. Becker
Title: Chief Financial Officer
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EXHBIT INDEX
Exhibit Number Description
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23.1 Consent of PricewaterhouseCoopers LLP
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EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the:
(i) Registration Statement on Form S-8 (No. 333-06269) with respect to
the 1995 Stock Option Plan of United Shipping & Technology, Inc.,
formerly known as U-Ship, Inc., and;
(ii) Registration Statement on Form S-3/A (No. 333-34411) with respect to
the registration of common shares of United Shipping & Technology,
Inc., formerly known as U-Ship, Inc.
of our report dated August 27, 1999 (except for Note 11, for which the date is
September 8, 1999) relating to the combined financial statements of the Courier
Operations of Corporate Express Delivery Systems, Inc. as of January 30, 1999
and January 31, 1998 and for the year ended January 30, 1999, the eleven months
ended January 31, 1998 and the year ended March 1, 1997, which appears in the
Current Report on Form 8-K of United Shipping & Technology, Inc. dated December
8, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
December 8, 1999
