<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-23349
DISPATCH MANAGEMENT SERVICES CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3967426
(State of Incorporation) (I.R.S. Employer Identification No.)
65 WEST 36TH STREET
NEW YORK, NEW YORK 10018
(Address of principal executive offices) (Zip Code)
(212) 268-2910
(Registrant's telephone number, including area code)
The Registrant's Former Fiscal year ended on December 31, 1997
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 15, 1998, there were 11,462,474 shares of Common Stock outstanding.
<PAGE> 2
DISPATCH MANAGEMENT SERVICES CORP.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
December 31, 1997 and March 31, 1998 (unaudited)
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1997 (unaudited) and
1998 (unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1997 (unaudited)
and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Signatures
Exhibit Index
2
<PAGE> 3
DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents .................................. $ 354 $ 3,794
Accounts receivable, net of allowance of $- and $849 for
doubtful accounts, respectively ........................... 19 24,728
Prepaid, other expenses and deferred offering costs.......... 6,618 1,736
--------- ---------
Total current assets ............................. 391 30,258
Property and equipment, net ................................ 30 6,834
Goodwill, net............................................... 266 74,571
Other long-term assets ..................................... 748 18,049
--------- ---------
Total assets ..................................... $ 8,035 $ 129,712
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term obligations ..................................... $ 1,585 $ 234
Accounts payable ........................................... 673 6,809
Accrued liabilities ........................................ 5,061 4,453
Other current liabilities .................................. 5,833
--------- ---------
Total current liabilities ......................... 7,319 17,329
Long-term obligations, net of current maturities ........... 1,791
Other long term liabilities ................................ 863
--------- ---------
Total liabilities .......................................... 7,319 19,983
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par, 10,000,000 shares authorized
Series A 181,446 and 0 shares issued and
outstanding, respectively ......................... 2
Series B 100 and 0 shares issued and
outstanding; respectively ............................ --
Common stock, $.01 par 100,000,000 shares authorized,
846,923 and 11,462,474 shares issued and outstanding,
respectively ....................................... .. 9 115
Additional paid-in capital ................................. 1,422 110,995
Cumulative translation adjustment .......................... 81
Accumulated deficit ........................................ (717) (1,462)
--------- ---------
Total stockholders' equity ....................... 716 109,729
--------- ---------
Total liabilities and stockholders' equity ....... $ 8,035 $ 129,712
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
------------------------------
March 31, March 31,
1997 1998
----------- -----------
<S> <C> <C>
Revenues ..................................... $ -- $ 24,316
Cost of revenues ............................. 15,029
----------- -----------
Gross profit ............................... -- 9,287
Selling, general and administrative expenses . 14 7,530
Depreciation and amortization ................ . 706
----------- -----------
Operating income ............................. (14) 1,051
Other expenses:
Interest expense ........................... 228
Acquired in-process research and development 700
Other expense .............................. . 82
----------- -----------
Income (loss) before income tax provision
and extraordinary item ..................... (14) 41
Income tax provision ....................... 73
----------- -----------
Loss before extraordinary item ............... (14) (32)
Extraordinary loss on early extinguishment of
debt (net of income tax benefit of $384) .... (713)
----------- -----------
Net loss ..................................... $ (14) $ (745)
=========== ===========
Loss per common share - Basic
Loss before extraordinary item ............. $ (.02) $ .00
Extraordinary item ......................... -- (.11)
----------- -----------
Net loss ................................... $ (.02) $ (.11)
=========== ===========
Loss per common share - Diluted
Loss before extraordinary item ............. $ (.02) $ .00
Extraordinary item ......................... -- (.11)
----------- -----------
Net loss ................................... $ (.02) $ (.11)
=========== ===========
Weighted average shares
Common shares outstanding ................. 846,823 6,806,285
=========== ===========
Adjusted common shares - assuming exercise
of stock options ........................ 846,823 6,857,369
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1997 1998
-------- --------
<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (14) $ (745)
Adjustments to reconcile net loss to net
cash used for operating activities:
Amortization and depreciation -- 706
Acquired in-process research and development -- 700
Early extinguishment of debt -- 713
Change in operating assets and liabilities (net of
assets acquired and liabilities assumed in business
combinations accounted for under the purchase method):
Accounts receivable -- (5,933)
Prepaid expenses and other assets (107) 6,668
Accounts payable and accrued liabilities 102 (3,024)
-------- --------
Net cash used for operating activities (19) (915)
Cash flows from investing activities:
Cash used in acquisitions, net of cash received (62,692)
Additions to equipment, net of disposals -- (1,180)
-------- --------
Net cash used in investing activities -- (63,872)
Cash flows from financing activities:
Proceeds from initial public offering, net of
underwriting discounts and other offering costs -- 76,276
Proceeds from issuance of common stock 22 --
Principal payments on short-term obligations -- (2,646)
Principal payments on long-term obligations -- (5,464)
-------- --------
Net cash provided by financing activities 22 68,166
Effect of exchange rates on cash and cash equivalents 61
-------- --------
Net increase in cash and cash equivalents 3 3,440
Cash and cash equivalents, beginning of period -- 354
-------- --------
Cash and cash equivalents, at end of period $ 3 3,794
======== ========
</TABLE>
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method of accounting during the
three months ended March 31, 1998. The fair values of the assets and liabilities
of the acquired companies at the dates of the acquisitions are presented as
follows:
<TABLE>
<CAPTION>
Three months
ended
March 31,
1998
--------
<S> <C>
Accounts receivable $ 18,756
Prepaid expenses and other 2,387
Property and equipment 6,022
Intangible assets 75,312
Other assets 16,700
Short-term debt (3,016)
Accounts payable (5,945)
Accrued liabilities (693)
Long-term debt (4,437)
Other long-term liabilities (8,993)
--------
Net assets acquired $ 96,093
========
The acquisitions were funded as follows:
Common stock $ 33,401
Cash, net of cash received 62,692
--------
Totals $ 96,093
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Organization and Basis of Presentation
In connection with the closing of the initial public offering (the
"Offering") of the common stock, $.01 par value (the "Common Stock"), of
Dispatch Management Services Corp. (the "Company" or "DMS") in February 1998,
the Company acquired, in separate combination transactions (the "Combinations"),
38 urgent, on-demand, point-to-point courier firms and one software firm (each,
together with the software firm, a "Founding Company," and collectively, the
"Founding Companies").
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of the Company and the
Founding Companies. The Combinations have been accounted for under the purchase
method of accounting from the February 11, 1998 acquisition date.
In the opinion of management, the information contained herein reflects
all adjustments necessary to make the financial position, results of operations
and of cash flows for the interim periods a fair presentation. It is suggested
that these consolidated financial statements be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. The
results of operations for the interim periods are not necessarily indicative of
the results that may be expected for the year as a whole.
2. Initial Public Offering
On February 6, 1998, DMS completed an initial public offering of
6,000,000 shares of Common Stock at $13.25 per share. In March 1998, the
Underwriters exercised their over-allotment option to purchase an additional
900,000 shares of Common Stock at the initial public offering price. The total
proceeds from the Offering of the 6,900,000 shares of Common Stock, net of
underwriter commissions and estimated offering costs, was approximately $76,276.
The net proceeds have been used as follows: (i) approximately $64,179
to pay the cash portion of the purchase prices for the Founding Companies, of
which approximately $15,869 is subject to earn-out provisions, (ii)
approximately $3,200 related to the early extinguishment of certain notes
payable obligations of the Company which resulted in an extraordinary loss of
$713 net of income tax, and (iii) approximately $4,400 for repayment of
indebtedness of the Founding Companies. The remaining net proceeds of the
Offering will be used for future acquisitions and general corporate purposes.
Upon closing of the Offering, the Company converted the 181,446 shares
of Series A Preferred Stock into 299,225 shares of Common Stock and the 100
shares of Series B Preferred Stock into 37,736 shares of Common Stock.
6
<PAGE> 7
3. Business Combinations -- Founding Companies
On February 11, 1998, the Company acquired all of the outstanding
common stock and/or assets of the Founding Companies simultaneously with the
closing of the Offering. The acquisitions have been accounted for using the
purchase method of accounting. The aggregate consideration paid by the Company
to acquire the Founding Companies was $46,822 in cash, net of $15,869, which is
subject to earn-out provisions and 3,346,580 shares of Common Stock. The
consideration does not reflect contingent consideration which may be issued
pursuant to earn out arrangements included in the definitive agreements for the
Founding Companies. Contingent consideration, if earned, will be recorded in a
manner consistent with the consideration paid at closing for each respective
Founding Company.
4. Stockholders' Equity and Comprehensive Income
Changes in stockholders' equity and comprehensive income during the
three months ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Stockholders' Comprehensive
Equity Income
------------- -------------
<S> <C> <C>
Stockholders' equity balance at December 31, 1997 $ 716
Issuance of Common Stock in connection
with public offering, net of offering costs
and underwriter discounts 76,276
Issuance of Common Stock in connection
with the Combinations 33,401
Comprehensive Income:
Net Loss (745) $ (745)
Foreign Currency Translation Adjustment 81 81
---------
Total Comprehensive Loss $ (664)
--------- =========
Stockholders' equity balance at March 31, 1998 $ 109,729
=========
</TABLE>
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 requires the reporting and display of comprehensive income and its
components in the financial statements. SFAS No. 130 also requires the Company
classify items of other comprehensive income or loss by their nature in
financial statements. Other comprehensive income or loss includes
7
<PAGE> 8
foreign currency translation adjustments.
5. New Accounting Pronouncements
The Financial Accounting Standards Board has issued a new accounting
pronouncement "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 introduces a new model for segment
reporting, called the "management approach." The management approach is based on
the way that the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure or in any other manner in which management disaggregates a
company. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and does not need to be applied to interim statements in the initial year
of application. SFAS 131 requires restatement of all prior period information
reported. The Company intends to adopt this standard when required and is in the
process of determining the effect of SFAS 131 on the Company's financial
statements.
6. Subsequent Event
On April 7, 1998, the Company acquired Delta Air & Road Transport,
Plc. ("Delta"), a London-based delivery services firm with 1997 revenues of
approximately $33,000. At the acquisition date, the Company paid approximately
$21,700 to Delta shareholders. An additional $3,000 in consideration is
contingent upon achievement of certain performance criteria. The Company used
the remaining net proceeds of the Offering and its line of credit to finance the
acquisition. The acquisition will be accounted for using the purchase method of
accounting. The excess purchase price over the net assets acquired, based on the
fair value of such assets and liabilities, which is estimated to be
approximately $20,000, will be amortized to expense over a forty-year period.
The effects of any purchase adjustments are not reflected in the accompanying
financial statements.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. When used herein, the words "anticipate",
"believe" , "estimate", "intend", "may", "expect" and similar expressions as
they related to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward looking statements. Factors that could cause or contribute to
such differences include those discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (Exhibit 99.1), as well as those
discussed under the heading "Factors Affecting the Company's Business". The
Company does not undertake any obligation to revise these forward-looking
statements to reflect any future events or circumstances.
Introduction
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto
appearing elsewhere herein.
Overview
The Company was recently formed to create one of the largest providers
of point-to-point delivery services in the world. The Company focuses on
point-to-point delivery by foot, bicycle, motorcycle, car and truck and operates
in 18 of the largest metropolitan markets in the United States as well as in
London, U.K. and Wellington, New Zealand. As discussed more fully in Item 1, the
Company had conducted no significant operations until the closing of the
Offering and the Combinations on February 11, 1998.
Results of Operations - The Company
The Company had conducted no significant operations from its inception
through the Offering and the Combinations. For accounting purposes and the
presentation of the actual financial results herein, February 11, 1998 has been
used as the effective date of the Combinations. The Company incurred various
legal, accounting and printing costs in connection with the Offering and the
Combinations, which were funded by the proceeds from the Offering.
Revenue for the three months ended March 31, 1998, was $24.3 million,
and gross profit for the three months was $9.3 million. Operating income was
$1.0 million. Loss before extraordinary item was $32,000, which includes a
$700,000 one-time, non-cash charge of acquired in-process research and
development. The net loss of $745,000 includes an extraordinary loss of $713,000
net of income taxes related to the early extinguishment of certain notes payable
obligations. As previously mentioned, DMS had no significant operations until
February 1998. For a discussion of pro forma operations for the three months
ended March 31, 1997 and 1998, see the Results of Operations - Pro Forma.
Liquidity and Capital Resources - The Company
As of March 31, 1998, the Company had approximately $12.9 million of
working capital and approximately $3.8 million of cash. The Company paid off at
closing substantially all of the acquired companies' debt obligations except to
the extent such obligations related to capitalized lease obligations and certain
debt obligations of Bridge Wharf Investments Limited (d/b/a/ West One).
In February 1998, the Company obtained a $25 million revolving line of
credit from NationsBank, N.A. pursuant to a credit agreement. All amounts drawn
down under the line of credit must be repaid on May 31, 2000. In May 1998,
NationsBank, N.A. provided the Company a $10 million supplemental short-term
line of credit facility in anticipation of closing a syndicated credit facility.
The short-term line credit of facility is cross-defaulted and cross-
collateralized with the revolving line of credit and matures in July 1998.
Aggregate amounts available on the lines of credit at May 11, 1998 were $14.5
million.
9
<PAGE> 10
The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under the existing lines of credit
will be sufficient to meet the Company's liquidity requirements for its
operations through the remainder of the fiscal year. However, the Company is
currently, and intends to continue, pursuing additional acquisitions, which are
expected to be funded through a combination of cash and the issuance by the
Company of shares of Common Stock. To the extent that the Company elects to
pursue acquisitions involving the payment of significant amounts of cash (to
fund the purchase price of such acquisitions and the repayment of assumed
indebtedness), the Company is likely to require additional sources of financing
to fund such non-operating cash needs. In May 1998, the Company received a
commitment letter from NationsBank, N.A. in which they offered to be the
administrative agent (the "Agent") for up to $100 million in a Senior Credit
Facility, and offered to underwrite up to $60 million of such facility, subject
to the satisfaction of certain terms and conditions. There can be no assurance,
however, that such additional financing would be made available to the Company,
or would be provided on terms that the Company considers acceptable or
desirable.
Management expects the Company's capital expenditures, consisting primarily
of communications equipment and improvements to related technology, to increase
as its operations continue to expand. However, the amount of these capital
expenditures is expected to remain relatively minor compared to the cash
requirements related to the Company's acquisition program. The Company does not
have significant capital expenditure requirements to replace or expand the
number of vehicles used in its operations because substantially all of its
drivers are owner-operators who provide their own vehicles.
Results of Operations - Pro Forma
The following unaudited pro forma statements of operations of the
Company for the three month period ended March 31, 1997 and 1998 include the
combined operations of the Founding Companies prior to the Offering and the
Combinations, and, in the case of the 1998 period, approximately two months of
operations after the Offering and the Combinations. The summarized pro forma
statements of operations below assumes that the Offering and the Combinations
had occurred and DMS's operations had commenced on January 1, 1997, and 1998,
respectively.
<TABLE>
<CAPTION>
Three months ended
------------------
(In thousands, except per share data)
March 31, March 31,
1997 1998
------- -------
<S> <C> <C>
Revenues $36,638 $39,683
Costs of revenues 22,568 24,313
------- -------
Gross profit 14,070 15,370
Selling, general and administrative 11,317 11,909
Depreciation and amortization 1,259 1,197
------- -------
Operating income 1,494 2,264
Interest and other expense, net 92 191
------- -------
</TABLE>
10
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<TABLE>
<CAPTION>
Three months ended
------------------
(In thousands, except per share data)
March 31, March 31,
1997 1998
------- -------
<S> <C> <C>
Income before income taxes and
extraordinary item $ 1,402 $ 2,073
Provision for income taxes 659 975
------- -------
Income before extraordinary item $ 743 $ 1,098
======= =======
Income before extraordinary item
per share $ 0.06 $ 0.10
======= =======
</TABLE>
The unaudited pro forma statements of operations include adjustments to
the Company's historical results of operations which provide for; (1) reductions
in salaries, bonuses and benefits payable or provided to stockholders and
managers of the Founding Companies to which they agreed prospectively; (2)
amortization of goodwill as a result of the Combinations to be recorded over a
period of 5 to 40 years; (3) reduction in royalty payments made by certain
Founding Companies in accordance with franchise agreements which will terminate
as a result of the Combinations; (4) reflects (a) incremental provision for
federal and state income taxes assuming all entities were subject to federal and
state income taxes, (b) federal and state income taxes relating to the other
statement of operations adjustments, income taxes on S corporation income, and
(c) the fact that the majority of the goodwill is not deductible;(5) reflects
the reduction in interest expense and a related extraordinary loss on debt
repaid from the proceeds of the Offering; and (6) reflects the reduction in
expense related to amounts allocated to in-process research and development
activities.
This summarized pro forma information may not be indicative of actual
results if the transactions had occurred on the dates indicated or of the
results which may be realized in the future. The pro forma results do not
reflect the expected benefits and cost reductions anticipated by the Company,
future corporate costs of DMS, or interest income on Offering proceeds.
The number of shares used in calculating pro forma income per share
before extraordinary item was determined as follows:
<TABLE>
<CAPTION>
Number
of Shares
----------
<S> <C>
Outstanding DMS shares after the Offering and the Combinations 11,462,474
Options to purchase stock under the treasury stock method 85,140
----------
Number of shares used in pro forma income per share before
extraordinary item calculation 11,547,614
==========
</TABLE>
11
<PAGE> 12
Pro forma revenues increased approximately $3.0 million or 8.3%. These increases
were primarily attributable to the addition of significant new accounts or
service contracts at several of the Founding Companies, the expansion of
delivery services or the purchase of additional customer lists.
Pro forma cost of revenues increased approximately $1.7 million or
7.7%. These increases were generally consistent with the respective increases in
revenues. As a percentage of pro forma revenues, such amounts remained
relatively consistent at 61.3% for the three months ended March 31, 1998 as
compared to 61.6% for the three months ended March 31, 1997.
Pro forma selling, general and administrative expenses increased
approximately $592,000 or 5.2%. These increases primarily related to costs
incurred related to the Offering and the costs associated with the additional
infrastructure required to support the acquisition of new accounts. As a
percentage of pro forma revenues, such amounts were 30.0% for the three months
ended March 31, 1998 as compared to 30.9% for the three months ended March 31,
1997.
Pro forma depreciation and amortization expense was 3.0% for the three
months ended March 31, 1998 as compared to 3.4% for the three months ended March
31, 1997. Pro forma depreciation and amortization includes approximately
$562,000 related to amortization of goodwill arising from the Combinations.
Pro forma interest and other expense was relatively constant as
borrowing levels on a pro forma basis for the three months ended March 31, 1998
and 1997 were relatively unchanged.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has issued a new accounting
pronouncement "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 introduces a new model for segment
reporting, called the "management approach." The management approach is based on
the way that the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure or in any other manner in which management disaggregates a
company. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and does not need to be applied to interim statements in the initial
year of application. SFAS 131 requires restatement of all prior period
information reported. The Company intends to adopt this standard when required
and is in the process of determining the effect of SFAS 131 on the Company's
financial statements.
12
<PAGE> 13
Inflation
The Company does not believe that inflation has had a material impact
on the Company's results of operations during fiscal 1997 or the first quarter
of 1998.
Factors Affecting the Company's Business
The future operating results of the Company may be affected by a number
of factors, including the matters discussed below:
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS. The Company's
point-to-point delivery services business is subject to seasonal influences. The
Company's revenues and profitability in its business have generally been lower
in the second quarter of its fiscal year, primarily due to the lower level of
business activity in North America during the summer months. As the Company's
mix of businesses evolves through future acquisitions, these seasonal
fluctuations may change. In addition, quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, general economic conditions, and the retroactive
restatement of the Company's consolidated financial statements for acquisitions
accounted for under the pooling-of-interests method. Therefore, results for any
quarter are not necessarily indicative of the results that the Company may
achieve for any subsequent fiscal quarter or for a full fiscal year.
CONVERSION TO THE DMS MODEL. The Company intends to convert the
existing operations of additional acquired target company's to the DMS Model to
the extent feasible. The process of converting an existing point-to-point
courier operation to the DMS Model involves the implementation of the Free Call
Dispatch system as well as the integration of new software systems, pricing
structures, billing methods, personnel utilization practices and data
standardization. Changes in the pricing structures and billing methods could
result in the loss of customers. The process of conversion in a particular
market may involve unforeseen difficulties, including delays in the
consolidation of facilities, complications and expenses in implementing the new
operating software system, or the loss of customers or key operating personnel,
any of which can cause substantial delays to the conversion process in such
market and may have a material adverse effect on the Company's business,
financial condition or results of operations.
INTERNATIONAL OPERATIONS. A significant portion of the Company's
revenues are generated in the United Kingdom. For the three month period ended
March 31, 1998, revenues in the United Kingdom accounted for approximately 26%
of total consolidated revenues. The conversion rate between the British Pound
Sterling and the U.S. dollar during 1998 has been approximately the same as the
comparable period in 1997, although there can be no assurance that fluctuations
in such currency exchange rate will not in the future have material adverse
effect on the Company's business, financial condition or results of operations.
The Company intends to continue to focus significant attention and
resources on international expansion in the future and expects foreign sales to
continue to represent a significant portion of the Company's total sales. In
addition to currency exchange rates, the Company's operations in foreign markets
are subject to a number of inherent risks, including new and different legal,
regulatory and competitive requirements, difficulties in staffing and managing
foreign operations, risks specific to different business lines that the Company
may enter, and other factors.
ACQUISITIONS. The Company depends upon organic growth and acquisition
to increase its earnings. There can be no assurance that the Company will
complete acquisitions in a manner that coincides with the end of its fiscal
quarters. The failure to complete acquisitions on a timely basis could have a
material adverse effect on the Company's quarterly results. Likewise, delays in
implementing planned integration strategies and activities also could adversely
affect the Company's quarterly earnings.
In addition, there can be no assurance that acquisitions will be
available to the Company on favorable terms. If the Company is unable to use the
Company's Common Stock as consideration in acquisitions, for example, because it
believes that the market price of the Common Stock is too low or because the
owners of potential acquisition targets conclude that the market price of the
Company's Common Stock is too volatile, the Company would need to use cash to
make such acquisitions. This might adversely affect the pace of the Company's
acquisition program and the impact of acquisitions on the Company's quarterly
results. In addition, the consolidation of the domestic courier industry has
reduced the number of larger companies available for sale, which could lead to
higher prices being paid for the acquisition of the remaining domestic,
independent companies. The failure to acquire additional businesses or to
acquire such businesses on favorable terms in accordance with the Company's
growth strategy could have a material adverse impact on growth.
13
<PAGE> 14
There can be no assurance that companies that have been acquired, or
that may be acquired in the future, will achieve sales and profitability levels
that justify the investment therein. Acquisitions may involve a number of
special risks that could have a material adverse effect on the Company's
operations and financial performance, including adverse short-term effects on
the Company's reported operating results; diversion of management's attention;
difficulties with the retention, hiring and training of key personnel; risks
associated with unanticipated problems or legal liabilities; and amortization of
acquired intangible assets.
COMPETITION. The Company operates in a highly competitive environment.
In the markets in which it operates, the Company generally competes with a large
number of smaller, independent companies, many of which are well-established in
their markets. Several of its large competitors operate in many of its
geographic markets, and other competitors may choose to enter the Company's
geographic and product markets in the future. No assurances can be given that
competition will not have an adverse effect on the Company's business.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(i) Pursuant to Item 701(f) of Regulation S-K, the following information is
being furnished to disclose certain information regarding the uses of
proceeds received by the Company in its initial public offering:
(1) The Registration Statement for the IPO (File No. 333-39971)
was declared effective on February 5, 1998.
(2) The Offering commenced on February 6, 1998 and terminated when
all of the shares were sold in March 1998.
(3) The managing underwriter was Prudential Securities
Incorporated.
(4) In the Initial Public Offering, the Company registered and
sold an aggregate 6,900,000 shares of Common Stock, par value
$.01 per share.
(5) The aggregate offering proceeds of the shares sold was
$91,425,000.
(6) The following expenses were incurred in connection with the
initial public offering:
<TABLE>
<S> <C>
Underwriters discounts and commissions $6,399,750
Accountants' fees 4,900,000
Legal fees 2,310,000
Printing expenses 1,250,000
Miscellaneous filing fees and expenses 290,000
----------
$15,149,750
==========
</TABLE>
The payments referred to above were not made directly or
indirectly to officers, directors, general partners of the
issuer or their associates, or to any person owning 10% of
more of any class of securities of the issuer, or to any
officers of the issuer and were not direct of indirect
payments.
(7) The net offering proceeds were approximately $76,276,000.
(8) From the effective date of the initial public offering
registration to March 31, 1998, the amount of net offering
proceeds used for any purpose for which at least 5% of the
offering proceeds of $100,000 (whichever is less) was used is
as follows:
<TABLE>
<S> <C>
Repayment of indebtedness -- directors
and officers $ 523,000
Repayment of indebtedness -- other 7,577,000
Cash used in acquisitions 62,692,000
-----------
Total $70,792,000
===========
</TABLE>
Subsequent to March 31, 1998, the Company used the
remaining net proceeds of the offering to acquire
Delta Air & Road Transport, Plc.
15
<PAGE> 16
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.
DISPATCH MANAGEMENT SERVICES CORP.
May 15, 1998 By: /s/ Marko Bogoievski
- ------------ -----------------------------
Date Marko Bogoievski
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
11.1 Statement Regarding Computation of Net Income Per Share
27.1 Financial data schedule
17
<PAGE> 1
EXHIBIT 11.1
DISPATCH MANAGEMENT SERVICES CORP. STATEMENT REGARDING COMPUTATION OF NET
INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1998
------ ------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item $ (14) $ (32)
Extraordinary item-loss on early extinguishment of debt,
net of income taxes (713)
------ -------
Net loss $ (14) $ (745)
====== =======
Weighted average shares outstanding 847 6,806
====== =======
Loss before extraordinary item (0.02) (0.00)
Extraordinary item-loss on early extinguishment of debt,
net of income taxes (0.11)
------ -------
Net loss per share (0.02) (0.11)
====== =======
DILUTED EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item $ (14) $ (32)
Extraordinary item-loss on early extinguishment of debt,
net of income taxes (713)
------ -------
Net loss $ (14) $ (745)
====== =======
Weighted average shares outstanding 847 6,806
Common stock equivalents from stock options 51
------ -------
Total weighted average shares outstanding 847 6,857
====== =======
Loss before extraordinary item (0.02) (0.00)
Extraordinary item-loss on early extinguishment of debt,
net of income taxes (0.11)
------ -------
Net loss per share (0.02) (0.11)
====== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,794
<SECURITIES> 0
<RECEIVABLES> 25,577
<ALLOWANCES> 849
<INVENTORY> 0
<CURRENT-ASSETS> 30,258
<PP&E> 7,237
<DEPRECIATION> 403
<TOTAL-ASSETS> 129,712
<CURRENT-LIABILITIES> 17,329
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 110,995
<TOTAL-LIABILITY-AND-EQUITY> 129,712
<SALES> 24,316
<TOTAL-REVENUES> 24,316
<CGS> 15,029
<TOTAL-COSTS> 7,530
<OTHER-EXPENSES> 1,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> 41
<INCOME-TAX> 73
<INCOME-CONTINUING> (32)
<DISCONTINUED> 0
<EXTRAORDINARY> (713)
<CHANGES> 0
<NET-INCOME> (745)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
