<PAGE>
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
Date of report (Date of earliest event reported) August 27, 1998
--------------------------------
UNITED ROAD SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-24019 94-3278455
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.
8 Automation Lane, Albany, New York 12205
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code 518-446-0140
------------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. OTHER EVENTS
Between May 6, 1998 and October 8, 1998 United Road Services, Inc.
acquired 27 businesses (including E&R and EAR) for an aggregate of $64.0 million
in cash and 1,708,907 shares of Common Stock. Historical financial statements
for seven of these businesses are contained in Exhibits 99.3 through 99.9
attached hereto. Unaudited pro forma combined financial information relating to
these acquisitions is contained in Exhibit 99.10 attached hereto.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
1. The consolidated balance sheets of E&R Towing & Garage, Inc. and
subsidiaries as of February 28, 1998 (audited) and June 30, 1998 (unaudited) and
consolidated statements of operations and retained earnings and cash flows for
the year ended February 28, 1998 (audited) and the four months ended June 30,
1997 and 1998 (unaudited) contained in Exhibit 99.1 attached hereto are
incorporated herein by reference.
2. The balance sheets of Environmental Auto Removal, Inc. as of
December 31, 1997 (audited) and June 30, 1998 (unaudited) and statements of
operations and retained earnings (deficit) and cash flows for the year ended
December 31, 1997 (audited) and the six months ended June 30, 1997 and 1998
(unaudited) contained in Exhibit 99.2 attached hereto are incorporated herein by
reference.
3. The balance sheets of Neil's Used Truck & Car Sales, Incorporated as
of December 31, 1997 (audited) and June 30, 1998 (unaudited) and statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997 (audited) and the six months ended June 30, 1997 and 1998 (unaudited)
contained in Exhibit 99.3 attached hereto are incorporated herein by reference.
4. The combined balance sheets of 5-L Corporation and ADP Transport,
Inc. as of December 31, 1997 (audited) and June 30, 1998 (unaudited) and
combined statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1997 (audited) and the six months ended June 30, 1997
and 1998 (unaudited) contained in Exhibit 99.4 attached hereto are incorporated
herein by reference.
5. The balance sheets of Car Transporters Corporation as of December
31, 1997 (audited) and June 30, 1998 (unaudited) and statements of operations,
stockholders' deficit and cash flows for the year ended December 31, 1997
(audited) and the six months ended June 30, 1997 and 1998 (unaudited) contained
in Exhibit 99.5 attached hereto are incorporated herein by reference.
6. The balance sheets of Schroeder Auto Carriers, Inc. as of December
31, 1997 (audited) and June 30, 1998 (unaudited) and statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1997
(audited) and the six months ended June 30, 1997 and 1998 (unaudited) contained
in Exhibit 99.6 attached hereto are incorporated herein by reference.
7. The balance sheets of Keystone Towing, Inc. as of December 31, 1996
and 1997 (audited) and June 30, 1998 (unaudited) and statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1996 and
1997 (audited) and the six months ended June 30, 1997 and 1998 (unaudited)
contained in Exhibit 99.7 attached hereto are incorporated herein by reference.
8. The balance sheets of Fast Towing, Inc. as of December 31, 1997
(audited) and June 30, 1998 (unaudited) and statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1997
(audited) and the six months ended June 30, 1997 and 1998 (unaudited) contained
in Exhibit 99.8 attached hereto are incorporated herein by reference.
9. The balance sheets of Alert Auto Transport, Inc. as of May 31, 1998
(audited) and June 30, 1998 (unaudited) and statements of earnings and retained
earnings and cash flows for the year ended May 31, 1998 (audited) and the one
month ended June 30, 1997 and 1998 (unaudited) contained in Exhibit 99.9
attached hereto are incorporated herein by reference.
(b) Pro Forma Financial Information
The unaudited Pro Forma Combined Financial Statements for United
Road Services, Inc. contained in Exhibit 99.10 attached hereto are incorporated
herein by reference .
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 hereunto duly authorized.
Date: October 26, 1998 UNITED ROAD SERVICES, INC.
By: /s/ Edward T. Sheehan
------------------------------------
Edward T. Sheehan
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------------------------------------------------------------------------
99.1 Consolidated balance sheets of E&R Towing & Garage, Inc. and
subsidiaries as of February 28, 1998 (audited) and June 30, 1998
(unaudited) and consolidated statements of operations and
retained earnings and cash flows for the year ended February 28,
1998 (audited) and for the four months ended June 30, 1997 and
1998 (unaudited).
99.2 Balance sheets of Environmental Auto Removal, Inc. as of
December 31, 1998 (audited) and June 30, 1998 (unaudited) and
statements of operations and retained earnings (deficit) and
cash flows for the year ended December 31, 1997 (audited) and
for the six months ended June 30, 1998 (unaudited).
99.3 Balance sheets of Neil's Used Truck & Car Sales, Incorporated
as of December 31, 1997 (audited) and June 30, 1998 (unaudited)
and statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997 (audited) and the six
months ended June 30, 1997 and 1998 (unaudited).
99.4 The combined balance sheets of 5-L Corporation and ADP
Transport, Inc. as of December 31, 1997 (audited) and June 30,
1998 (unaudited) and combined statements of operations,
stockholders' equity and cash flows for the year ended December
31, 1997 (audited) and the six months ended June 30, 1997 and
1998 (unaudited).
99.5 Balance sheets of Car Transporters Corporation as of December
31, 1997 (audited) and June 30, 1998 (unaudited) and statements
of operations, stockholders' deficit and cash flows for the year
ended December 31, 1997 (audited) and the six months ended June
30, 1997 and 1998 (unaudited).
99.6 Balance sheets of Schroeder Auto Carriers, Inc. as of December
31, 1997 (audited) and June 30, 1998 (unaudited) and statements
of operations, stockholders' equity and cash flows for the year
ended December 31, 1997 (audited) and the six months ended June
30, 1997 and 1998 (unaudited).
99.7 Balance sheets of Keystone Towing, Inc. as of December 31, 1996
and 1997 (audited) and June 30, 1998 (unaudited) and statements
of operations, stockholders' equity and cash flows for the years
ended December 31, 1996 and 1997 (audited) and the six months
ended June 30, 1997 and 1998 (unaudited).
99.8 Balance sheets of Fast Towing, Inc. as of December 31, 1997
(audited) and June 30, 1998 (unaudited) and statements of
operations, stockholders' equity and cash flows for the year
ended December 31, 1997 (audited) and the six months ended June
30, 1997 and 1998 (unaudited).
99.9 Balance sheets of Alert Auto Transport, Inc. as of May 31, 1998
(audited) and June 30, 1998 (unaudited) and statements of
earnings and retained earnings and cash flows for the year ended
May 31, 1998 (audited) and the one month ended June 30, 1997 and
1998 (unaudited).
99.10 Unaudited Pro Forma Combined Financial Statements for United
Road Services, Inc. and related notes.
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
The Stockholders
E&R Towing & Garage, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of E&R Towing &
Garage, Inc. and Subsidiaries (E&R) as of February 28, 1998, and the related
consolidated statements of operations and retained earnings, and cash flows
for the year then ended. These financial statements are the responsibility of
E&R management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of E&R Towing
& Garage, Inc. and Subsidiaries as of February 28, 1998, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
August 7, 1998
1
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY
28, JUNE 30,
1998 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 256,971 $1,083,564
Accounts receivable................................... 334,975 440,565
Due from E.A.R. (note 10)............................. 908,300 446,480
Notes receivable...................................... 57,653 46,402
Due from officers (note 10)........................... 112,450 --
Deferred tax (note 8)................................. 89,833 --
Prepaid expenses...................................... 82,422 64,434
Management fee receivable............................. -- 107,923
Other receivables..................................... 10,274 13,210
---------- ----------
Total current assets.................................... 1,852,878 2,202,578
Property and equipment, net (note 5).................... 2,008,337 1,795,334
Notes receivable........................................ 38,949 31,348
---------- ----------
Total assets............................................ $3,900,164 $4,029,260
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 6)....... $ 468,467 $ 468,467
Accounts payable...................................... 52,914 110,886
Deferred gain on the sale of fixed assets............. 59,105 59,105
Accrued taxes......................................... 297,937 130,349
Accrued payroll....................................... 62,095 62,600
Other accrued expenses................................ 45,501 15,339
---------- ----------
Total current liabilities............................... 986,019 846,746
Long-term liabilities:
Long-term debt, excluding current installments (note
6)................................................... 481,179 322,590
Deferred gain on the sale of fixed assets............. 36,880 17,179
Deferred tax (note 8)................................. 205,303 231,541
---------- ----------
Total liabilities....................................... 1,709,381 1,418,056
---------- ----------
Stockholders' equity:
Common stock, no par value, stated value of $1,000.
Authorized, issued, and outstanding 1,000 shares in
1998................................................. 1,000 1,000
Additional paid-in capital............................ 159,273 159,273
Retained earnings..................................... 2,030,510 2,450,931
---------- ----------
Total stockholders' equity.............................. 2,190,783 2,611,204
---------- ----------
Total liabilities and stockholders' equity.............. $3,900,164 $4,029,260
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR FOUR-MONTHS FOUR-MONTHS
ENDED ENDED ENDED
FEBRUARY 28, JUNE 30, JUNE 30,
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $8,527,599 $2,766,519 $2,928,821
Cost of revenue........................... 5,193,019 1,465,810 1,645,115
---------- ---------- ----------
Gross profit.............................. 3,334,580 1,300,709 1,283,706
Selling, general, and administrative
expenses................................. 3,496,981 746,337 898,900
Management fee from affiliate (note 10)... (646,378) (215,460) (237,200)
---------- ---------- ----------
Income from operations.................... 483,977 769,832 622,006
---------- ---------- ----------
Other income (expense):
Other................................... 63 3,851 1,213
Interest income......................... 48,373 520 42,761
Interest expense........................ (113,944) (26,432) (25,260)
Gain on sale of assets.................. 62,405 1,500 19,701
---------- ---------- ----------
Income before income taxes................ 480,874 749,271 660,421
Income tax expense (note 8)............... (187,539) (275,000) (240,000)
---------- ---------- ----------
Net income................................ 293,335 474,271 420,421
Retained earnings at beginning of period.. 1,737,175 1,737,175 2,030,510
---------- ---------- ----------
Retained earnings at end of period........ $2,030,510 $2,211,446 $2,450,931
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR-MONTHS
YEAR ENDED ENDED JUNE 30
FEBRUARY 28, -------------------
1998 1997 1998
------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $293,335 474,271 420,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................... 644,618 209,580 224,709
Gains from sale of property and equipment.. (62,405) (1,500) (19,701)
Deferred income taxes...................... 115,470 115,470 116,071
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable............................... (389,762) (310,786) 356,230
(Increase) decrease in notes receivable... (96,601) -- 18,852
Decrease in due from officers............. 4,000 20,000 112,450
(Increase) decrease in prepaid expenses... (14,022) 15,558 17,988
Increase in management fee receivable..... -- (108,675) (107,923)
Decrease (increase) in other receivables.. 10,644 (3,542) (2,936)
Increase in accounts payable.............. 20,703 56,510 57,972
Increase in accrued payroll............... 4,129 634 505
Increase (decrease) in other accrued
expenses................................. 7,833 27,152 (30,162)
Increase (decrease) in income taxes
payable.................................. 182,240 50,037 (167,588)
-------- -------- ---------
Net cash provided by operating activities.... 720,182 544,709 996,888
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment......... (661,312) (5,780) (11,706)
Proceeds from sale of property and
equipment.................................. 163,711 1,500 --
Proceeds from sale of subsidiary............ 293,006 -- --
-------- -------- ---------
Net cash used in investing activities........ (204,595) (4,280) (11,706)
-------- -------- ---------
Cash flows from financing activities:
Net decrease in borrowings under line of
credit..................................... (250,000) (250,000) --
Principal payments on long-term debt........ (622,713) (206,412) (158,589)
Additional borrowings on long-term debt..... 544,607 -- --
-------- -------- ---------
Net cash used in financing activities........ (328,106) (456,412) (158,589)
-------- -------- ---------
Net increase in cash and cash equivalents.... 187,481 84,017 826,593
Cash and cash equivalents at beginning of
period...................................... 69,490 69,490 256,971
-------- -------- ---------
Cash and cash equivalents at end of period... $256,971 153,507 1,083,564
======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $113,944 26,432 25,261
Income taxes............................... 41,650 14,920 62,165
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
E&R Towing & Garage, Inc. and its two wholly owned subsidiaries, E&R Auto,
Inc. and E&R Transport, Inc., (collectively referred to herein as E&R or the
Company) were founded in 1978, 1988, and 1989, respectively. E&R also had a
55% owned subsidiary which was sold during February, 1998. E&R's primary
business is towing vehicles for commercial entities. E&R Towing & Garage, Inc.
(Towing) and E&R Auto, Inc. (Auto) operate primarily in Chicago and Chicago
suburbs. E&R Transport, Inc. (Transport) operates primarily in New Jersey. E&R
owns and operates approximately 70 vehicles.
(b) Principles of Consolidation
All intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the financial statements include
all costs of doing business.
(c) Revenue Recognition
E&R's revenue is derived from customers who require a towing service.
Revenue is recognized at the completion of each towing engagement. Expenses
related to the generation of revenue are recognized as incurred.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases, if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, E&R
provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Transportation and towing equipment............................ 5 years
Leasehold improvements......................................... 5 years
Furniture and fixtures......................................... 7 years
Computers and communications equipment......................... 5-7 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to E&R on bank loans with
similar terms and maturities, the fair value of E&R's financial instruments
approximates their carrying values.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
5
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of E&R has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Unaudited Interim Financial Statements
In the opinion of the Company's management, the interim financial statements
as of June 30, 1998 and for the four month periods ended June 30, 1997 and
1998 include all adjustments, consisting of normal recurring accruals, that
are necessary for the fair presentation of the Company's financial position at
June 30, 1998 and its results of operations and cash flows for the interim
periods presented. The results for the four months ended June 30, 1998 are not
necessarily indicative of the results expected for the entire year.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $256,971 at February 28, 1998 consist of bank
accounts and short-term investments with an initial term of less than three
months. For purposes of the statement of cash flows, E&R considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(3) INVESTMENT IN S.U.P.
The Company had a 55% owned subsidiary, Summit-U-Pick-A-Part (S.U.P.), a
junkyard. During the year ended February 28, 1998 the Company sold its
ownership in this subsidiary for the amount of its investment. No gain or loss
was incurred upon the sale. At February 28, 1998, the carrying value of this
investment was $-0-.
(4) ALLOWANCE FOR DOUBTFUL ACCOUNTS
During the year ended February 28, 1998, E&R had no write-offs of
uncollectible accounts receivable. E&R has not recorded a provision for the
allowance of doubtful accounts during the year because management believes all
amounts are fully collectible.
(5) PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1998 consist of the following:
<TABLE>
<S> <C>
Transportation and towing equipment.............................. $3,955,717
Leasehold improvements........................................... 188,902
Furniture and fixtures........................................... 114,913
Computers and communications equipment........................... 225,830
----------
Total............................................................ 4,485,362
Less accumulated depreciation.................................... 2,477,025
----------
$2,008,337
==========
</TABLE>
Depreciation of property and equipment in the year ended February 28, 1998
totaled $644,618.
6
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INDEBTEDNESS
E&R's long-term debt consists of the following at February 28, 1998:
<TABLE>
<S> <C>
Notes payable to Grand National Bank, payable in aggregate monthly
installments of $33,280, including interest ranging from 9.25% to
9.75%, maturing between December 5, 1998 and December 9, 2000.
Secured by the equipment of the Company.......................... $623,328
Notes payable to South Holland Bank, payable in aggregate monthly
installments of $7,617, including interest at 8.98%, maturing
between December 15, 2000 and December 20, 2001. Secured by the
equipment of the Company......................................... 231,936
Note payable to The Bank of New York, payable in monthly
installments of $4,947, including interest at 9.5%, maturing
December 10, 1999. Secured by equipment of the Company........... 94,382
--------
Total long-term debt.............................................. 949,646
Less installments due within one year............................ 468,467
--------
Long-term debt, excluding current installments.................... $481,179
========
</TABLE>
Annual maturities of long-term debt for the next three years are as follows:
<TABLE>
<S> <C>
February 28:
1999.............................................................. $468,467
2000.............................................................. 329,468
2001.............................................................. 151,711
--------
$949,646
========
</TABLE>
(7) LEASES
E&R leases three buildings and one plot of land used for its separate
operations under annual lease agreements. These leases are classified as
operating leases. The agreements provide for monthly rental payments totaling
$13,673, of which $9,100 of these monthly rental payments are to related
parties. E&R is responsible for all operating costs related to the properties.
Total rent expense for the year ended February 28, 1998 was $164,072.
(8) INCOME TAXES
Income tax expense for the year ended February 28, 1998 consists of:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 55,569
State............................................................. 16,500
--------
72,069
Deferred............................................................ 115,470
--------
$187,539
========
</TABLE>
7
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the U.S. Federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<S> <C>
U.S. Federal statutory income tax rate................................ 35.00%
State income taxes, net of Federal benefit............................ 4.50
Nondeductible expenses................................................ (0.50)
-----
39.00%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities not yet deductible for tax purposes........ $ 105,023
---------
Total deferred tax assets........................................ 105,023
Deferred tax liabilities:
Property, plant, and equipment, due primarily to accelerated
depreciation.................................................. (205,303)
Notes receivable............................................... (15,190)
---------
Total deferred tax liabilities................................... (220,493)
---------
Net deferred tax liability....................................... $(115,470)
=========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not E&R will realize
the benefits of these deductible differences. Therefore, no valuation
allowance has been recorded against the deferred tax assets at February 28,
1998. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future income are reduced.
(9) CONCENTRATION OF BUSINESS RISKS
Approximately $4.5 million or 53% of the Company's revenues were derived
from a customer in the auto pound management industry who is also an
affiliated company. Transactions with this company are discussed in note 10.
Approximately $1.6 million or 19% of the Company's revenues were derived from
a customer in the salvage industry.
(10) RELATED-PARTY TRANSACTIONS
The Company and Environmental Auto Removal, Inc. (EAR) are related parties
due to the majority shareholder of the Company holding an interest in EAR.
Both Auto and Towing provide towing services for EAR and all revenues for Auto
are derived from services provided to EAR. The cost of these services amounted
to $2,879,475 for the year ended February 28, 1998. Accounts receivable from
EAR totaled $908,300 at February 28, 1998.
The Company also receives management fees from EAR for the performance of
various administrative and managerial services. For the year ended February
28, 1998, the fees received by the Company for these services totaled $646,378
and are included in other income in the statement of operations and retained
earnings.
8
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended February 28, 1998, the Company paid approximately
$109,200 in rent expense under a lease agreement for buildings owned by the
majority shareholder of the Company. These agreements extend to October 1998
and are classified as operating leases.
At February 28, 1998, the Company had net accounts receivable from two of
the officers of the Company. These amounts are classified as current assets on
the balance sheet and totaled $112,450 at February 28, 1998. The accounts bear
interest at 10%. Due to the timing of activity in this account, only
immaterial amounts of interest income were generated throughout the year ended
February 28, 1998.
(11) SUBSEQUENT EVENT
During 1998, the stockholders entered into a definitive agreement to sell
E&R to United Road Services, Inc. The anticipated selling price of E&R exceeds
its net assets as of February 28, 1998.
(12) CONTINGENT LIABILITIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
legal proceedings would not have a material effect on the financial position
and results of operations of the Company.
9
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Stockholders
Environmental Auto Removal, Inc.:
We have audited the accompanying balance sheet of Environmental Auto
Removal, Inc. (EAR) as of December 31, 1997, and the related statements of
operations and retained earnings, and cash flows for the year then ended.
These financial statements are the responsibility of EAR's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in note 7, the Company is party to an agreement with the City
of Chicago whereby the Company provides auto pound management and towing
services for the City of Chicago. In addition, the Company derives revenue
from the sale of vehicles purchased from the City of Chicago in accordance
with the same agreement. All of the Company's revenues are derived in
accordance with this agreement and 96% of EAR's trade receivable are due from
this one customer at December 31, 1997.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Environmental Auto
Removal, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
August 7, 1998
1
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $1,198,311 1,143,020
Accounts receivable.................................. 1,286,916 1,250,329
Inventory............................................ 54,560 78,573
Other receivables.................................... -- 2,253
---------- ---------
Total current assets.................................. 2,539,787 2,474,175
Property and equipment, net (note 3).................. 973,498 921,366
Investment in S.U.P................................... 28,174 --
Due from officers/shareholders (note 6)............... 80,000 805,235
---------- ---------
Total assets.......................................... $3,621,459 4,200,776
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 4)...... $ 278,969 211,452
Accounts payable..................................... 1,711,036 1,765,094
Accounts payable to E&R (note 8)..................... 956,160 460,130
Accrued taxes and other accruals..................... 77,680 48,314
Accrued management fee to affiliate (note 8)......... -- 161,869
---------- ---------
Total current liabilities............................. 3,023,845 2,646,859
Long-term liabilities:
Due to officers/shareholders (note 6)................ -- 207,550
Long-term debt, excluding current installments (note
4).................................................. 110,129 39,328
---------- ---------
Total liabilities..................................... 3,133,974 2,893,737
---------- ---------
Stockholders' equity:
Common stock, no par value, stated value of $1,000.
Authorized, issued, and outstanding 1,000 shares in
1998 and 1997....................................... 1,000 1,000
Retained earnings.................................... 486,485 1,306,039
---------- ---------
Total stockholders' equity............................ 487,485 1,307,039
---------- ---------
Total liabilities and stockholders' equity............ $3,621,459 4,200,776
========== =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR
ENDED SIX-MONTHS
DECEMBER ENDED JUNE 30,
31, --------------------
1997 1997 1998
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................. $14,104,317 6,147,351 8,539,488
Cost of revenue (note 8).................... 10,889,245 5,793,574 6,022,163
----------- --------- ---------
Gross profit................................ 3,215,072 353,777 2,517,325
Selling, general, and administrative
expenses................................... 1,924,209 704,806 1,382,085
Management fee to affiliate (note 8)........ 747,262 373,630 358,000
----------- --------- ---------
Income (loss) from operations............... 543,601 (724,659) 777,240
----------- --------- ---------
Other income (expense):
Other...................................... (6,231) 1,510 1,557
Interest income............................ 41,415 6,220 51,470
Interest expense........................... (27,344) (11,559) (7,013)
Gain on sale of assets..................... 12,287 -- 13,000
----------- --------- ---------
Income (loss) before income taxes........... 563,728 (728,488) 836,254
Income tax expense.......................... (9,597) -- (16,700)
----------- --------- ---------
Net income (loss)........................... 554,131 (728,488) 819,554
Retained earnings at beginning of period.... 114,944 114,944 486,485
Dividends paid.............................. (182,590) (182,590) --
----------- --------- ---------
Retained earnings (deficit) at end of
period..................................... $ 486,485 (796,134) 1,306,039
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS
DECEMBER ENDED JUNE 30
31, -------------------
1997 1997 1998
----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 554,131 (728,488) 819,554
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................... 129,210 58,847 91,082
Realized gains from sale of property and
equipment................................. (12,287) -- (13,000)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable............................... (1,274,141) (45,000) 36,587
(Increase) decrease in inventory.......... (33,842) 7,490 (24,013)
Increase in other receivables............. -- -- (2,253)
Increase (decrease) in accounts payable... 1,237,214 307,871 (441,972)
Increase (decrease) in accrued expenses... 28,794 (16,046) (54,807)
Increase (decrease) in income taxes
payable.................................. 14,023 (2,490) 25,441
Increase in accrued management fee........ -- 227,632 161,869
----------- -------- ---------
Net cash provided by (used in) operating
activities.................................. 643,102 (190,184) 598,488
----------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment......... (449,284) (46,856) (38,950)
Proceeds from sale of property and
equipment.................................. 80,000 -- 13,000
Cash loaned to affiliate.................... 65,000 (65,000) --
Proceeds from sale of affiliate............. 47,654 -- 28,174
----------- -------- ---------
Net cash (used in) provided by investing
activities.................................. (256,630) (111,856) 2,224
----------- -------- ---------
Cash flows from financing activities:
Principal payments on long-term debt........ (189,319) (95,120) (138,318)
Additional borrowings on long-term debt..... 180,375 -- --
Decrease (increase) in due from
officers/shareholders...................... 120,000 -- (725,235)
Increase in due to officers/shareholders.... -- 450,000 207,550
----------- -------- ---------
Net cash provided by (used in) financing
activities.................................. 111,056 354,880 (656,003)
----------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 497,528 52,840 (55,291)
Cash and cash equivalents at beginning of
period...................................... 700,783 700,780 1,198,311
----------- -------- ---------
Cash and cash equivalents at end of period... $ 1,198,311 753,620 1,143,020
=========== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $ 27,344 11,559 7,013
Income taxes............................... $ 9,597 -- --
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Environmental Auto Removal, Inc. (the Company or EAR) was founded in 1989.
EAR's primary business is the management of the towing services and auto
pounds for the city of Chicago (City) under a long term contract. In addition,
EAR purchases vehicles from the City for resale at auto auctions or for scrap
value. EAR operates primarily in Chicago.
(b) Revenue Recognition
EAR operates as one segment and revenue is derived from the collection of
towing revenues from the City and the sale of vehicles at auto auctions or for
scrap value. All revenue is recognized upon completion of the towing
engagement or sale of the vehicle at auction or for scrap. Expenses related to
the generation of revenue are recognized as incurred. In the opinion of
management, the financial statements include all costs of doing business.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases, if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, EAR
provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Automobiles and equipment.......................................... 5-7 years
Furniture and fixtures............................................. 7 years
Computers and communications equipment............................. 5-7 years
</TABLE>
(d) Inventory
Inventory consists of vehicles purchased for resale at auto auctions or for
scrap value. Inventories are stated at the lower of cost or market.
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to EAR on bank loans with
similar terms and maturities, the fair value of EAR's financial instruments
approximates their carrying values.
(f) Income Taxes
The Company is an S Corporation under the provisions of the Internal Revenue
Code and, accordingly, the shareholders of the Company are responsible for
Federal tax liabilities. The Company remains liable for a portion of state
income taxes. Under the provisions of the Illinois replacement tax law, S
Corporations are assessed a 1.5% surtax at the corporate level and earnings or
losses flow through to the shareholder to be taxed at the individual level.
Accordingly, only this Illinois replacement tax liability has been recorded in
the financial statements.
Differences in the tax basis and financial statement carrying amounts result
primarily from accounts receivable; property, plant, and equipment; and
accrued liabilities not yet deductible for tax purposes.
5
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of EAR has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Unaudited Interim Financial Statements
In the opinion of the Company's management the interim financial statements
as of June 30, 1998 and for the six month periods ended June 30, 1997 and 1998
include all adjustments, consisting of normal recurring accruals, that are
necessary for the fair presentation of the Company's financial position at
June 30, 1998 and its results of operations and cash flows for the interim
periods presented. The results for the six months ended June 30, 1998 are not
necessarily indicative of the results expected for the entire year.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $1,198,311 at December 31, 1998 consist of bank
accounts and short-term investments with an initial term of less than three
months. For purposes of the statement of cash flows, EAR considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
During the year ended December 31, 1997, EAR had no write-offs of
uncollectible trade accounts receivable. EAR has not recorded a provision for
the allowance of doubtful accounts because management believes all amounts are
fully collectible.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Automotive and equipment......................................... $1,093,579
Furniture and fixtures......................................... 43,080
Computer and communications equipment.......................... 238,450
----------
Total.......................................................... 1,375,109
Less accumulated depreciation.................................. 401,611
----------
$ 973,498
==========
</TABLE>
Depreciation of property and equipment in 1997 totaled $129,210.
(5) INVESTMENT IN S.U.P.
The Company owns a 27% interest in Summit-U-Pick-A-Part (S.U.P.), a junk
yard. This investment was sold in part during December 1997 with the remainder
being sold in February 1998. The sale resulted in a loss of approximately
$8,800 which was recorded in other expense during the year ended December 31,
1997. At December 31, 1997, the carrying value of this investment was $28,174,
all of which was recovered by the Company through cash proceeds received
during February of 1998.
6
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) INDEBTEDNESS
EAR's long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to Associates Commercial Corporation, payable in monthly
installments of $7,874, including interest at 4.56%, maturing
December 31, 1999. Secured by the equipment of the Company........... $180,375
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,634, including interest at 4.79%, maturing
December 31, 1998. Secured by the equipment of the Company........... 54,223
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,530, including interest at 4.73%, maturing
December 31, 1998. Secured by the equipment of the Company........... 53,010
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,228, including interest at 4.68%, maturing
December 31, 1998. Secured by the equipment of the Company........... 49,470
Note payable to Associates Commercial Corporation, payable in monthly
installments of $2,172, including interest at 8.68%, maturing October
31, 1999. Secured by the equipment of the Company.................... 42,287
Note payable to South Holland Bank, payable in monthly installments of
$782, including interest at 7.9%, maturing January 11, 1999. Secured
by an automobile of the Company...................................... 9,733
--------
Total long-term debt.................................................. 389,098
Less installments due within one year................................. 278,969
--------
Long-term debt, excluding current installments........................ $110,129
========
</TABLE>
Notes payable to Associates Commercial Corporation were arranged with the
acquisition of equipment. The impact of adjusting the stated interest rate on
these notes to the Company's incremental borrowing rate is not material to the
results of operations or to the balance sheet.
Annual maturities of long-term debt for the next two years are as follows:
<TABLE>
<S> <C>
December 31:
1998................................................................. $278,969
1999................................................................. 110,129
--------
$389,098
========
</TABLE>
Line of Credit
The Company has available a secured, revolving line of credit totaling
$500,000. Advances are at the discretion of the bank and interest is charged
at the rate of Prime + 1%. The line of credit is secured by collateral which
includes all inventory, equipment, and fixtures of the Company. Any
outstanding principal plus all accrued, unpaid interest will be due on January
11, 1999. No amounts were outstanding at December 31, 1997.
(7) CONCENTRATION OF BUSINESS RISKS
Effective July 31, 1997, the Company entered into an agreement with the City
of Chicago for auto pound management and towing services. This agreement
extends for a period of 36 months. During this period, the agreement specifies
the amount of revenue to be collected by the Company for each vehicle towed as
well as the cost amount for each vehicle purchased by the Company from the
City.
7
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company derived 76% of its revenue during 1997 from services performed
under this long-term contract. The remaining 24% of revenue was derived from
the sale of vehicles purchased from the City of Chicago in accordance with the
same agreement. Loss of this contract would have a material negative effect on
the Company.
At December 31, 1997, EAR had accounts receivable from and accounts payable
to the City in the amount of $1,233,996 and $1,340,710, respectively.
(8) RELATED-PARTY TRANSACTIONS
EAR and E&R Towing, Inc. (E&R) are related parties due to the majority
shareholder of E&R holding shares in EAR. E&R provides towing services for
EAR. The cost of these services amounted to $2,821,345 for the year ended
December 31, 1997. Accounts payable to E&R totaled $956,160 at December 31,
1997.
The Company also pays management fees for the performance of various
administrative and managerial services. For the year ended December 31, 1997,
the fees paid by the Company for these services totaled $747,262 and are
included in other income in the statement of operations and retained earnings.
At December 31, 1997, the Company had net accounts receivable from two of
the officers of the Company. These amounts are classified as current assets on
the balance sheet and totaled $80,000 at December 31, 1997. These accounts
bear interest at 12%. Due to the timing of activity in this account, only
immaterial amounts of interest income were generated throughout 1997.
In the opinion of management, the financial statements at December 31, 1997
include all costs of doing business.
(9) SUBSEQUENT EVENT
During August 1998, the stockholders entered into a definitive agreement to
sell EAR to United Road Services, Inc. Consideration for the sale was paid
through a combination of cash and common stock of United Road Services, Inc.
The anticipated selling price of EAR exceeds its net assets as of December 31,
1997.
(10) CONTINGENT LIABILITIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
legal proceedings would not have a material effect on the financial position
and results of operations of the Company.
8
<PAGE>
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheet of Neil's Used Truck & Car
Sales, Incorporated, as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neil's Used Truck & Car
Sales, Incorporated as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
July 2, 1998, except for note 8,
which is as of July 14, 1998
1
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 32,236 $ 356,404
Trade accounts receivable, net of allowance for
doubtful accounts of $13,000........................ 774,618 933,281
Accounts receivable from employees and related party. 13,140 14,899
Drivers advances..................................... 21,420 29,417
Inventory............................................ 175,661 190,954
---------- ----------
Total current assets.............................. 1,017,075 1,524,955
---------- ----------
Property and equipment, net (note 2).................. 1,521,305 1,654,310
---------- ----------
$2,538,380 $3,179,265
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to stockholder.......................... $ 20,417 $ --
Current installments of long-term debt (note 4)...... 152,826 133,482
Current installments of obligations under capital
leases (note 5)..................................... 163,684 163,684
Accounts payable..................................... 126,753 85,381
Accrued payroll and related costs.................... 293,386 419,456
Other current liabilities (note 3)................... 62,665 60,394
---------- ----------
Total current liabilities......................... 819,731 862,397
Long-term debt, excluding current installments (note
4)................................................... 578,461 660,824
Obligations under capital leases, excluding current
installments (note 5)................................ 256,482 176,341
---------- ----------
Total liabilities................................. 1,654,674 1,699,562
---------- ----------
Stockholders' equity:
Common stock, no par value. Authorized 50,000 shares;
issued and outstanding 10,000 shares in 1997........ 1,000 1,000
Retained earnings.................................... 882,706 1,478,703
---------- ----------
Total stockholders' equity........................ 883,706 1,479,703
---------- ----------
Commitments and contingencies (notes 5, 7 and 8)
$2,538,380 $3,179,265
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30 ,
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................. $9,552,971 $4,631,559 $5,891,071
Cost of revenue............................. 8,246,207 3,931,638 4,813,249
---------- ---------- ----------
Gross profit.............................. 1,306,764 699,921 1,077,822
Selling, general, and administrative
expenses................................... 789,663 387,372 375,249
---------- ---------- ----------
Income from operations...................... 517,101 312,549 702,573
Interest expense............................ 70,590 41,449 46,576
---------- ---------- ----------
Net income................................ $ 446,511 $ 271,100 $ 655,997
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
STOCK-
COMMON RETAINED HOLDER'S
STOCK EARNINGS EQUITY
------ ---------- ----------
<S> <C> <C> <C>
Balances at December 31, 1996................... $1,000 $ 531,475 $ 532,475
Net income...................................... -- 446,511 446,511
Owners' distributions........................... -- (95,280) (95,280)
------ ---------- ----------
Balances at December 31, 1997................... 1,000 882,706 883,706
Net income--six-months ended June 30, 1998
(unaudited).................................... -- 655,997 655,997
Distribution to stockholders--six-months ended
June 30, 1998 (unaudited)...................... -- (60,000) (60,000)
------ ---------- ----------
Balance at June 30, 1998 (unaudited)............ $1,000 $1,478,703 $1,479,703
====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 446,511 $ 271,100 $ 655,997
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation.............................. 126,639 59,024 99,470
Change in operating assets and
liabilities:
Trade accounts receivable................ (197,304) (100,904) (158,663)
Accounts receivable from employees....... (150) (200) 1,287
Accounts receivable from related parties. 9,155 19,078 (3,046)
Drivers advances......................... 3,304 (5,150) (7,997)
Inventory................................ (7,320) (19,286) (15,292)
Accounts payable......................... 55,237 24,483 (41,372)
Accrued payroll and related costs........ 94,938 31,387 126,070
Other current liabilities................ (6,488) (11,999) (2,272)
--------- --------- ---------
Net cash provided by operating
activities............................. 524,522 267,533 654,182
--------- --------- ---------
Cash flows used in investing activity--
purchases of property and equipment........ (761,445) (157,794) (232,475)
Cash flows from financing activities:
Proceeds from issuance of long-term debt... 702,999 150,000 135,552
Owners' distributions...................... (95,280) (43,280) (60,000)
Principal payments on long-term debt....... (188,443) (152,381) (92,950)
Principal payments on obligations under
capital leases............................ (150,618) (64,079) (80,141)
--------- --------- ---------
Net cash provided by (used in) financing
activities............................. 268,658 (109,740) (97,539)
--------- --------- ---------
Net increase (decrease) in cash......... 31,735 (1) 324,168
Cash and cash equivalents at beginning of
period..................................... 501 $ 501 32,236
--------- --------- ---------
Cash and cash equivalents at end of period.. $ 32,236 $ 500 $ 356,404
========= ========= =========
Supplemental Disclosure of Cash Flow
Information
Cash paid during the period for interest.... $ 75,051 $ 38,424 $48,621
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Neil's Used Truck & Car Sales, Incorporated, dba Neil's Auto Transport, (the
Company) was founded in 1993. The Company's primary business is transporting
vehicles for auto auctions and auto dealers, throughout the continental United
States. The Company has one facility located in Utah. It owns a fleet of
approximately 24 trucks and trailers, and contracts with various third party
owner/operators.
(b) Income Taxes
Income taxes are not reflected in the financial statements since the Company
has elected to be treated as a small business corporation under Subchapter S
of the Internal Revenue Code. Accordingly, the tax effects of the Company's
operations accrue directly to the shareholders.
(c) Cash and Cash Equivalents
Cash and cash equivalents of $32,236 at December 31, 1997, consist of cash
on deposit in bank accounts. For purposes of the statement of cash flows, the
Company considers all highly liquid investment instruments with original
maturities of three months or less to be cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost. Plant and equipment under capital
leases are stated at the present value of minimum lease payments. Depreciation
is determined for financial statement purposes using the straight-line method
over the estimated useful lives of the individual assets. For financial
statement purposes, the Company provides for depreciation of property and
equipment over the following estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment......................................... 5--10 years
Furniture and fixtures........................................... 5--7 years
Equipment........................................................ 7 years
</TABLE>
(e) Inventories
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out method for all inventories.
(f) Income Taxes
The Company has elected to be taxed under the Subchapter S provisions of the
Internal Revenue Code. Accordingly, tax liabilities of the Company are the
direct responsibility of the stockholders, and no provision for income taxes
is reflected in the accompanying statement of operations. Due to differences,
primarily in the timing of the recognition of depreciation expense for book
purposes versus tax purposes, the book bases in the reported net assets in the
accompanying balance sheet exceeds the tax bases by approximately $538,000.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally a ccepted accounting principles. Actual results
could differ from those estimates.
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
6
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment......................................... $1,520,955
Furniture and fixtures........................................... 47,847
Equipment........................................................ 86,609
Land............................................................. 140,000
----------
Total........................................................ 1,795,411
Less accumulated depreciation and amortization................... 274,106
----------
$1,521,305
==========
(3) OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1997 consist of:
Deposit liability................................................ $ 35,440
Accrued sales tax................................................ 12,725
Other............................................................ 14,500
----------
$ 62,665
==========
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to a bank, payable in monthly installments of $3,758,
including interest at 8.27%; maturing June 2001; secured by
transport equipment.............................................. $ 137,221
Note payable to a bank, payable in monthly installments of $7,420,
including interest at 8.60%; maturing March 2002; secured by
transport equipment.............................................. 292,000
Note payable to a bank, payable in monthly principal installments
of $6,630, plus interest at 8.58%; maturing March 2002; secured
by transport equipment........................................... 260,999
Note payable to a bank, payable in monthly installments of $4,292,
including interest at 8.75%; maturing October 1998; secured by
transport equipment.............................................. 41,067
---------
Total long-term debt.......................................... 731,287
Less installments due within one year............................. 152,826
---------
Long-term debt, excluding current installments................ $ 578,461
=========
</TABLE>
Aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 173,243
1999............................................................... 171,111
2000............................................................... 186,169
2001............................................................... 179,627
2002............................................................... 41,554
---------
$ 751,704
=========
</TABLE>
7
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
As of December 31, 1997, the Company had a line-of-credit with a bank
totaling $100,000. There were no borrowings outstanding at December 31, 1997,
and the agreement expired April 30, 1998.
(5) LEASES
The Company leases equipment under a capital lease which expires in May
2000. The following is a summary of transportation equipment held under
capital leases at December 31, 1997:
<S> <C>
Transportation equipment........................................... $639,587
Less accumulated amortization...................................... 67,981
--------
$571,606
========
</TABLE>
The Company leases its operating facility from a related stockholder under a
month to month lease. Rent expense was $207,158 in 1997.
Future minimum lease payment under noncancelable operating leases and future
minimum capital lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending December 31:
1998....................................................... $192,591 28,234
1999....................................................... 192,591 5,160
2000....................................................... 80,246 5,160
2001....................................................... -- 5,160
2002....................................................... -- 1,290
-------- ------
Total.................................................... 465,428 45,004
======
Less amount representing interest............................ 45,262
--------
Present value of net minimum capital lease payments...... 420,166
Less current installments.................................... 163,684
--------
$256,482
========
</TABLE>
(6) EMPLOYEE BENEFITS
The Company has a retirement savings plan pursuant to section 401(k) of the
Internal Revenue Code that is available to all employees with at least one
year of service to the Company. Eligible participants may contribute up to
four percent of their compensation. The Company provides non-discretionary
matching contributions to the Plan which amounted to $7,800 in 1997.
(7) CONTINGENCIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the Company's financial
position, results of operations, or cash flows.
(8) SUBSEQUENT EVENT
On July 14, 1998, the stockholders consummated a transaction whereby all of
the net assets of the Company were sold to United Road Services, Inc.
8
<PAGE>
EXHIBIT 99.4
INDEPENDENT AUDITORS' REPORT
The Stockholders
5-L Corporation and ADP Transport, Inc.:
We have audited the accompanying combined balance sheet of 5-L Corporation
and ADP Transport, Inc. as of December 31, 1997, and the related combined
statements of operations, stockholders' equity and cash flows for the year
then ended. These combined financial statements are the responsibility of the
management of 5-L Corporation and ADP Transport, Inc. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of 5-L
Corporation and ADP Transport, Inc. as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
June 12, 1998
1
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 47,083 $ 31,614
Trade accounts receivable............................ 806,009 982,508
Accounts receivable from employees................... 5,000 --
Prepaid expenses..................................... 23,040 53,940
Other current assets................................. 4,074 1,350
Current portion of rights to equipment under
financing contracts................................. 382,246 290,638
---------- ----------
Total current assets.............................. 1,267,452 1,360,050
Rights to equipment under financing contracts,
excluding current portion............................ 1,780,129 2,714,344
Goodwill, net of accumulated amortization of $7,224
and $7,974, respectively............................. 17,776 17,026
Other assets.......................................... 7,700 7,700
---------- ----------
Total assets...................................... $3,073,057 $4,099,120
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations for equipment un-
der financing contracts............................. $ 382,246 $ 290,638
Contractor payments payable.......................... 198,182 289,441
Accounts payable..................................... 89,849 140,474
Accrued payroll and related costs.................... 99,721 20,662
Notes payable to stockholders........................ -- 257,140
---------- ----------
Total current liabilities......................... 769,998 998,355
Obligations for equipment under financing contracts,
excluding current
installments......................................... 1,780,129 2,714,344
---------- ----------
Total liabilities................................. 2,550,127 3,712,699
---------- ----------
Stockholders' equity:
Common stock, $1 par value. Authorized, issued and
outstanding
2,000 shares........................................ 2,000 2,000
Retained earnings.................................... 520,930 384,421
---------- ----------
Total stockholders' equity........................ 522,930 386,421
---------- ----------
Total liabilities and stockholders' equity........ $3,073,057 $4,099,120
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $9,852,142 $4,918,861 $5,069,454
Cost of revenue........................... 8,389,700 4,180,156 4,288,975
---------- ---------- ----------
Gross profit.......................... 1,462,442 738,705 780,479
Selling, general and administrative
expenses................................. 927,560 377,110 335,113
---------- ---------- ----------
Income from operations................ 534,882 361,595 445,366
Other income (expense):
Interest expense......................... (10,057) (1,374) (189)
Other.................................... 11,105 5,497 22,594
---------- ---------- ----------
Net income............................ $ 535,930 $ 365,718 $ 467,771
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- --------- --------------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1997.................. $1,000 $ 555,585 $ 556,585
Net income -- 1997........................... -- 535,930 535,930
Distribution to stockholders................. -- (570,585) (570,585)
Stock issued ADP............................. 1,000 -- 1,000
------ --------- ---------
BALANCES AT DECEMBER 31, 1997................ 2,000 520,930 522,930
Net income--six-months ended June 30, 1998
(unaudited)................................. -- 467,771 467,771
Distribution to stockholders--cash paid--six-
months ended June 30, 1998 (unaudited)...... -- (347,140) (347,140)
Distribution to stockholders--notes payable--
six-months ended June 30, 1998 (unaudited).. -- (257,140) (257,140)
------ --------- ---------
BALANCE AT JUNE 30, 1998 (UNAUDITED)......... $2,000 $ 384,421 $ 386,421
====== ========= =========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 535,930 $ 365,718 $ 467,771
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization............................. 1,667 765 750
Decrease (increase) in trade accounts
receivable.............................. (36,133) 114,873 (176,499)
Decrease in accounts receivable from
employees............................... 22,500 27,500 5,000
Decrease (increase) in prepaid expenses
and other current assets................ 32,516 (12,307) (28,175)
(Decrease) increase in accounts payable.. (2,372) (11,669) 50,625
Decrease in accrued payroll and related
costs................................... (169) (89,947) (78,059)
Increase in contractor payments payable.. 39,419 51,678 91,258
--------- --------- ---------
Net cash provided by operating
activities............................. 593,358 446,611 331,671
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock..... 1,000 -- --
Distributions to stockholders.............. (570,585) (281,398) (347,140)
--------- --------- ---------
Net cash used in financing activities... (569,585) (281,398) (347,140)
--------- --------- ---------
Net increase (decrease) in cash......... 23,773 165,213 (15,469)
Cash and cash equivalents at beginning of
period..................................... 23,310 23,310 47,083
--------- --------- ---------
Cash and cash equivalents at end of period.. $ 47,083 $ 188,523 $ 31,614
========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest.... $ 10,057 $ 1,374 $ 198
========= ========= =========
Reduction for the period in rights to and
obligations for equipment under financing
contracts, net............................ $ 59,892 $ -- $ 842,607
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
5-L Corporation (5-L) was founded in 1993 and its primary business is
coordinating the transport of vehicles for auto auctions, leasing companies,
auto dealers, manufacturers and individuals. It operates throughout the
continental United States via a network of independently contracted carriers.
ADP Transport, Inc. (ADP) was founded in 1997 and acts as an agent for
independent carriers by securing and servicing transport equipment lease
agreements. Both companies' operations are headquartered in Westminster,
Colorado.
(b) Principles of Combination
The combined financial statements include the financial statements of 5-L
and ADP, the "Company" when referred to collectively. The accompanying
financial statements are presented on a combined basis because 5-L and ADP are
under common management. All significant intercompany balances and
transactions have been eliminated.
(c) Revenue Recognition
5-L operates as one segment related to the transportation of vehicles for
customers such as auto auctions, leasing companies, auto dealers,
manufacturers and individuals. Transport revenue and related direct expenses
are recognized when the service originates, which does not differ
significantly from the amounts that would be recognized as the service is
performed.
ADP's revenue is derived from service fees associated with the
administration of equipment lease agreements for certain independent carriers
of 5-L. For a monthly fee, ADP performs administrative functions relating to
the leased equipment, such as monthly payment processing and procurement of
insurance coverage on behalf of the carrier/lessee. Service revenues are
recognized when services are performed. Cost of sales and operating expenses
associated with the service revenues are nominal.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of bank accounts and certificates of
deposit with an initial term of less than three months. For purposes of the
statement of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(e) Goodwill
Goodwill represents the excess of purchase price over fair value of net
assets acquired and is amortized on a straight-line basis over 15 years, which
is the Company's estimate of the expected periods to be benefited.
(f) Accounting for Long-Lived Assets
The Company reviews long-lived tangible and intangible assets including
rights to equipment under financing contracts for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets is measured by a comparison of
the carrying amount of an asset to the future net cash flows expected to be
generated by the asset. The impairment, if any, is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
6
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Other Assets
Other assets consist principally of deposits made by the Company to secure
office facilities and surety bonding.
(h) Income Taxes
Both 5-L and ADP are operated as S-corporations for federal and state income
tax purposes and all corporate earnings flow through and are taxed solely at
the stockholder level. Accordingly, no income tax expense has been recorded
for the year ended December 31, 1997. The tax basis of the Company's assets
and liabilities does not differ materially from their recorded values at
December 31, 1997.
(i) Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, which are
comprised mainly of receivables and payables, approximate their fair values.
(j) 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 sales and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(k) Interim Combined Financial Statements
The interim financial information included in these combined financial
statements is unaudited but reflects all adjustments (consisting of only
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented.
(2) EQUIPMENT UNDER FINANCING CONTRACTS
ADP has guaranteed lease obligations for certain independent carriers who
lease the equipment from financing companies. The guarantee includes payment
of the monthly installments should the primary lessee default, as well as a
specified minimum residual value at the end of the lease term. In return for
the lease guarantee, the independent carrier agrees to subcontract the
equipment to 5-L for the duration of the lease term. For accounting purposes,
the Company has recorded the rights to the equipment and the corresponding
obligation under the equipment financing contracts. The recorded value of both
the asset and liability related to the financing contracts is determined based
on the present value of the future minimum installment payments and the
guaranteed residual value using the rate implicit in the lease agreements.
The following is a summary of obligations under equipment financing
contracts at December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 539,602
1999.......................................................... 539,602
2000.......................................................... 539,602
2001.......................................................... 965,760
2002.......................................................... --
----------
Total minimum obligations (includes residual guarantees of
$519,989)...................................................... 2,584,566
Less: imputed interest (at rates from 7.25% to 10.50%).......... (422,191)
----------
Present value of future minimum obligations, $382,246 of which
is included in current assets and liabilities at December 31,
1997........................................................... $2,162,375
==========
</TABLE>
During 1997, installment payments of $93,626 related to the obligations for
equipment under financing contracts are included in cost of revenue. Of this
amount, $33,734 represents interest charges. These amounts
7
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
were withheld from the amounts paid to the respective independent contractors
and remitted directly to the financing companies.
Subsequent to December 31, 1997, the Company entered into agreements whereby
they guaranteed monthly payments and minimum residual values on seven
additional leases, the terms of which are consistent with those described
above. The value of the assets and corresponding liabilities recorded in
connection with these additional agreements is approximately $1,094,000.
(3) LEASES
5-L is committed under a non-cancellable operating lease for office space.
The future minimum lease payments at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................................. $31,808
1999................................................................. 21,623
2000................................................................. --
2001................................................................. --
2002................................................................. --
-------
Total minimum lease payments........................................... $53,431
=======
</TABLE>
(4) EMPLOYEE BENEFITS
5-L has a simplified employee pension plan (Plan) pursuant to Section 408(k)
of the Internal Revenue Code. The Plan provides for discretionary employer
contributions for employees who have completed two years of service with 5-L.
Employees are immediately vested in all balances. For 1997, 5-L made
contributions of $52,695 to the Plan.
(5) RELATED PARTY TRANSACTIONS
During 1997, 5-L paid $9,995 in interest related to notes payable to
stockholders. The notes were repaid in 1997.
(6) CONTINGENT LIABILITIES
Various claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(7) SUBSEQUENT EVENT
On June 12, 1998 all of the outstanding stock of 5-L and ADP was sold to
United Road Services, Inc. The sales transaction, affected through a
combination of cash and common stock of United Road Services, Inc., will be
accounted for as a purchase. The selling price of 5-L and ADP exceeds their
combined net assets as of December 31, 1997.
8
<PAGE>
EXHIBIT 99.5
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Car Transporters Corporation:
We have audited the accompanying balance sheet of Car Transporters
Corporation (a wholly-owned subsidiary of Automotive Services, Inc.) as of
December 31, 1997, and the related statements of operations, stockholder's
deficit, and cash flows for the year then ended. These financial statements
are the responsibility of Car Transporters Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Car Transporters
Corporation (a wholly-owned subsidiary of Automotive Services, Inc.) as of
December 31, 1997, and the results of its operations, and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
August 19, 1998
1
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 73,964 $ --
Trade accounts receivable, net of allowance for
doubtful accounts of $5,893 for December 31, 1997
and June 30, 1998................................... 683,474 892,437
Prepaid insurance..................................... 44,189 --
Other prepaid expenses................................ 82,169 66,224
---------- ----------
Total current assets.............................. 883,796 958,661
Property and equipment, net........................... 1,805,508 2,492,549
Other assets, net..................................... 10,707 525,207
---------- ----------
Total assets...................................... $2,700,011 $3,976,417
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Bank overdraft....................................... $ -- $ 195,992
Current installments of long-term debt............... 411,300 4,917,491
Current installments of obligations under capital
leases.............................................. 152,136 321,991
Borrowings under lines of credit..................... 753,743 594,286
Accounts payable..................................... 1,416,318 1,776,398
Accrued liabilities.................................. 316,567 370,278
Accrued claims....................................... 169,301 107,890
---------- ----------
Total current liabilities......................... 3,219,365 8,284,326
Long-term liabilities:
Long-term debt, excluding current installments....... 3,275,118 --
Obligations under capital leases, excluding current
installments........................................ 175,267 --
---------- ----------
Total liabilities................................. 6,669,750 8,284,326
---------- ----------
Stockholder's deficit:
Common stock, $10 par value. Authorized 1,000 shares;
issued and outstanding 1,000 shares................. 10,000 10,000
Retained deficit..................................... (3,979,739) (4,317,909)
---------- ----------
Total stockholder's deficit....................... (3,969,739) (4,307,909)
---------- ----------
Total liabilities and stockholder's deficit....... $2,700,011 $3,976,417
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $6,676,340 $3,436,357 $4,499,480
Cost of revenue........................... 5,708,638 3,018,772 3,861,840
---------- ---------- ----------
Gross profit.......................... 967,702 417,585 637,640
Selling, general and administrative
expenses................................. 829,859 272,833 623,053
---------- ---------- ----------
Income from operations................ 137,843 144,752 14,587
Other income (expense):
Interest expense, net.................... (737,894) (425,884) (299,331)
Gain on sale of equipment................ 21,571 -- --
Penalty and late charges on debt, net.... (199,510) -- (53,426)
---------- ---------- ----------
Loss before provision for income
taxes................................ (777,990) (281,132) (338,170)
Provision for income taxes................ -- -- --
---------- ---------- ----------
Net loss.............................. $ (777,990) $ (281,132) $ (338,170)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK DEFICIT DEFICIT
------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................ $10,000 $(3,201,749) $(3,191,749)
Net loss.................................... -- (777,990) (777,990)
------- ----------- -----------
Balance at December 31, 1997................ 10,000 (3,979,739) (3,969,739)
Net loss--six-months ended June 30, 1998
(unaudited)................................ -- (338,170) (338,170)
------- ----------- -----------
Balance at June 30, 1998 (unaudited)........ $10,000 $(4,317,909) $(4,307,909)
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (777,990) $(281,132) $ (338,170)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 355,246 160,579 215,273
Amortization of non-compete............. 13,200 1,320 --
Gain on sale of equipment............... (21,571) -- --
Changes in current assets and
liabilities:
Increase in accounts receivable, net... (649,969) (695,354) (208,963)
Decrease (increase) in prepaid
insurance and other prepaid expenses.. (12,631) (150,484) 60,134
Increase (decrease) in accounts
payable............................... (150,946) 247,789 360,080
Increase (decrease) in accrued
liabilities........................... (75,100) (270,260) 53,711
Decrease in accrued claims............. (27,951) (8,146) (61,411)
----------- --------- -----------
Net cash (used in) provided by
operating activities................. (1,347,712) (995,688) 80,654
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment....... (7,733) -- --
Proceeds from sale of equipment.......... 39,634 -- --
Decrease in other assets................. (1,107) -- (3,500)
Cash paid for acquisitions............... -- -- (1,413,314)
----------- --------- -----------
Net cash provided by (used in)
investing activities................. 30,794 -- (1,416,814)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from long-term debt............. 1,460,293 742,105 1,650,000
Payments on long-term debt, notes payable
and capital lease obligations........... (662,462) (276,026) (424,339)
Net borrowings under lines of credit..... 753,743 644,662 (159,457)
Decrease in bank overdrafts.............. (199,521) (153,882) 195,992
Decrease in notes receivable............. 37,836 37,836 --
----------- --------- -----------
Net cash provided by financing
activities........................... 1,389,889 994,695 1,262,196
----------- --------- -----------
Net increase (decrease) in cash....... 72,971 (993) (73,964)
Cash at beginning of period............... 993 993 73,964
----------- --------- -----------
Cash at end of period..................... $ 73,964 $ -- $ --
=========== ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest................... $ 741,058 $ 431,402 $ 299,331
=========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Car Transporters Corporation (CTC) is a Washington Corporation founded in
1980 and is a wholly-owned subsidiary of Automotive Services, Inc. a
Washington Corporation. CTC's primary business is transporting vehicles for
dealers, leasing companies, auction companies and long-haul transporters in
the Western United States. CTC operates approximately 60 vehicles. These
financial statements include all costs of doing business of CTC.
Unaudited Information
The financial information included herein for the six-month periods ended
June 30, 1997 and 1998 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
Revenue Recognition
CTC operates as one segment related to the transportation of vehicles and
equipment for customers.
CTC's revenue is derived from customers who require transport of vehicles
and equipment. Transport revenue is recognized upon the delivery of the
vehicles and equipment to their final destination. Expenses related to the
generation of revenue are recognized as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
determined for financial statement purposes using the straight-line method
over the estimated useful lives of the individual assets or, for leasehold
improvements, over the terms of the related leases if shorter. For financial
statement purposes, CTC provides for depreciation of property and equipment
over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment....................................... 10-20 years
Leasehold improvements........................................ 10 years
Furniture and fixtures........................................ 10-20 years
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt instruments. At December 31, 1997, the fair value of
the Company's receivables approximated carrying value. At December 31, 1997,
the fair value of the Company's debt instruments was approximately $3,000,000.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
6
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accrued Claims
CTC is responsible for damage incurred while transporting vehicles to their
final destination. Damage incurred is identified upon delivery at final
destination and CTC reimburses for the cost of repairs.
Use of Estimates
Management of CTC has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Machinery and equipment......................................... $ 3,251,888
Leasehold improvements.......................................... 12,568
Furniture and fixtures.......................................... 26,498
-----------
3,290,954
Less accumulated depreciation and amortization.................. (1,485,446)
-----------
$ 1,805,508
===========
</TABLE>
Depreciation and amortization of property and equipment in 1997 totaled
$355,246. CTC held equipment under capital leases of $728,571 at December 31,
1997.
(3) LINE OF CREDIT
CTC has a line of credit to borrow up to $1,000,000 which is secured by
eligible accounts receivable. Interest is charged at prime plus 6% (14.5% at
December 31, 1997).
(4) DEBT
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1997:
Note payable to lending institution, payable in monthly
installments plus interest of 16% through 2001. This note is
secured by various equipment.................................. $ 330,000
Various notes payable due in varying amounts with maturities
ranging from December of 2000 to December of 2005 with
interest ranging from 8% to 16%. These notes are secured by
various equipment............................................. 1,171,146
Note payable to lending institution, payable in monthly
installments plus interest of 18% through 2002................ 600,000
Various unsecured notes payable, due in varying amounts with
maturities ranging from December of 1998 to December of 2002
with interest ranging from 9.25% to 36%....................... 1,585,272
----------
Total long-term debt........................................ 3,686,418
Less current portion............................................ (411,300)
----------
$3,275,118
==========
</TABLE>
(See Footnote 9 for subsequent event)
7
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) CAPITAL LEASE OBLIGATIONS
CTC leases certain vehicles under capital leases.
At December 31, 1997 obligations under capital leases consist of the
following:
<TABLE>
<S> <C>
Three capital leases net of interest, payable in monthly
installments bearing interest at 11.5% through 2001. These leases
are secured by the respective trucks and trailers acquired under
the capital lease. ............................................... $ 353,544
Capital lease net of interest, payable in monthly installments
bearing interest at 18% through 2001. This lease is secured by the
truck and trailer acquired under the capital lease. .............. 82,070
---------
435,614
Less amount that represents imputed interest....................... (108,211)
---------
327,403
---------
Less current portion............................................... (152,136)
---------
$ 175,267
=========
</TABLE>
(See Footnote 9 for subsequent event)
(6) OPERATING LEASES
CTC leases certain land and buildings used for its operations under
operating lease agreements expiring in 2006. Total rent expense for 1997 was
$60,989.
Future annual minimum operating lease payments at December 31, 1997 are:
<TABLE>
<S> <C>
1998................................................................ $ 61,506
1999................................................................ 63,350
2000................................................................ 65,244
2001................................................................ 67,198
2002................................................................ 69,212
Thereafter.......................................................... 281,931
--------
$608,441
========
</TABLE>
(7) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and as such, there was no current or deferred tax provision for the
year ended December 31, 1997.
At December 31, 1997, CTC's long-term deferred tax asset/liability consists
of:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss carryforward................................ $1,614,089
Deferred tax liability:
Fixed assets, due to depreciation.............................. 259,360
----------
Net.......................................................... 1,354,729
Valuation allowance.............................................. (1,354,729)
----------
Total........................................................ $ --
==========
</TABLE>
8
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CTC's net operating loss carryforwards (NOL's) of approximately $4,747,000
expire at various times in the future. At December 31, 1997, a valuation
allowance has been provided against the deferred tax assets, as it is
uncertain that the deferred tax assets will be realized since the Company has
incurred substantial operating losses.
The following table reconciles the expected tax benefit (expense) at the
Federal statutory tax rate to the actual tax provision:
<TABLE>
<S> <C>
Federal statutory rate............................................ $ 264,517
NOL's for which no benefit is recognized.......................... (264,517)
---------
Provision for income taxes...................................... $ --
=========
</TABLE>
(8) SIGNIFICANT CUSTOMER
CTC has one significant customer that accounts for approximately 30% of
total sales. As of December 31, 1997 this customer had an outstanding accounts
receivable balance of $302,004.
(9) SUBSEQUENT EVENTS
During February of 1998, the Company acquired equipment from Spokane Auto
Transport for approximately $865,000 of cash. The aggregate purchase price,
over the fair value of equipment acquired of approximately $361,000, was
recognized as goodwill and is being amortized over 15 years on a straight-line
basis. In March of 1998, the Company acquired equipment from All West Auto
Transport for $550,000 of cash. The aggregate purchase price, over the fair
value of equipment acquired of approximately $150,000, was recognized as
goodwill and is being amortized over 15 years on a straight-line basis. These
assets were included in the sale to United Road Services, Inc.
During July 1998, CTC completed an asset purchase transaction with United
Road Services, Inc. (URS) whereby CTC sold all of its assets, properties and
business to URS. URS also assumed all current liabilities and indebtedness of
CTC. The assets sold to URS included receivables, fixed assets and tangible
personal property, customer accounts, cash and cash equivalents, prepaids,
leasehold interests, proprietary rights, licenses and permits and other
assets.
Subsequent to the closing of the asset purchase transaction, URS has paid
off all outstanding indebtedness.
9
<PAGE>
EXHIBIT 99.6
INDEPENDENT AUDITORS' REPORT
The Stockholders
Schroeder Auto Carriers, Inc.:
We have audited the accompanying balance sheet of Schroeder Auto Carriers,
Inc. as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of Schroeder Auto Carriers, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Schroeder Auto Carriers, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
August 13, 1998
1
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
BALANCE SHEET
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash................................................. $ 54,216 $ 107,504
Trade accounts receivable, net of allowance for
doubtful accounts of $78,215 and $62,871,
respectively........................................ 736,954 744,798
Accounts receivable from employees................... 4,207 8,381
Prepaid expenses..................................... 3,300 39,309
---------- ----------
Total current assets.............................. 798,677 899,992
Property and equipment, net.......................... 738,109 1,166,502
---------- ----------
Total assets...................................... $1,536,786 $2,066,494
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............... $ 25,087 $ 93,852
Accounts payable..................................... 116,068 158,287
Accrued payroll and related costs.................... 26,852 56,201
Current portion of notes payable to related parties.. 180,000 180,000
---------- ----------
Total current liabilities......................... 348,007 488,340
Long-term debt, excluding current installments........ 101,895 340,882
Notes payable to related parties...................... 25,000 --
---------- ----------
Total liabilities................................. 474,902 829,222
---------- ----------
Stockholders' equity:
Common stock, $1 par value. 700,000 shares
authorized; 35,000 shares issued and outstanding.... 35,000 35,000
Retained earnings.................................... 1,026,884 1,202,272
---------- ----------
Total stockholders' equity........................ 1,061,884 1,237,272
---------- ----------
Total liabilities and stockholders' equity........ $1,536,786 $2,066,494
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $5,799,071 $2,727,236 $3,168,786
Cost of revenue........................... 4,567,940 2,086,816 2,536,525
---------- ---------- ----------
Gross profit.......................... 1,231,131 640,420 632,261
Selling, general and administrative
expenses................................. 888,887 395,454 395,870
---------- ---------- ----------
Income from operations................ 342,244 244,966 236,391
---------- ---------- ----------
Other income (expense):
Interest expense......................... (31,235) (14,921) (17,979)
Gain on sale of assets................... 9,431 -- --
Other.................................... 3,507 2,602 1,021
---------- ---------- ----------
Net income............................ $ 323,947 $ 232,647 $ 219,433
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- --------------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1997................. $35,000 $ 767,293 $ 802,293
Net income--1997............................ -- 323,947 323,947
Distribution to stockholders................ -- (64,356) (64,356)
------- ---------- ----------
BALANCES AT DECEMBER 31, 1997............... 35,000 1,026,884 1,061,884
Net income--six-months ended June 30, 1998
(unaudited)................................ -- 219,433 219,433
Distribution to stockholders--six-months
ended June 30, 1998 (unaudited)............ -- (44,045) (44,045)
------- ---------- ----------
BALANCE AT JUNE 30, 1998 (UNAUDITED)........ $35,000 $1,202,272 $1,237,272
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31 --------------------
1997 1997 1998
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 323,947 $ 232,647 $ 219,433
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 69,682 33,393 43,104
Gain on sale of assets.................... (9,431) -- --
Increase in trade accounts receivable..... (178,667) (99,663) (12,018)
Decrease in accounts receivable from
employees................................ 5,954 -- --
Decrease (increase) in prepaid expenses... 6,899 (21,186) (36,009)
(Decrease) increase in accounts payable... (54,881) (60,531) 42,219
Increase in accrued payroll and related
costs.................................... 9,507 492 29,349
--------- --------- ---------
Net cash provided by operating
activities............................. 173,010 85,152 286,078
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets............... 15,000 -- --
Purchases of property and equipment........ (221,829) (168,500) (471,497)
--------- --------- ---------
Net cash used in investing activities... (206,829) (168,500) (471,497)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............... 142,000 142,000 450,512
Principal payments on long-term debt....... (139,646) (41,077) (142,760)
Distributions to stockholders.............. (64,356) (50,000) (44,045)
Proceeds from notes payable to related
parties................................... 205,000 170,000 --
Principal payments on notes payable to
related parties........................... (160,000) (160,000) (25,000)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................. (17,002) 60,923 238,707
--------- --------- ---------
Net (decrease) increase in cash......... (50,821) (22,425) 53,288
Cash at beginning of period................. 105,037 105,037 54,216
--------- --------- ---------
Cash at end of period....................... $ 54,216 $ 82,612 $ 107,504
========= ========= =========
Supplemental disclosure of cash flow
information--cash paid during the period
for interest............................... $ 31,235 $ 14,921 $ 17,979
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Schroeder Auto Carriers, Inc. (the Company) was founded in 1990 and provides
vehicle transport services for auto auctions, leasing companies, auto dealers
and individuals. The Company owns and operates approximately 35 vehicles
throughout 27 states in the western region of the United States. The Company
also uses, on a limited basis, independent contractors who have their own
equipment. The independent contractors operate under a carrier agreement when
performing transport services for the Company. The Company is headquartered in
Henderson, Colorado and also maintains a satellite facility in Salt Lake City,
Utah.
(b) Revenue Recognition
Revenue is recognized upon the delivery of the vehicles to their final
destination. Expenses related to the generation of revenue are recognized as
incurred.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the following
estimated useful lives of the individual assets.
<TABLE>
<S> <C>
Transportation equipment......................................... 15 years
Vehicles......................................................... 5 years
Office equipment................................................. 7 years
</TABLE>
(d) Income Taxes
The Company operates as an S-corporation for federal and state income tax
purposes and all corporate earnings flow through and are taxed solely at the
stockholder level. Accordingly, no income tax expense has been recorded for
the year ended December 31, 1997.
(e) 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 sales and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(f) Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, which are
comprised mainly of receivables and payables, approximate their fair values.
(g) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
6
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment.......................................... $ 845,138
Vehicles.......................................................... 62,144
Office equipment.................................................. 54,297
---------
Total......................................................... 961,579
Less: accumulated depreciation.................................... (223,470)
---------
$ 738,109
=========
</TABLE>
Depreciation of property and equipment in 1997 totaled $69,682.
(3) INDEBTEDNESS
The Company has a note payable to First Security Bank payable in monthly
installments of $2,958, including interest at 9%, maturing April 2002. The
remaining balance on the note at December 31, 1997 is $126,982; $25,087 of
which is classified in current liabilities.
The Company has a note payable to stockholders of $180,000, payable in a
lump sum on August 15, 1998. The note bears interest at 8.75% per annum which
is paid monthly. In addition, the Company has a note payable to other related
parties of $25,000, payable in a lump sum on June 1, 1999. The note bears
interest at 10% per annum, paid monthly. For 1997, interest expense on the
above notes was $18,250.
Debt maturities at December 31 are as follows:
<TABLE>
<S> <C>
1998................................................................ $205,087
1999................................................................ 52,441
2000................................................................ 30,017
2001................................................................ 32,830
2002................................................................ 11,607
--------
Total............................................................. $331,982
========
</TABLE>
(4) LEASES
The Company leases their main facility from a related party. The lease is a
non-cancelable operating lease with future minimum lease payments at December
31, 1997 as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998............................................................. $ 96,000
1999............................................................. 96,000
2000............................................................. 96,000
2001............................................................. 96,000
2002............................................................. 96,000
Thereafter....................................................... 1,264,000
----------
Total minimum lease payments................................... $1,744,000
==========
</TABLE>
Total rent expense for 1997, all of which was paid to a related party, was
$96,900.
7
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
As the Company uses accelerated methods of depreciation for income tax
purposes, the recorded values of property and equipment are approximately
$423,000 higher than those used for tax purposes at December 31, 1997.
Depreciation expense reported for tax purposes for 1997 was approximately
$152,000 higher than the amount recorded for book purposes. The tax basis of
all other assets and liabilities does not differ materially from their
recorded values at December 31, 1997.
(6) CONTINGENT LIABILITIES
Various claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(7) SUBSEQUENT EVENT
On July 1, 1998 all of the outstanding stock of the Company was sold to
United Road Service, Inc. The sales transaction will be accounted for as a
purchase.
8
<PAGE>
EXHIBIT 99.7
INDEPENDENT AUDITORS' REPORT
The Stockholder
Keystone Towing, Inc.:
We have audited the accompanying balance sheets of Keystone Towing, Inc.
("Keystone") as of December 31, 1996 and 1997, and the related statements of
operations, stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of Keystone's management.
Our responsibility is to express an opinion on these 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 financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Keystone Towing, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Albany, New York
January 16, 1998,
except as to note 13(b),
which is as of May 6, 1998
1
<PAGE>
KEYSTONE TOWING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $193,165 $ 71,634 $ 100,312
Trade accounts receivable.................... 97,368 167,192 151,677
Accounts receivable from employees........... 3,443 2,989 3,640
Inventory.................................... 15,000 60,990 60,510
Note receivable--other....................... -- 5,000 87,110
Prepaid and other current assets (note 2).... 47,684 98,111 82,958
-------- ---------- ----------
Total current assets....................... 356,660 405,916 486,207
Property and equipment, net (notes 3, 6 and
7)............................................ 598,850 1,038,776 1,044,167
Other non-current assets (note 4).............. -- 82,256 84,858
-------- ---------- ----------
Total assets............................... $955,510 $1,526,948 $1,615,232
======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of notes payable (note
6).......................................... $ 94,782 $ 278,765 $ 337,181
Borrowings under lines of credit (note 6).... 7,558 73,297 96,847
Current installment of note payable to
stockholder (notes 6 and 10)................ 31,724 35,046 33,337
Accounts payable............................. 88,176 200,779 215,401
Accrued payroll and related costs............ 53,309 52,157 61,787
Payable to affiliate (note 10)............... -- 40,909 --
Other liabilities (note 5)................... 301,965 326,778 367,220
-------- ---------- ----------
Total current liabilities.................. 577,514 1,007,731 1,111,773
Long-term liabilities:
Notes payable, excluding current installments
(note 6).................................... 156,940 349,982 349,492
Note payable to stockholder, excluding
current installments (notes 6 and 10)....... 50,314 15,268 --
-------- ---------- ----------
Total liabilities.......................... 784,768 1,372,981 1,461,265
-------- ---------- ----------
Stockholder's equity:
Common stock, $2.00 par value. Authorized
100,000 shares; issued and outstanding
10,000 shares in 1996 and 1997.............. 20,000 20,000 20,000
Retained earnings............................ 150,742 133,967 133,967
-------- ---------- ----------
Total stockholder's equity................. 170,742 153,967 153,967
-------- ---------- ----------
Total liabilities and stockholder's
equity.................................... $955,510 $1,526,948 $1,615,232
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------ ----------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue.................. $ 3,369,354 $ 3,943,073 $1,926,852 $1,998,098
Cost of revenue.............. 2,132,646 2,606,452 1,204,688 1,329,626
----------- ----------- ---------- ----------
Gross profit............. 1,236,708 1,336,621 722,164 668,472
Selling, general and
administrative expenses..... 934,105 1,140,252 592,958 651,884
----------- ----------- ---------- ----------
Income from operations... 302,603 196,369 129,206 16,588
----------- ----------- ---------- ----------
Other income (expense):
Interest expense........... (28,067) (71,451) (29,178) (26,110)
Interest income............ 2,534 1,556 -- --
Gain on sale of assets..... -- 36,275 36,275 --
Other (note 10)............ -- 76,312 38,156 94,244
----------- ----------- ---------- ----------
Net income............... $ 277,070 $ 239,061 $ 174,459 $ 84,722
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------- --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995.................. $20,000 $ 88,465 $ 108,465
Net income--1996.............................. -- 277,070 277,070
Owner Distribution............................ -- (214,793) (214,793)
------- --------- ---------
Balance at December 31, 1996.................. 20,000 150,742 170,742
Net income--1997.............................. -- 239,061 239,061
Owner distribution............................ -- (255,836) (255,836)
------- --------- ---------
Balance at December 31, 1997.................. 20,000 133,967 153,967
Net income--six-months ended June 30, 1998
(unaudited).................................. -- 84,722 84,722
Owner distribution--six-months ended June 30,
1998 (unaudited)............................. -- (84,722) (84,722)
------- --------- ---------
Balance at June 30, 1998 (unaudited).......... $20,000 $ 133,967 $ 153,967
======= ========= =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 277,070 $ 239,061 $ 174,459 $ 84,722
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
effects of acquisitions:
Depreciation and amortization.. 155,367 280,075 86,914 148,311
Gain on sale of assets......... -- (36,275) (275) --
Decrease (increase) in trade
accounts receivable........... (11,892) (69,824) (26,251) 15,515
Decrease (increase) in accounts
receivable from employees..... (2,015) 454 35 (651)
Increase in inventory.......... (5,000) (45,990) -- --
Decrease (increase) in prepaid
and other current assets...... 10,619 (50,427) (138,568) 13,031
Increase (decrease) in accounts
payable....................... 48,580 112,603 (62,126) 14,622
Increase (decrease) in accrued
payroll and related costs..... 16,970 (1,152) 65,642 9,630
Increase (decrease) in payable
to affiliate.................. -- 40,909 -- (40,909)
Increase (decrease) in other
liabilities................... 44,984 24,813 (45,334) 40,442
--------- --------- --------- ---------
Net cash provided by
operating activities........ 534,683 494,247 54,496 284,713
--------- --------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment....................... (97,818) (396,324) (402,678) (153,702)
Proceeds from sale of assets..... -- 40,000 4,000 --
Decrease (increase) in note
receivable--other............... 24,351 (5,000) (185,196) (82,110)
--------- --------- --------- ---------
Net cash used in investing
activities.................. (73,467) (361,324) (583,874) (235,812)
--------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from long-term debt..... -- 13,289 494,677 171,117
Principal payments on long-term
debt............................ (146,768) (77,646) (87,141) (130,168)
Borrowings on line of credit,
net............................. 7,557 65,739 90,002 23,550
Owner distributions.............. (214,793) (255,836) (150,094) (84,722)
--------- --------- --------- ---------
Net cash (used in) provided
by financing activities..... (354,004) (254,454) 347,444 (20,223)
--------- --------- --------- ---------
Net increase (decrease) in cash.... 107,212 (121,531) (181,934) 28,678
Cash at beginning of period........ 85,953 193,165 193,165 71,634
--------- --------- --------- ---------
Cash at end of period.............. $ 193,165 $ 71,634 $ 11,231 $ 100,312
========= ========= ========= =========
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest....................... $ 28,067 $ 71,451 $ 29,178 $ 26,387
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keystone Towing, Inc. ("Keystone") was founded in 1991. Keystone's primary
business is towing, impounding and storing vehicles for municipal,
governmental and commercial customers in Southern California. Keystone has one
facility in Los Angeles. It operates approximately 20 vehicles. Keystone
became an S-corporation under California law on June 3, 1993.
(b) Revenue Recognition
Keystone operates as one segment related to transportation of vehicles and
equipment for customers.
Keystone's revenue is derived from customers who require a towing service,
fees related to the storage of vehicles that have been towed, and auction
sales of unclaimed vehicles. Towing revenue is recognized at the completion of
each towing engagement, storage fees are accrued over the period the vehicles
are held in the impound facility, and revenue from auction sales are recorded
when title to the vehicles has been transferred. Expenses related to the
generation of revenue are recognized as incurred.
(c) Inventories
Inventories consist primarily of spare parts used for repair and maintenance
of transportation equipment. Inventories are stated at the lower of cost or
market.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement and tax purposes using the double-declining balance method
over the estimated useful lives of the individual assets or, for leasehold
improvements, over the terms of the related leases if shorter. For financial
statement purposes, Keystone provides for depreciation of property and
equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Automobiles and transportation equipment.......................... 5 years
Furniture and fixtures............................................ 5-7 years
Machinery and equipment........................................... 5-7 years
Leasehold improvements............................................ 7-39 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Keystone on bank loans with
similar terms and maturities, the fair value of Keystone's financial
instruments approximates their carrying values.
(f) Income Taxes
Effective June 3, 1993, Keystone elected to file its Federal income tax
returns under the S-corporation provisions of the Internal Revenue Code and
was granted S-corporation status for California state tax purposes. In
accordance with the Federal provisions, corporate earnings flow through and
are taxed solely at the stockholder level.
Under the provisions of the California franchise tax law, S-corporation
earnings are assessed a 1.5% surtax at the corporate level and flow through to
the stockholder to be taxed at the individual level. Accordingly, no income
tax expense has been recorded for the years ended December 31, 1996 and 1997.
6
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of Keystone has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal accruals)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented.
(2) PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1997
------- -------
<S> <C> <C>
Prepaid insurance........................................... $ 6,750 $13,549
Prepaid vehicle registration................................ -- 22,010
Miscellaneous deposits...................................... 32,304 39,657
Prepaid property taxes...................................... 3,432 2,631
Other....................................................... 5,198 20,264
------- -------
$47,684 $98,111
======= =======
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Automobiles and transportation equipment............. $ 578,891 $1,025,234
Furniture and fixtures............................... 129,592 144,361
Machinery and equipment.............................. 240,653 270,163
Leasehold improvements............................... 273,137 460,641
---------- ----------
Total.............................................. 1,222,273 1,900,399
Less accumulated depreciation and amortization....... (623,423) (861,623)
---------- ----------
$ 598,850 $1,038,776
========== ==========
</TABLE>
Depreciation and amortization of property and equipment in 1996 and 1997
totaled $155,367 and $274,259, respectively.
(4) OTHER NON-CURRENT ASSETS
Other non-current assets consists of the following (see note 8):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Goodwill........................................................ $85,572
Covenant-not-to-compete......................................... 2,500
-------
Total......................................................... 88,072
Less accumulated amortization................................... (5,816)
-------
$82,256
=======
</TABLE>
7
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, and covenant-not-to-compete are amortized on a
straight-line basis over fifteen and five years, respectively. Amortization
expense for other non-current assets totaled $5,816 in 1997.
(5) OTHER LIABILITIES
Other liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Retirement savings plan payable........................... $ 70,964 $125,261
Parking and other taxes payable(a)........................ 123,647 107,734
Lien sale payable(b)...................................... 75,299 87,938
Insurance premiums payable................................ 3,745 4,220
Other..................................................... 28,310 1,625
-------- --------
$301,965 $326,778
======== ========
</TABLE>
- --------
(a) Parking and other taxes payable consist primarily of obligations to remit
standard parking fees to the City of Los Angeles.
(b) Lien sale payables arise from Keystone's obligation to remit to the state
a portion of proceeds generated by the sale of cars impounded by Keystone
but left unclaimed.
(6) INDEBTEDNESS
Keystone has available a $75,000 line of credit with a bank, expiring
January 16, 1998. Interest is payable at 10.5%. Total borrowings under this
unsecured line of credit as of December 31, 1996 and 1997 amounted to $7,558
and $73,297, respectively.
Keystone's long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Note payable to stockholder, payable in monthly
installments of $3,208, including interest at 10.06%,
maturing May 1999.................................... $ 82,038 $ 50,314
Notes payable to banks for various property and
equipment, payable in monthly installments ranging
from $427 to $5,527, including interest ranging from
8 1/2% to 11%, and maturing at dates ranging from
January, 1998 to April, 2002. Secured by the related
assets............................................... 209,136 599,407
Borrowings under a capital lease agreement, payable in
monthly installments of $1,492, including interest at
11%, maturing October 1999. Secured by the related
asset ............................................... 42,586 29,340
--------- ---------
Total long-term debt.............................. 333,760 679,061
Less installments due within one year............... (126,506) (313,811)
--------- ---------
Long-term debt, excluding current installments.... $ 207,254 $ 365,250
========= =========
</TABLE>
8
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities for the next five years are as follows:
<TABLE>
<S> <C>
1998................................................................ $313,811
1999................................................................ 176,125
2000................................................................ 109,042
2001................................................................ 72,782
2002................................................................ 7,301
--------
$679,061
========
</TABLE>
(7) LEASES
Keystone leases the building used for its operations under a non-cancelable
lease agreement. The lease is classified as an operating lease. The agreement
provides for monthly rental payment of $39,630 through January 2002. Keystone
is responsible for all operating costs related to the property. Total rent
expense, including common area maintenance charges, for 1996 and 1997 was
$488,000 and $504,000, respectively.
Keystone is obligated under a capital lease for transportation equipment
that expires in October 1999. The capital lease obligation is included in the
long-term debt table and schedule of maturities in note 6.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1997 are:
<TABLE>
<S> <C>
1998.............................................................. $ 475,560
1999.............................................................. 475,560
2000.............................................................. 475,560
2001.............................................................. 475,560
2002.............................................................. 39,630
----------
$1,941,870
==========
</TABLE>
(8) NON-CASH TRANSACTIONS
During March 1997, Keystone acquired, under the purchase method of
accounting, certain assets of a competitor for consideration of $203,702 in
the form of assumed liabilities of the selling party. The assets acquired were
recorded at their estimated fair value of $115,000. In addition, Keystone
secured a five year non-competition agreement from the selling party valued at
$2,500. The difference between the consideration given and the fair value of
assets acquired was recorded as goodwill in the amount of $85,572 (see note
4).
During 1997, Keystone leased $205,956 of various automobile and
transportation equipment through several lending institutions (see note 6).
(9) EMPLOYEE BENEFITS
Keystone has a retirement savings and disability plan pursuant to section
414(i) of the Internal Revenue Code that is available to all employees who
have at least 1,000 hours of service to Keystone during the plan year and are
employed on the last day of the year. This discretionary contribution plan
allows the employer discretion as to the amount to be contributed each year.
Keystone's contribution payable, included in other accrued liabilities on the
accompanying balance sheet, amounted to $70,964 and $125,261 as of December
31, 1996 and 1997, respectively (see note 5).
9
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(10) RELATED PARTY TRANSACTIONS
Keystone is indebted to the sole stockholder under an unsecured note,
bearing interest at 10.06% per annum (see note 6).
In the normal course of business Keystone performs subcontract towing
services for a related party company owned by another related party. Keystone
recognizes revenue on the towing services performed on behalf of the related
party net of subcontract expenses. The net revenue, recognized on subcontract
towing services performed amounted to approximately $17,000 and $19,000 for
1996 and 1997, respectively, and is included in net revenue on the statements
of operations. Additionally, Keystone recognized management fee income for
services performed on behalf of the related party company. Management fee
income amounted to approximately $0 and $16,000 for 1996 and 1997,
respectively.
The owner of Keystone is also a 10% owner of an Official Police Garage
("OPG"). Keystone recognizes management fee income for services performed on
behalf of the related party company. Management fee income amounted to
approximately $0 and $60,000 for 1996 and 1997, respectively.
The payable to related party of $40,909 on the accompanying balance sheet as
of December 31, 1997 represents miscellaneous obligations to the OPG discussed
above.
(11) CONTINGENT LIABILITIES
Various legal claims arise against Keystone during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(12) CONCENTRATION OF BUSINESS RISKS
Revenue generated from Keystone's exclusive agreement with the LAPD
discussed in note 1 represented approximately 30% of total revenues in 1996
and 27% in 1997. The loss of such business could significantly effect
Keystone's performance.
(13) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Keystone to United Road Services, Inc. The sales
transaction, affected through a combination of cash and common stock of United
Road Services, Inc., is contingent upon the initial public offering of the
common stock of United Road Services, Inc., and the consent of the Los Angeles
City Council under Keystone's contract to provide police towing for a
specified police district in Los Angeles. The anticipated selling price of
Keystone exceeds its net assets as of December 31, 1997. Prior to the sale of
Keystone, the stockholder intends to take a distribution of not more than
$150,000.
(b) On May 1, 1998, United Road Services, Inc. successfully completed the
initial public offering of its common stock.
10
<PAGE>
EXHIBIT 99.8
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fast Towing, Inc.:
We have audited the accompanying balance sheet of Fast Towing, Inc. as of
December 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fast Towing, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Phoenix, Arizona
July 31, 1998
1
<PAGE>
FAST TOWING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 92,186 $ 22,200
Trade accounts receivable........................... 214,958 100,449
Prepaid expenses and other current assets........... 7,214 37,514
-------- --------
Total current assets.............................. 314,358 160,163
Property and equipment, net (note 2).................. 469,825 515,119
Other assets.......................................... 18,531 1,600
Intangibles, net (note 3)............................. 17,014 16,431
-------- --------
Total assets...................................... $819,728 $693,313
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Line of credit (note 4)............................. $ 49,113 $238,763
Accounts payable.................................... 5,803 37,594
Income taxes payable (note 6)....................... 1,220 --
Deferred income taxes (note 6)...................... 5,889 5,889
Accrued expenses.................................... 8,460 14,054
Other accrued liabilities........................... 3,000 6,267
-------- --------
Total current liabilities......................... 73,485 302,567
-------- --------
Stockholders' equity:
Common stock, no par value, 100,000 shares
authorized and 550 shares issued and outstanding... 550 550
Retained earnings................................... 745,693 390,196
-------- --------
Total stockholders' equity........................ 746,243 390,746
Commitments and contingencies (notes 4, 5 and 8)
-------- --------
Total liabilities and stockholders' equity........ $819,728 $693,313
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
FAST TOWING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................ $3,354,597 $1,438,065 $1,850,910
Cost of revenue............................ 1,775,911 796,991 914,517
---------- ---------- ----------
Gross profit........................... 1,578,686 641,074 936,393
Selling, general and administrative
expenses.................................. 1,431,882 446,067 1,123,447
---------- ---------- ----------
Income (loss) from operations.......... 146,804 195,007 (187,054)
---------- ---------- ----------
Other (expense):
Interest (expense) income................ (6,703) 373 408
Gain (loss) on sale of assets............ (9,545) 7,708 (140,213)
---------- ---------- ----------
Income (loss) before income taxes...... 130,556 203,088 (326,859)
Income tax expense (note 6).............. 47,009 40,710 28,638
---------- ---------- ----------
Net income (loss)...................... $ 83,547 $ 162,378 $ (355,497)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FAST TOWING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................... $550 $ 662,146 $ 662,696
Net income..................................... -- 83,547 83,547
---- --------- ---------
Balance at December 31, 1997................... 550 745,693 746,243
Net loss--six-months ended June 30, 1998
(unaudited)................................... -- (355,497) (355,497)
---- --------- ---------
Balance at June 30, 1998 (unaudited)........... $550 $ 390,196 $ 390,746
==== ========= =========
</TABLE>
4
<PAGE>
FAST TOWING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, -------------------
1997 1997 1998
------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 83,547 $162,378 $(355,497)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 212,144 93,703 90,196
Deferred income taxes.................... 5,889 -- --
Loss (gain) on sale of property and
equipment............................... 9,545 (7,708) 140,213
(Increase) decrease in trade accounts
receivable.............................. (20,750) (73,061) 114,509
Decrease (increase) in prepaid expenses
and other current assets................ 1,363 (18,023) (30,300)
Decrease in other assets................. 1,307 16,163 16,931
Increase in accounts payable............. 5,803 -- 31,791
(Decrease) increase in income taxes
payable................................. (30,031) 9,459 (30,760)
(Decrease) increase in accrued expenses.. (4,468) (4,047) 38,401
-------- -------- ---------
Net cash provided by operating
activities............................ 264,349 178,864 15,484
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment........ (158,455) (50,615) (321,066)
Proceeds from sale of equipment............ 119,600 21,195 45,946
Issuance of note receivable................ -- (15,000) --
-------- -------- ---------
Net cash used in investing activities.. (38,855) (44,420) (275,120)
-------- -------- ---------
Cash flows from financing activities:
Net increase in line of credit............. 49,113 -- 189,650
Principal payments on long-term debt....... (241,606) (48,066) --
-------- -------- ---------
Net cash (used in) provided by
financing activities.................. (192,493) (48,066) 189,650
-------- -------- ---------
Net increase (decrease) in cash and
cash equivalents...................... 33,001 86,378 (69,986)
Cash and cash equivalents at beginning of
period...................................... 59,185 59,185 92,186
-------- -------- ---------
Cash and cash equivalents at end of period... $ 92,186 $145,563 $ 22,200
======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................. $ 7,471
========
Income taxes............................. $ 70,660
========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Fast Towing, Inc. was founded in 1991 and operates as an Arizona
corporation. Fast Towing's primary business is towing, impounding and storing
vehicles. Fast Towing has two facilities in the Phoenix metropolitan area. It
operates approximately 34 vehicles.
On June 14, 1997, Fast Towing purchased substantially all of the assets and
assumed certain liabilities of Pars Towing, Inc. The purchase price of
$162,000 was conveyed in the form of a note payable to the seller. The
transaction was accounted for under the purchase method of accounting.
REVENUE RECOGNITION
Fast Towing operates as one segment related to the transportation of
vehicles for customers.
Fast Towing's revenue is derived from customers who require transportation
of vehicles. Transport revenue is recognized upon the delivery of the vehicles
to their final destination. Expenses related to the generation of revenue are
recognized as incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $92,186 at December 31, 1997 consist of bank
accounts and certificates of deposit with an initial term of less than three
months. For purposes of the statements of cash flows, Fast Towing considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method for leasehold
improvements and the double-declining method for all other assets over the
estimated useful lives of the individual assets. For financial statement
purposes, Fast Towing provides for depreciation of property and equipment over
the following estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment....................................... 5 years
Furniture and fixtures......................................... 7 years
Office equipment............................................... 5 years
Leasehold improvements......................................... 10-39 years
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Fast Towing on bank loans
with similar terms and maturities, the fair value of Fast Towing's financial
instruments approximates their carrying values.
INCOME TAXES
Income taxes are accounted for under the asset and liability method for Fast
Towing, Inc. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets
6
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment....................................... $ 842,948
Machinery and equipment........................................ 50,877
Office equipment............................................... 46,628
Leasehold improvements......................................... 98,393
----------
1,038,846
Less accumulated depreciation and amortization................. (569,021)
----------
$ 469,825
==========
</TABLE>
Depreciation of property and equipment in 1997 totaled $211,658.
(3) INTANGIBLES
Intangibles consist primarily of goodwill and a trade name. Intangibles are
being amortized on a straight-line basis over the expected period to be
benefited, generally 15 years.
(4) INDEBTEDNESS
Fast Towing maintains a $300,000 line of credit with Valley First Community
Bank. The line of credit bears interest at 9.5%. The line is collateralized by
substantially all the assets of Fast Towing. There were $49,113 in borrowings
against this line of credit at December 31, 1997.
7
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) LEASES
Fast Towing has several noncancelable operating leases, primarily for
transportation equipment and its operating facilities, that expire over the
next five years. Rental payments for the transportation equipment include
minimum rentals plus contingent rentals based on mileage. Rent expense in 1997
was $161,797.
Future minimum operating lease payments as of December 31, 1997 are:
<TABLE>
<S> <C>
Year ending December 31,
1998............................................................ $262,503
1999............................................................ 263,103
2000............................................................ 228,547
2001............................................................ 188,858
2002............................................................ 33,147
--------
$976,158
========
</TABLE>
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1997 consists of:
<TABLE>
<S> <C>
Current:
Federal.......................................................... $31,575
State............................................................ 9,545
-------
41,120
-------
Deferred:
Federal.......................................................... 4,522
State............................................................ 1,367
-------
5,889
-------
$47,009
=======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate to income before taxes. The sources and
tax effects of the differences are as follows:
<TABLE>
<S> <C>
Computed "expected" federal income tax expense.................... $38,832
Expected state income taxes, net of federal benefit............... 7,667
Non deductible item............................................... 31
Other............................................................. 479
-------
$47,009
=======
</TABLE>
The tax effects of temporary differences that give rise to a deferred tax
liability as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Trade accounts receivable...................................... $(8,175)
Accounts payable............................................... 2,286
-------
Net deferred tax liability................................... $(5,889)
=======
</TABLE>
8
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) RELATED PARTY TRANSACTIONS
During 1997, Fast Towing made payments of $39,606 to a stockholder in
payment of a note.
(8) CONTINGENT LIABILITIES
Various legal claims arise against Fast Towing during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(9) SUBSEQUENT EVENT
During June 1998, the stockholders entered into an agreement to sell Fast
Towing to United Road Services, Inc. The transaction, completed June 29, 1998,
was a cash transaction. The selling price of Fast Towing exceeds its net
assets as of December 31, 1997.
9
<PAGE>
EXHIBIT 99.9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alert Auto Transport, Inc.:
We have audited the accompanying balance sheet of Alert Auto Transport,
Inc., as of May 31, 1998, and the related statements of earnings and retained
earnings, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alert Auto Transport,
Inc., as of May 31, 1998 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
July 31, 1998
Birmingham, Alabama
1
<PAGE>
ALERT AUTO TRANSPORT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MAY, 31, JUNE 30,
1998 1998
-------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 33,852 $184,657
Accounts receivable, net of allowance for doubtful
accounts of $7,000 and $7,000, respectively......... 158,244 216,234
Inventory............................................ 1,230 1,230
Income tax refund receivable (note 5)................ 1,212 1,212
Deferred income taxes (note 5)....................... 1,479 1,547
-------- --------
Total current assets............................... 196,017 404,880
Property and equipment, net (notes 2 and 3)............ 519,536 513,645
Notes receivable from stockholder (note 6)............. 17,500 17,500
-------- --------
Total assets....................................... $733,053 $936,025
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of notes payable (note 3)....... $ 17,798 $139,295
Accounts payable..................................... 74,801 99,355
Income taxes payable................................. -- 22,499
Accrued payroll and related costs.................... 20,576 474
-------- --------
Total current liabilities.......................... 113,175 261,623
Long-term liabilities:
Deferred income taxes (note 5)....................... 78,854 83,037
-------- --------
Total liabilities.................................. 192,029 344,660
-------- --------
Stockholder's equity:
Common stock, $10 par value. Authorized, issued and
outstanding 100 shares.............................. 1,000 1,000
Retained earnings.................................... 540,024 590,365
-------- --------
Total stockholder's equity......................... 541,024 591,365
-------- --------
Total liabilities and stockholder's equity......... $733,053 $936,025
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
ALERT AUTO TRANSPORT, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
ONE-MONTH
YEAR ENDED ENDED JUNE 30
MAY 31, ------------------
1998 1997 1998
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................... $3,045,085 $298,818 $339,416
Cost of revenue (includes related party lease
expense of $488,421, $21,792, and $27,915,
respectively)................................ 2,657,228 183,162 240,063
---------- -------- --------
Gross profit.............................. 387,857 115,656 99,353
Selling, general, and administrative expenses
(includes related party lease expense of
$65,100, $4,800, and $5,150, respectively)... 267,851 20,692 22,279
---------- -------- --------
Income from operations.................... 120,006 94,964 77,074
Other income (expense):
Interest expense............................ (3,262) (365) (116)
Gain (loss) on sale of assets............... 21,690 (519) --
---------- -------- --------
Income before income taxes................ 138,434 94,080 76,958
Income tax expense (note 5)................... 23,660 16,078 26,617
---------- -------- --------
Net income................................ 114,774 78,002 50,341
Retained earnings, beginning of period........ 425,250 425,250 540,024
---------- -------- --------
Retained earnings, end of period.............. $ 540,024 $503,252 $590,365
========== ======== ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ALERT AUTO TRANSPORT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ONE-MONTH
YEAR ENDED ENDED JUNE 30
MAY 31, --------------------
1998 1997 1998
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 114,774 $ 78,002 $ 50,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 70,499 5,875 5,891
(Gain) loss on sale of property and
equipment.................................. (21,690) 519 --
Deferred income taxes....................... 12,072 12,073 4,115
Increase in trade accounts receivable....... (41,855) (41,791) (57,990)
Increase in income tax refund receivable.... (1,212) -- --
(Decrease) increase in accounts payable..... (37,836) 24,689 24,554
(Decrease) increase in income taxes payable. (11,686) 4,005 22,499
Increase (decrease) in accrued payroll and
related costs.............................. 4,139 (5,795) (20,102)
--------- --------- ---------
Net cash provided by operating activities. 87,205 77,577 29,308
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.......... (187,233) -- --
Proceeds from sale of equipment.............. 72,500 -- --
Loans to stockholder......................... (15,500) -- --
--------- --------- ---------
Net cash used in investing activities..... (130,233) -- --
--------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings.......... -- -- 125,000
Principal payments on long-term debt......... (40,195) (3,254) (3,503)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................... (40,195) (3,254) 121,497
--------- --------- ---------
Net (decrease) increase in cash........... (83,223) 74,323 150,805
Cash at beginning of period................... 117,075 117,075 33,852
--------- --------- ---------
Cash at end of period......................... $ 33,852 $ 191,398 $ 184,657
========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.................................... $ 3,262 $ 399 $ 116
========= ========= =========
Income taxes................................ $ 24,486 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Alert Auto Transportation, Inc. (the "Company") was founded on May 20, 1988.
The Company's primary business is transporting vehicles for auto auctions,
transportation brokers, auto dealers, and individuals, primarily in the
Southeast. The Company has facilities in Guntersville, Alabama.
(b) Revenue Recognition
Revenue is derived from customers who require transportation of vehicles.
Transport revenue is recognized upon the delivery of the vehicles to their
final destination. Expenses related to the generation of revenue are
recognized as incurred.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. The
Company provides for depreciation of property and equipment using estimated
useful lives as follows:
<TABLE>
<S> <C>
Transportation equipment........................................... 10 years
Machinery and equipment............................................ 5-7 years
Office equipment................................................... 5-7 years
</TABLE>
(d) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(f) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment at May 31, 1998 consists of the following:
<TABLE>
<S> <C>
Transportation equipment........................................... $801,299
Machinery and equipment............................................ 16,587
Office equipment................................................... 17,741
--------
Total.......................................................... 835,627
Less accumulated depreciation...................................... 316,091
--------
Property and equipment, net........................................ $519,536
========
</TABLE>
5
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INDEBTEDNESS
Long-term debt at May 31, 1998 and 1997 consists of the following:
<TABLE>
<S> <C>
Note payable to AmSouth Bank, payable in monthly installments of
$3,618, including interest at 8.0 percent, maturing October 1998,
secured by equipment............................................. $ 17,798
Less installments due within one year............................. (17,798)
--------
Long-term debt, excluding current installments.................... $ --
========
</TABLE>
(4) LEASES AND RELATED PARTY TRANSACTIONS
The Company leases trucks from its sole stockholder which are utilized in
operations of the business. Lease payments are 25 percent of the revenue
generated by the leased trucks. The total payments made to the stockholder in
1998 related to the lease agreements was $488,421.
The Company leases the building used for its operations from its
stockholder. The lease is classified as an operating lease and the Company is
responsible for all operating costs related to the property. Rent paid to the
stockholder in 1998 was $65,100.
(5) INCOME TAXES
Income tax expense for the year ended May 31, 1998, consists of:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 9,099
State............................................................. 2,489
-------
11,588
-------
Deferred:
Federal........................................................... 7,978
State............................................................. 4,094
-------
12,072
-------
Total income tax expense........................................ $23,660
=======
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate for the year ended May 31, 1998:
<TABLE>
<S> <C>
Computed expected tax expense...................................... $ 47,068
State income tax, net of Federal tax benefit....................... 3,928
Effect of graduated tax rates...................................... (28,135)
Other.............................................................. 799
--------
Total income tax expense....................................... $ 23,660
========
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of May 31, 1998 are presented below:
<TABLE>
<S> <C>
Deferred tax asset:
Accounts receivable, principally due to allowance for doubtful
accounts....................................................... $ 1,479
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation................................................... (78,854)
--------
Net deferred tax liability.................................... $(77,375)
========
</TABLE>
6
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(6) CONCENTRATION OF BUSINESS RISKS
One customer, TNT Incorporated, accounted for approximately 22 percent of
Alert's sales in 1998. The loss of this customer could significantly affect
Alert's performance.
(7) SUBSEQUENT EVENTS
The Company's sole stockholder entered into a definitive agreement to sell
the Company to United Road Services, Inc. as of July 1, 1998.
7
<PAGE>
EXHIBIT 99.10
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The June 30, 1998 unaudited pro forma combined financial statements give
effect to the acquisitions by United Road Services, Inc. of E&R Towing &
Garage, Inc. and subsidiaries ("E&R") and Environmental Auto Removal, Inc.
("EAR"), which were consummated on August 21, 1998. Both of these acquisitions
were accounted for using the purchase method of accounting. The unaudited pro
forma combined balance sheet gives effect to the acquisitions of E&R and EAR
as if they had occurred on June 30, 1998. The unaudited pro forma combined
statements of operations give effect to the acquisitions of E&R and EAR as if
they had occurred on January 1, 1997.
The unaudited pro forma combined statements of operations also give effect
to the acquisitions by United Road Services, Inc. of Northland Auto
Transporters, Inc. and Northland Fleet Leasing, Inc., Falcon Towing and Auto
Delivery, Inc., Smith-Christensen Enterprises, Inc. and subsidiary, Caron Auto
Works, Inc. and Caron Auto Brokers, Inc., Absolute Towing and Transporting,
Inc., ASC Transportation Services and subsidiary and Silver State Towing &
Recovery, Inc. (collectively, the "Founding Companies"), which were
consummated simultaneously with the initial public offering completed on May
6, 1998, as if such acquisitions had occurred on January 1, 1997. All of these
acquisitions were accounted for using the purchase method of accounting.
The unaudited pro forma combined financial statements also give effect to
the acquisitions by United Road Services, Inc. of Neil's Used Truck and Car
Sales, Incorporated ("Neil's") which occurred on July 14, 1998, 5-L
Corporation and ADP Transport, Inc. ("5-L/ADP") which occurred on June 12,
1998, Car Transporters Corporation ("CTC") which occurred on July 9, 1998,
Schroeder Auto Carriers, Inc. ("Schroeder") which occurred on July 1, 1998,
Keystone Towing, Inc. ("Keystone") which occurred on August 7, 1998, Fast
Towing, Inc. ("Fast") which occurred on June 30, 1998 and Alert Auto Transport
("Alert") which occurred on July 2, 1998 (collectively, the "Selected Acquired
Companies"). The unaudited pro forma combined balance sheet gives effect to
the acquisitions of the Selected Acquired Companies (except for 5-L/ADP and
Fast, which actually occurred prior to June 30, 1998) as if such acquisitions
had occurred on June 30, 1998. The unaudited pro forma combined statement of
operations give effect to the acquisitions of all of the Selected Acquired
Companies as if such acquisitions had occurred on January 1, 1997. All of the
acquisitions of the Selected Acquired Companies were accounted for using the
purchase method of accounting.
To the extent the former owners of E&R, EAR, the Founding Companies and the
Selected Acquired Companies have agreed to reductions in salary, bonuses and
benefits, these reductions have been reflected in the unaudited pro forma
combined statements of operations. The pro forma adjustments are based on
estimates, available information and certain assumptions, and may be revised
as additional information becomes available. The pro forma financial
information does not purport to represent what United Road Services, Inc.'s
financial position or results of operations would actually have been had such
transactions occurred on these dates and are not necessarily representative of
United Road Services, Inc.'s financial position or results of operations for
any future period. Since United Road Services, Inc. E&R, EAR, the Founding
Companies and the Selected Acquired Companies were not under common control or
management during the periods presented, historical combined results may not
be comparable to, or indicative of, future performance. The accompanying
unaudited pro forma financial statements do not give effect to any other
acquisitions completed by United Road Services, Inc. since its initial public
offering. See note 1 to the notes to unaudited pro forma combined financial
statements.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this report.
1
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNITED
ROAD
SERVICES, PRO FORMA PRO FORMA PRO FORMA
INC. E&R EAR ADJUSTMENTS COMBINED NEIL'S CTC SCHROEDER KEYSTONE ALERT ADJUSTMENTS(C)
--------- ----- ----- ----------- --------- ------ ------ --------- -------- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents......... $ 40,931 1,084 1,143 (22,813)(a) 20,345 356 -- 108 100 34 (14,146)(d)
Accounts
receivable.......... 4,871 441 1,250 -- 6,562 946 898 808 152 165 --
Less: allowance.... -- -- -- -- -- 13 6 63 -- 7 --
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Accounts receivable,
net................. 4,871 441 1,250 -- 6,562 933 892 745 152 158 --
Accounts receivable
from related parties
and employees....... -- 446 -- (446)(b) -- 15 -- 8 4 -- --
Inventory........... -- -- 79 -- 79 191 -- -- 61 1 --
Notes receivables... -- 46 -- -- 46 -- -- -- 87 -- --
Prepaid and other
current assets...... 2,721 186 2 (108)(b) 2,801 30 66 39 82 3 --
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total Current
Assets............. 48,523 2,203 2,474 (23,367) 29,833 1,525 958 900 486 196 (14,146)
Property and
equipment, net...... 18,648 1,795 922 318 (a) 21,683 1,654 2,493 1,166 1,044 520 92
Accounts
receivable--related
parties--non-
current............. -- -- 805 -- 805 -- -- -- -- 17 --
Other non-current
assets, net......... 915 31 -- -- 946 -- 525 -- 85 -- --
Goodwill............ 65,650 -- -- 21,891 (a) 87,541 -- -- -- -- -- 23,605
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total Assets...... $133,736 4,029 4,201 (1,158) 140,808 3,179 3,976 2,066 1,615 733 9,551
======== ===== ===== ======= ======= ===== ====== ===== ===== === =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current installment
of notes payable.... $ 922 469 212 -- 1,603 133 4,918 -- 337 18 --
Current installment
of lease
obligations......... 1,247 -- -- -- 1,247 164 322 94 -- -- --
Borrowings under
line of credit...... -- -- -- -- -- -- 594 -- 97 -- --
Payable to related
parties--current.... 798 -- 622 (554)(b) 866 -- -- 180 -- -- --
Accounts payable.... 4,582 111 1,765 -- 6,458 85 1,776 158 216 75 --
Income taxes
payable............. 292 130 -- -- 422 -- -- -- -- -- --
Payable to
stockholders........ -- -- -- -- -- -- -- -- 33 -- --
Other accrued
liabilities......... 2,045 137 48 -- 2,230 480 674 56 429 20 --
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total Current
Liabilities....... 9,886 847 2,647 (554) 12,826 862 8,284 488 1,112 113 --
Notes payable,
excluding current
installments........ -- 323 39 -- 362 661 -- -- 349 -- --
Capital lease
obligations,
excluding current
installments........ 1,156 -- -- -- 1,156 176 -- 341 -- -- --
Payable to related
party............... -- -- 208 -- 208 -- -- -- -- -- --
Other Liability..... -- 17 -- -- 17 -- -- -- -- -- --
Deferred income
taxes............... 811 231 -- 127 (a) 1,169 -- -- -- -- 79 37
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total
Liabilities....... 11,853 1,418 2,894 (427) 15,738 1,699 8,284 829 1,461 192 37
Stockholders'
Equity:
Common stock....... 13 1 1 (2)(a) 13 1 10 35 20 1 (66)
Additional paid-in
capital............ 121,819 159 -- 3,028 (a) 125,006 -- -- -- -- -- 8,767
Retained earnings
(accumulated
deficit)........... 51 2,451 1,306 (3,757)(a) 51 1,479 (4,318) 1,202 134 540 813(d)
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total
Stockholders'
Equity
(deficit)....... 121,883 2,611 1,307 (731) 125,070 1,480 (4,308) 1,237 154 541 9,514
-------- ----- ----- ------- ------- ----- ------ ----- ----- --- -------
Total Liabilities
and Stockholders'
Equity.............. $133,736 4,029 4,201 (1,158) 140,808 3,179 3,976 2,066 1,615 733 9,551
======== ===== ===== ======= ======= ===== ====== ===== ===== === =======
<CAPTION>
PRO FORMA
COMBINED
AS ADJUSTED
-----------
<S> <C>
ASSETS
Cash and cash
equivalents......... 6,797
Accounts
receivable.......... 9,531
Less: allowance.... 89
-----------
Accounts receivable,
net................. 9,442
Accounts receivable
from related parties
and employees....... 27
Inventory........... 332
Notes receivables... 133
Prepaid and other
current assets...... 3,021
-----------
Total Current
Assets............. 19,752
Property and
equipment, net...... 28,652
Accounts
receivable--related
parties--non-
current............. 822
Other non-current
assets, net......... 1,556
Goodwill............ 111,146
-----------
Total Assets...... 161,928
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current installment
of notes payable.... 7,009
Current installment
of lease
obligations......... 1,827
Borrowings under
line of credit...... 691
Payable to related
parties--current.... 1,046
Accounts payable.... 8,768
Income taxes
payable............. 422
Payable to
stockholders........ 33
Other accrued
liabilities......... 3,889
-----------
Total Current
Liabilities....... 23,685
Notes payable,
excluding current
installments........ 1,372
Capital lease
obligations,
excluding current
installments........ 1,673
Payable to related
party............... 208
Other Liability..... 17
Deferred income
taxes............... 1,285
-----------
Total
Liabilities....... 28,240
Stockholders'
Equity:
Common stock....... 14
Additional paid-in
capital............ 133,773
Retained earnings
(accumulated
deficit)........... (99)
-----------
Total
Stockholders'
Equity
(deficit)....... 133,688
-----------
Total Liabilities
and Stockholders'
Equity.............. 161,928
===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
2
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
UNITED FOUNDING
ROAD COMPANIES(1) PRO
SERVICES, 1/1/98 - PRO FORMA FORMA
INC. 5/5/98 E&R EAR ADJUSTMENTS COMBINED NEIL'S 5-L/ADP CTC SCHROEDER KEYSTONE
--------- ------------ ----- ----- ----------- -------- ------ ------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue...... $8,468 19,035 2,929 8,539 (1,400)(f) 37,571 5,891 5,069 4,500 3,169 1,998
Cost of revenue.. 5,458 13,851 1,645 6,022 (1,821)(b)(f) 25,155 4,813 4,289 3,862 2,537 1,329
------ ------ ----- ----- ------ ------- ----- ----- ----- ----- -----
Gross profit.... 3,010 5,184 1,284 2,517 421 12,416 1,078 780 638 632 669
Selling general
and
administrative
expenses......... 2,667 3,525 662 1,740 (1,401)(a) 7,193 375 335 623 396 652
Goodwill
amortization..... 189 -- -- -- 657 (c) 846 -- -- -- -- --
------ ------ ----- ----- ------ ------- ----- ----- ----- ----- -----
Income (loss)
from operations.. 154 1,659 622 777 1,165 4,377 703 445 15 236 17
Other income
(expense):
Interest
expense......... (114) (451) (25) (7) 55 (d) (542) (47) -- (299) (18) (26)
Interest
income.......... 477 19 43 52 -- 591 -- -- -- -- --
Gain (loss) on
sale of assets.. -- (24) 19 13 -- 8 -- -- -- -- --
Other........... -- (232) 1 1 -- (230) -- 23 (54) 1 94
------ ------ ----- ----- ------ ------- ----- ----- ----- ----- -----
Income (loss)
before income
taxes............ 517 971 660 836 1,220 4,204 656 468 (338) 219 85
Income tax
expense (benefit)
................. 292 437 240 16 934 (e) 1,919 -- -- -- -- --
------ ------ ----- ----- ------ ------- ----- ----- ----- ----- -----
Net income (loss)
................. $ 225 534 420 820 286 2,285 656 468 (338) 219 85
====== ====== ===== ===== ====== ======= ===== ===== ===== ===== =====
Basic earnings
per share (g).... -- -- -- -- -- $ 0.29 -- -- -- -- --
=======
Diluted earnings
per share (g).... -- -- -- -- -- $ 0.28 -- -- -- -- --
=======
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
FAST ALERT ADJUSTMENTS AS ADJUSTED
------- ------ ------------- -----------
<S> <C> <C> <C> <C>
Net revenue...... 1,851 1,472 -- 61,521
Cost of revenue.. 915 1,375 (669)(i) 43,606
------- ------ ------------- -----------
Gross profit.... 936 97 669 17,915
Selling general
and
administrative
expenses......... 1,123 148 (1,273)(h) 9,572
Goodwill
amortization..... -- -- 648 (j) 1,494
------- ------ ------------- -----------
Income (loss)
from operations.. (187) (51) 1,294 6,849
Other income
(expense):
Interest
expense......... -- (1) -- (933)
Interest
income.......... 1 -- -- 592
Gain (loss) on
sale of assets.. (140) 21 -- (111)
Other........... -- -- -- (166)
------- ------ ------------- -----------
Income (loss)
before income
taxes............ (326) (31) 1,294 6,231
Income tax
expense (benefit)
................. 29 (11) 999 (k) 2,936
------- ------ ------------- -----------
Net income (loss)
................. (355) (20) 295 3,295
======= ====== ============= ===========
Basic earnings
per share (g).... -- -- -- $ 0.37
===========
Diluted earnings
per share (g).... -- -- -- $ 0.37
===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements
3
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNITED
ROAD TOTAL
SERVICES, FOUNDING PRO FORMA PRO FORMA 5-L/
INC. COMPANIES(1) E&R EAR ADJUSTMENTS COMBINED NEIL'S ADP CTC SCHROEDER KEYSTONE
--------- ------------ ----- ------ ----------- --------- ------ ----- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue...... $ -- 42,599 8,528 14,104 (2,800)(f) 62,431 9,553 9,852 6,676 5,799 3,943
Cost of revenue.. -- 31,258 5,193 10,889 (3,735)(b)(f) 43,605 8,246 8,390 5,708 4,568 2,607
----- ------ ----- ------ ------ ------ ----- ----- ----- ----- -----
Gross profit.... -- 11,341 3,335 3,215 935 18,826 1,307 1,462 968 1,231 1,336
Selling general
and administra-
tive expenses.... 174 8,070 2,851 2,671 (3,408)(a) 10,358 790 927 830 889 1,140
Goodwill amorti-
zation........... -- -- -- -- 1,706 (c) 1,706 -- -- -- -- --
----- ------ ----- ------ ------ ------ ----- ----- ----- ----- -----
Income (loss)
from operations.. (174) 3,271 484 544 2,637 6,762 517 535 138 342 196
Other income (ex-
pense):
Interest ex-
pense.......... -- (835) (114) (27) 156 (d) (820) (71) (10) (738) (31) (71)
Interest in-
come........... -- 48 48 41 -- 137 -- -- -- -- 2
Gain on sale of
assets......... -- 207 63 12 -- 282 -- -- 22 9 36
Other........... -- 201 -- (6) -- 195 -- 11 (200) 4 76
----- ------ ----- ------ ------ ------ ----- ----- ----- ----- -----
Income (loss)
before income
taxes............ (174) 2,892 481 564 2,793 6,556 446 536 (778) 324 239
Income tax ex-
pense............ -- 826 188 10 2,116 (e) 3,140 -- -- -- -- --
----- ------ ----- ------ ------ ------ ----- ----- ----- ----- -----
Net income
(loss)........... $(174) 2,066 293 554 677 3,416 446 536 (778) 324 239
===== ====== ===== ====== ====== ====== ===== ===== ===== ===== =====
Basic earnings
per share(g)..... -- -- -- -- -- $0.43 -- -- -- -- --
======
Diluted earnings
per share(g)..... -- -- -- -- -- $0.42 -- -- -- -- --
======
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
FAST ALERT ADJUSTMENTS AS ADJUSTED
------ ------ ------------- -----------
<S> <C> <C> <C> <C>
Net revenue...... 3,355 2,958 -- 104,567
Cost of revenue.. 1,776 2,418 (1,132)(i) 76,186
------ ------ ------------- -----------
Gross profit.... 1,579 540 1,132 28,381
Selling general
and administra-
tive expenses.... 1,432 301 (2,157)(h) 14,510
Goodwill amorti-
zation........... -- -- 1,015 (j) 2,721
------ ------ ------------- -----------
Income (loss)
from operations.. 147 239 2,274 11,150
Other income (ex-
pense):
Interest ex-
pense.......... (7) (9) -- (1,757)
Interest in-
come........... -- -- -- 139
Gain on sale of
assets......... (9) 24 -- 364
Other........... -- -- -- 86
------ ------ ------------- -----------
Income (loss)
before income
taxes............ 131 254 2,274 9,982
Income tax ex-
pense............ 47 89 1,551 (k) 4,827
------ ------ ------------- -----------
Net income
(loss)........... 84 165 723 5,155
====== ====== ============= ===========
Basic earnings
per share(g)..... -- -- -- $0.58
===========
Diluted earnings
per share(g)..... -- -- -- $0.58
===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements
4
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
United Road Services, Inc. was founded in July 1997 to become a leading
national provider of motor vehicle and equipment towing and transport
services. United Road Services, Inc. acquired the Founding Companies
simultaneously with its initial public offering completed on May 6, 1998, and
E&R and EAR on August 21, 1998. United Road Services, Inc. also acquired
Neil's on July 14, 1998, 5-L/ADP on June 12, 1998, CTC on July 9, 1998,
Schroeder on July 1, 1998, Keystone on August 7, 1998, Fast on June 30, 1998
and Alert on July 2, 1998. The accompanying unaudited pro forma financial
statements give effect to all of these acquisitions.
Between May 6, 1998 and October 8, 1998, United Road Services, Inc. has also
acquired 18 other motor vehicle and equipment towing, recovery and transport
service businesses for an aggregate of $19.4 million in cash and 675,977
shares of Common Stock. The unaudited pro forma financial information does not
give any effect to these additional acquisitions.
2. ACQUISITIONS
The following table sets forth the consideration paid in cash and in shares
of Common Stock to the stockholders of E&R, EAR and the Selected Acquired
Companies.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
(DOLLARS IN THOUSANDS)
<S> <C> <C>
E&R................................................ $ 13,250 --
EAR................................................ 9,563 173,498
Neil's............................................. 6,000 --
5-L/ADP............................................ 2,533 212,023
CTC................................................ 1,350 --
Schroeder.......................................... 969 125,000
Keystone........................................... 4,531 377,624
Fast............................................... 5,255 --
Alert.............................................. 1,146 144,785
---------- ------------
Total............................................ $ 44,597 1,032,930
========== ============
</TABLE>
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Reflects the acquisitions of E&R and EAR by United Road Services, Inc.
for a purchase price of $26.0 million consisting of $22.8 million in cash and
173,498 shares of Common Stock valued at $3.2 million. The purchase price less
the net assets acquired, including an adjustment for property and equipment to
reflect fair market value, including the resulting tax effect, results in
goodwill of $21.9 million. Based upon management's preliminary analysis, it is
anticipated that the historical value of the assets and liabilities of the
acquired companies, with the exception of the adjustments made for property
and equipment, will approximate fair value. Management has not identified any
other material tangible or intangible assets to which a portion of the
purchase price could be reasonably allocated.
(b) Reflects the elimination of the receivables and payable between E&R and
EAR at June 30, 1998.
5
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(c) Reflects the acquisitions of Neil's, CTC, Schroeder, Keystone and Alert
by United Road Services, Inc. for a purchase price of $22.8 million,
consisting of $14.0 million in cash and 647,409 shares of Common Stock. The
purchase price less the net assets acquired, including an adjustment for
property and equipment to reflect fair market value, including the resulting
tax effect, results in goodwill of $23.6 million. Based upon management's
preliminary analysis, it is anticipated that the historical value of the
assets and liabilities of the acquired companies, with the exception of the
adjustments made for property and equipment, will approximate fair value.
Management has not identified any other material tangible or intangible assets
to which a portion of the purchase price could be reasonably allocated.
(d) Reflects a $150,000 distribution to Keystone's former shareholder for
taxes on S corporation earnings.
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
Six-months ended June 30, 1998 and year ended December 31, 1997
(a) Reflects reductions in salaries, bonuses and benefits to which the
former stockholders of the Founding Companies, E&R and EAR have agreed of $1.4
million and $3.4 million for the six months ended June 30, 1998 and the year
ended December 31, 1997, respectively.
(b) Adjusts the depreciation of vehicles based upon adjusted carrying values
utilizing lives of 10 to 15 years.
(c) Reflects the amortization over a 40-year estimated life of goodwill to
be recorded as a result of the acquisition of the Founding Companies, E&R and
EAR.
(d) Reflects the reduction in interest expense related to $1.5 million and
$1.6 million of debt at June 30, 1998 and December 31, 1997, respectively,
which was repaid from the net proceeds of the initial public offering.
(e) Reflects the incremental provision for federal and state income taxes
relating to the entities being combined and other statements of operations
adjustments at an estimated rate of 38%.
(f) Reflects the elimination of $1.4 million and $2.8 million of revenue and
related cost of revenue between E&R and EAR for the six months ended June 30,
1998 and the year ended December 31, 1997, respectively.
6
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) The number of shares used in the calculations of basic and diluted
earnings per share have been derived as follows:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED AS
COMBINED ADJUSTED
<S> <C> <C>
Shares issued in connection with the formation of
United Road
Services, Inc. ................................... 2,604,000 2,604,000
Shares issued in the initial public offering....... 2,594,863 2,594,863
Shares issued in January 1998...................... 218,736 218,736
Shares issued in connection with the acquisitions
of the Founding Companies, E&R and EAR and the
Selected Acquired Companies....................... 2,549,239 3,408,671
--------- ---------
Basic shares estimated to be outstanding........... 7,966,838 8,826,270
Incremental effect of options on shares
outstanding....................................... 114,909 114,909
--------- ---------
Diluted shares estimated to be outstanding......... 8,081,747 8,941,179
========= =========
</TABLE>
(h) Adjusts the depreciation of vehicles based upon adjusted carrying
values utilizing lives of 10 to 15 years.
(i) Reflects the reductions in salaries, bonuses and benefits to which
the former stockholders of the Selected Acquired Companies have agreed in
the amounts of $1.3 million and $2.2 million for the six months ended June
30, 1998 and for the year ended December 31, 1997, respectively.
(j) Reflects the amortization over a 40-year estimated life of goodwill
to be recorded as a result of the acquisitions of the Selected Acquired
Companies.
(k) Reflects the incremental provisions for federal and state income
taxes relating to the entities being combined and other statements of
operations adjustments at an estimated rate of 38%.
7
