<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE PERIOD ENDED
SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number 000-24019
United Road Services, Inc.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3278455
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17 Computer Drive West
Albany, New York 12205
---------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 446- 0140
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes X No
--- ---
As of November 13, 2000, the registrant had 2,093,707 shares of common stock
issued and outstanding.
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<PAGE>
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
Form 10-Q For The Three and Nine Months Ended September 30, 2000
Index Page
Part I. - Financial Information
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended
September 30, 2000 and September 30, 1999 3
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and
September 30, 1999 4
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures about Market Risk 23
Part II. - Other Information
Item 2 Changes in Securities and Use of Proceeds 24
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 5 Other Events 25
Item 6 Exhibits and Reports on Form 8-K 26
Signatures 28
<PAGE>
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS September 30, 2000 December 31, 1999
------------------- ------------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,079 4,115
Trade receivables, net of allowance for doubtful
accounts of $1,997 at September 30, 2000
and $2,539 at December 31, 1999 20,777 23,709
Other receivables, net of allowance for doubtful accounts
of $155 at September 30, 2000 and $262 at December 31, 1999 1,528 1,161
Prepaid income taxes 1,543 3,534
Prepaid expenses and other current assets 2,088 2,274
Current portion of rights to equipment under finance contracts 239 435
--------- -------
Total current assets 29,254 35,228
Vehicles and equipment, net 69,686 78,212
Rights to equipment under finance contracts, excluding current portion 342 1,480
Deferred financing costs, net 5,726 4,109
Goodwill, net 78,042 203,337
Other non-current assets 257 79
--------- -------
Total assets $ 183,307 322,445
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases $ 203 268
Current installments of obligations for equipment under
finance contracts 239 435
Borrowings under credit facility 27,632 50,650
Accounts payable 6,677 7,464
Accrued expenses 10,022 9,489
Due to related parties - 1,130
--------- -------
Total current liabilities 44,773 69,436
Obligations under capital leases, excluding current installments 247 402
Obligations for equipment under finance contracts, excluding
current installments 342 1,480
Long-term debt 85,851 80,876
Deferred tax liability 9,878 2,666
Other long-term liabilities 1,027 1,172
--------- -------
Total liabilities 142,118 156,032
--------- -------
Stockholders' equity:
Preferred stock; $ 0.001 par value 5,000,000 shares authorized;
662,119 shares issued or outstanding 1 -
Common stock, $0.01 par value; 35,000,000 shares
authorized; 2,093,707 and 1,759,416
shares issued and outstanding at September 30, 2000
and December 31, 1999, respectively 21 18
Additional paid-in capital 217,710 191,877
Accumulated deficit (176,543) (25,482)
--------- -------
Total stockholders' equity 41,189 166,413
--------- -------
Total liabilities and stockholders' equity $ 183,307 322,445
========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------ -------- -------
Net revenue $61,346 64,150 189,526 189,085
Cost of revenue, excluding depreciation 48,796 50,207 150,730 140,191
Amortization of goodwill 740 1,472 3,419 4,266
Depreciation 2,489 2,579 7,526 6,543
Selling, general and administrative expenses 11,310 11,535 30,069 29,843
Impairment charge - - 129,455 -
------- ------ -------- -------
Income (loss) from operations (1,989) (1,643) (131,673) 8,242
Other income (expense):
Interest income 93 3 262 12
Interest expense (4,669) (3,353) (11,342) (7,984)
Other (47) (7) (421) (137)
------- ------ -------- -------
Income (loss) before income taxes (6,612) (5,000) (143,174) 133
Income tax (benefit) expense 813 (1,313) 7,598 1,340
------- ------ -------- -------
Net loss $(7,425) (3,687) (150,772) (1,207)
======= ====== ======== =======
Per share amounts:
Basic earnings (loss) $(3.73) (2.16) (80.73) (.71)
======= ====== ======== =======
Diluted earnings (loss) $(3.73) (2.16) (80.73) (.71)
======= ====== ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
2000 1999
---- ----
Net loss $(150,772) (1,207)
<S> <C> <C>
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 7,526 6,543
Amortization of goodwill 3,419 4,266
Impairment charge 129,455 -
Amortization of deferred financing costs 662 1,120
Write off of deferred financing costs 818 -
Provision for doubtful accounts 923 1,333
Deferred income taxes 7,212 2,080
Interest expense, paid-in-kind 4,975 4,060
Loss on sale of vehicles and equipment, net 188 200
Loss on sale of division 212 -
Changes in operating assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in trade receivables 1,915 (6,125)
Decrease (increase) in other receivables (167) 1,238
Decrease in prepaid income taxes 1,991 -
Decrease (increase) in prepaid expenses and
other current assets (249) 96
Decrease in other non-current assets 111 293
Decrease in accounts payable (922) (2,602)
Increase in accrued expenses 620 2,329
Decrease in long-term liabilities (397) -
Decrease in income taxes payable - (2,605)
--------- -------
Net cash provided by operating activities 7,520 11,019
--------- -------
Investing activities:
Acquisitions, net of cash acquired - (37,774)
Deposit on vehicles - (1,674)
Purchases of vehicles and equipment (4,570) (16,034)
Proceeds from sale of vehicles and equipment 751 711
Proceeds received from sale of division 450 -
Amounts payable to related parties (1,336) (2,221)
--------- -------
Net cash used in investing activities (4,705) (56,992)
--------- -------
Financing activities:
Proceeds from issuance of stock, net of registration costs 22,498 (313)
Proceeds from issuance of convertible subordinated debentures - 31,500
Net borrowings on revolving credit agreement 27,632 65,850
Repayments of credit facility (50,650) (34,000)
Payments of deferred financing costs (3,097) (2,146)
Payments on debt and capital leases assumed
in acquisitions (234) (14,904)
--------- -------
Net cash (used) provided by financing activities (3,851) 45,987
--------- -------
Increase (decrease) in cash and cash equivalents (1,036) 14
Cash and cash equivalents at beginning of period 4,115 3,381
--------- -------
Cash and cash equivalents at end of period $ 3,079 3,395
========= =======
</TABLE>
(continued)
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<PAGE>
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
2000 1999
------ ------
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
<S> <C> <C>
Interest $ 3,120 2,516
======= =====
Income taxes, net of refunds $(1,560) 1,870
======= =====
Supplemental disclosure of non-cash investing and financing
activity
Issuance of common stock related to
acquisitions, net $ 409 24,609
====== ======
Increase in other long-term liabilities for unpaid
cumulative dividend on preferred stock $ 289 -
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2000
(1) Summary of Significant Accounting Policies
(a) Interim Financial Statements
The unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in annual consolidated financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or
omitted pursuant to those rules and regulations, although United Road
Services, Inc. (the "Company") believes that the disclosures made are
adequate to make the information presented not misleading. In the
opinion of management, all adjustments necessary to fairly present the
Company's financial position, results of operations and cash flows
have been included. The results of operations for the interim periods
are not necessarily indicative of the results for the entire fiscal
year.
It is suggested that these condensed consolidated financial statements
be read in conjunction with the audited consolidated financial
statements and notes thereto included in United Road Services, Inc.'s
Annual Report on Form 10-K, as amended, for the year ended December
31, 1999, as filed with the SEC.
(b) Organization and Business
United Road Services, Inc., a Delaware corporation, was formed in July
1997 to become a leading national provider of motor vehicle and
equipment towing, recovery and transport services. From inception
through May 5, 1999, the Company acquired 56 businesses (the "Acquired
Companies"), seven of which (the "Founding Companies") were acquired
simultaneously with the consummation of an initial public offering of
the Company's common stock. Consideration for these businesses
consisted of cash, common stock and the assumption of indebtedness.
All of these acquisitions were accounted for utilizing the purchase
method of accounting.
The Company operates in two reportable operating segments: (1)
transport and (2) towing and recovery. The transport segment provides
transport services to a broad range of customers in the new and used
vehicle markets. Revenue from transport services is derived according
to pre-set rates based on mileage or a flat fee. Customers include
automobile manufacturers, leasing and insurance companies, automobile
auction companies, automobile dealers, and individual motorists.
The towing and recovery segment provides towing, impounding and
storing services, lien sales and auctions of abandoned vehicles. In
addition, the towing and recovery segment provides recovery and
relocation services for heavy-duty commercial vehicles and
construction equipment. Revenue from towing and recovery services is
principally derived from rates based on distance, time or fixed
charges, and any related impound and storage fees. Customers of the
towing and recovery division include automobile dealers, repair shops
and fleet operators, insurance companies, law enforcement agencies,
municipalities and individual motorists.
(c) Basis of Presentation
The accompanying condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. The results of
operations of the Acquired Companies have been included in the
Company's results of operations from their respective acquisition
dates. All significant intercompany transactions have been eliminated
in consolidation.
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<PAGE>
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
(1) Continued
(d) 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
unaudited condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America. Actual results could differ from those estimates.
(e) Per Share Amounts
Basic earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per
share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
shared in the earnings (loss) of the Company (such as stock options,
warrants and convertible subordinated debentures).
The following table provides calculations of both basic and diluted loss
per share:
Three months ended September 30, 2000
-------------------------------------
Weighted
average Per share
Net loss shares amounts
-------- ------ -------
Basic $(7,425,000) 1,989,693 $(3.73)
=========== ========= ======
Diluted $(7,425,000) 1,989,693 $(3.73)
=========== ========= ======
Three months ended September 30, 1999
-------------------------------------
Weighted
average Per share
Net loss shares (1) amounts (1)
-------- ----------- ------------
Basic $(3,687,000) 1,708,900 $(2.16)
=========== ========= ======
Diluted $(3,687,000) 1,708,900 $(2.16)
=========== ========= ======
Nine months ended September 30, 2000
------------------------------------
Weighted
average Per share
Net loss shares amounts
-------- ------ -------
Basic $(150,772,000) 1,867,671 $(80.73)
============= ========= =======
Diluted $(150,772,000) 1,867,671 $(80.73)
============= ========= =======
-7-
<PAGE>
Nine months ended September 30, 1999
------------------------------------
Weighted
average Per share
Net loss shares (1) amounts (1)
-------- ---------- -----------
Basic $ (1,207,000) 1,688,245 $ (.71)
============= ========= =======
Diluted $ (1,207,000) 1,688,245 $ (.71)
============= ========= =======
(1) Gives effect to a one-for-ten reverse stock split effected on May
4, 2000.
The impact of the Company's outstanding stock options, warrants,
convertible subordinated debentures and shares held in escrow has been
excluded, as the effect would be antidilutive.
(f) Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which established accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Statement No.
133 has subsequently been amended by Financial Accounting Standards
Board Statement ("SFAS") No. 137 which delays the effective date for
implementation of Statement No. 133 until fiscal quarters of fiscal
years beginning after June 15, 2000. Management is currently
evaluating the impact of Statement No. 133 on the Company's
consolidated financial statements and has formed a committee to review
all contractual arrangements of the Company.
(g) Goodwill
In accordance with Accounting Principles Board Opinion No. 17,
Intangible Assets, the Company continually evaluates whether events
and circumstances that may affect the characteristics or comparable
data discussed above warrant revised estimates of the useful lives or
recognition of a charge-off of the carrying amounts of the associated
goodwill.
The Company performs an analysis of the recoverability of goodwill
using a cash flow approach consistent with the Company's analysis of
impairment of long-lived assets under SFAS No. 121. This approach
considers the estimated undiscounted future operating cash flows of
the Company. The amount of goodwill impairment, if any, is measured
on estimated fair value based on the best information available. The
Company generally estimates fair value by discounting estimated future
cash flows using a discount rate reflecting the Company's average cost
of funds.
(2) Stockholders' Equity
On January 1, 2000, 3,077 shares of the Company's common stock,
representing a fair value of $50,000, were granted to the Company's Chief
Executive Officer, as required under his employment agreement. On May 4,
2000, the Company effected a one-for-ten reverse stock split of its common
stock. All share and per-share amounts in the accompanying unaudited
condensed consolidated financial statements have been restated to give
effect to the reverse stock split.
On July 20, 2000, the Company sold 613,073.27 shares of its Series A
Participating Convertible Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock") to Blue Truck Acquisition, LLC, a Delaware
limited liability company ("Blue Truck") which is controlled by KPS Special
Situations Fund, L.P. ("KPS"), for $25.0 million in cash consideration (the
"KPS Transaction"). In addition, on July 20, 2000, the Company sold
49,045.86 shares of its Series A Preferred Stock to CFE, Inc. ("CFE"), an
affiliate of General Electric Capital Corporation ("GE Capital") for $2.0
million in cash consideration (the "CFE Transaction").
Holders of the Series A Preferred Stock are entitled to vote together with
the holders of the Common Stock as a single class on matters submitted to
the Company's stockholders for a vote (other than with respect to certain
elections of directors). The holder of each share of Series A Preferred
Stock is entitled to the number of votes
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<PAGE>
equal to the number of full shares of Common Stock into which such share of
Series A Preferred Stock could be converted on the record date for such
vote. The holders of Series A Preferred Stock have the right to designate
and elect six members of the Company's Board of Directors, which
constitutes a majority, for so long as Blue Truck and its permitted
transferees continue to own specified amounts of Series A Preferred Stock.
At lower levels of ownership, the holders of Series A Preferred Stock will
be entitled to designate and elect three directors, one director, or no
directors, depending upon the amount of Series A Preferred Stock then held
by Blue Truck and its permitted transferees, as set forth in the Investors'
Agreement relating to the KPS Transaction.
Prior to July 20, 2008, holders of the outstanding Series A Preferred Stock
are entitled to receive cumulative dividends on the Series A Preferred
Stock each quarter at the rate per annum of (i) 5.5% until July 20, 2006,
and (ii) 5.0% thereafter, of the Series A Preferred Base Liquidation Amount
(as defined below) per share of Series A Preferred Stock. The "Series A
Preferred Base Liquidation Amount" is equal to the purchase price per share
of the Series A Preferred Stock ($40.778), subject to certain adjustments.
The dividends are payable in cash at the end of each quarter or, at the
election of the Company, will cumulate to the extent unpaid. In the event
that the Company elects to cumulate such dividends, dividends will also
accrue on the amount cumulated at the same rate. Once the election to
cumulate a dividend has been made, the Company may no longer pay such
dividend in cash, other than in connection with a liquidation, dissolution
or winding up of the Company. In addition, holders of the Series A
Preferred Stock are entitled to participate in all dividends payable to
holders of the Common Stock. The Company's obligation to pay dividends
terminates on July 20, 2008, or earlier if the Company's Common Stock
trades above a specified price level.
Each share of Series A Preferred Stock is convertible at any time by its
holder into a number of shares of Common Stock equal to the sum of (i) the
quotient obtained by dividing (x) the Series A Preferred Base Liquidation
Amount by (y) the conversion price per share for the Series A Preferred
Stock (currently $4.0778 and subject to certain adjustments) (the
"Conversion Price") plus (ii) the quotient obtained by dividing (x) the
amount, if any, by which the Series A Preferred Liquidation Preference
Amount (as defined below) that has accrued at any time prior to July 20,
2005 exceeds the Series A Preferred Base Liquidation Amount by (y) the
product of the Conversion Price and 0.85. The "Series A Preferred
Liquidation Preference Amount" is the sum of the Series A Preferred Base
Liquidation Amount and the amount of any and all unpaid dividends on the
Series A Preferred Stock. The Series A Preferred Stock automatically
converts into Common Stock upon the occurrence of certain business
combinations, unless the holders elect to exercise their liquidation
preference rights.
(3) Due to Related Parties
The Company is obligated to make certain earn-out payments to the former
owners of the Founding Companies and one other Acquired Company. For each
of the years 1998 through 2002, the Company will be required to make an
earn-out payment to the former owners of each of these companies that
achieves certain net revenue targets. The net revenue target for 1998 was
generally 110% of 1997 net revenue of the particular company, and for the
years 1999 through 2002 the net revenue target is 110% of the greater of
the prior year's actual net revenue or target net revenue. If the net
revenue target is achieved for a particular year, an initial payment,
generally equal to 5% of the excess of actual net revenue over the net
revenue target, is due. Upon achievement of the net revenue target for a
particular year, subsequent and equal payments will also be due for each
year through 2002, provided that the actual net revenue for the respective
subsequent year exceeds the actual net revenue for the year that the net
revenue target was first achieved. At December 31, 1999, the Company
recorded additional goodwill and a liability within accrued expenses on the
accompanying condensed consolidated balance sheet in the amount of $450,000
to reflect earn-out payments due. There were no earn-out payments due as
of September 30, 2000.
(4) Debt
On July 20, 2000, the Company and its subsidiaries entered into a new
senior secured revolving credit facility (the "GE Capital Credit Facility")
with a group of banks for which GE Capital acts as agent. On the same
date, the Company terminated its credit facility with a group of banks for
which Bank of America, N.A. acted as agent (the "Bank of America Credit
Facility") and repaid all amounts outstanding thereunder (approximately
$54.9 million, including letters of credit of $4.7 million).
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<PAGE>
The GE Capital Credit Facility has a term of five years and a maximum
borrowing capacity of $100 million. The facility includes a letter of
credit sub-facility of up to $15 million. The Company's borrowing capacity
under the GE Capital Credit Facility is limited to the sum of (i) 85% of
the Company's eligible accounts receivable, (ii) 80% of the net orderly
liquidation value of the Company's existing vehicles for which GE Capital
has received title certificates and other requested documentation, (iii)
85% of the lesser of the actual purchase price and the invoiced purchase
price of new vehicles purchased by the Company for which GE Capital has
received title certificates and other requested documentation, and (iv)
either 60% of the purchase price or 80% of the net orderly liquidation
value of used vehicles purchased by the Company for which GE Capital has
received title certificates, depending upon whether an appraisal of such
vehicles has been performed, in each case less reserves. As of September
30, 2000, approximately $35.9 million was outstanding under the GE Capital
Credit Facility (including letters of credit of $8.3 million) and an
additional $15.8 million was available for borrowing. In connection with
the facility, the Company has established a cash management spotter
pursuant to which all cash received by the Company is deposited into
accounts over which GE Capital has sole control of receipts and which is
applied on a daily basis to reduce amounts outstanding.
Interest accrues on amounts borrowed under the GE Capital Credit Facility,
at the Company's option, at either the Index Rate (as defined in the GE
Capital Credit Agreement) plus an applicable margin or the reserve adjusted
LIBOR Rate (as defined in the GE Capital Credit Agreement) plus an
applicable margin.
The rate is subject to adjustment based upon the performance of the
Company, the occurrence of an event of default or certain other events.
The GE Capital Credit Facility provides for payment by the Company of
customary fees and expenses.
The obligations of the Company and its subsidiaries under the GE Capital
Credit Facility are secured by a first priority security interest in the
existing and after-acquired real and personal, tangible and intangible
assets of the Company and its subsidiaries.
The GE Capital Credit Facility contains additional covenants requiring the
Company, among other things and subject to certain agreed-upon exceptions,
contained in the GE Capital Credit Facility, to (a) make certain
prepayments against principal, (b) maintain specified cash management
systems, (c) maintain specified insurance protection, (d) refrain from
commercial transactions, management agreements, service agreements and
borrowing transactions with certain related parties, (e) refrain from
making payments of cash dividends and other distributions to equity
holders, payments in respect of subordinated debt, payments of management
fees to certain affiliates and redemption of capital stock, (f) refrain
from mergers, acquisitions or sales of capital stock or a substantial
portion of the assets of the Company or its subsidiaries, (g) refrain from
direct or indirect changes in control, (h) limit capital expenditures and
(i) meet certain financial covenants.
On July 20, 2000, in connection with the KPS Transaction, the Company
cancelled all of its 8% Convertible Subordinated Debentures due 2008 (the
"1998 Debentures") issued to Charter URS LLC ("Charterhouse") pursuant to
the Purchase Agreement entered into between Charterhouse and the Company in
November 1998, and in lieu thereof, issued to Charterhouse $84.5 million
aggregate principal amount of new 8% Convertible Subordinated Debentures
due 2008 (the "Debentures") (which aggregate principal amount was equal to
the aggregate principal amount of the 1998 Debentures then outstanding plus
accrued interest thereon to July 20, 2000). Under the terms of the Amended
and Restated Purchase Agreement entered into between the Company and
Charterhouse (the "Amended Charterhouse Purchase Agreement"), the
Debentures are redeemable at par plus accrued interest under certain
circumstances. Charterhouse also waived its right to require the Company to
redeem the 1998 Debentures at 106.5% of the aggregate principal amount of
the 1998 Debentures upon consummation of the KPS Transaction and waived
certain corporate governance rights that existed under its Investor's
Agreement with the Company. In connection with these transactions, the
Company paid Charterhouse a fee of 183,922 shares of Common Stock, and
reimbursed Charterhouse approximately $200,000 for its fees and expenses
incurred in connection with the transaction.
(5) Segment and Related Information
The Company's divisions have been aggregated into two reportable segments:
(1) transport and (2) towing and recovery. The reportable segments are
considered by management to be strategic business units that offer
-10-
<PAGE>
different services and each of whose respective long-term financial
performance is affected by similar economic conditions.
The transport segment provides transport services to a broad range of
customers in the new and used vehicle markets. The towing and recovery
segment provides towing, impounding and storage services for motor
vehicles, lien sales and auto auctions of abandoned vehicles. In addition,
the towing and recovery segment provides recovery and relocation services
for heavy-duty commercial vehicles and construction equipment.
The accounting policies of each of the segments are the same as those of
the Company, as outlined in note 1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1999. Certain amounts have been
reclassified for consistent presentation. The Company evaluates the
performance of its operating segments through an evaluation of the
Company's income (loss) from operations. Accordingly, the Company's
summarized segment financial information is presented below on the basis of
income (loss) from operations for the three and nine month periods ended
September 30, 2000 and 1999. Inter-segment revenues and transfers are not
significant.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
<TABLE>
<CAPTION>
Three months ended September 30, 2000
-------------------------------------
Towing and
Transport Recovery Corporate Total
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Net revenues from external customers $37,003 24,343 - 61,346
Cost of revenue, including depreciation 31,322 19,963 - 51,285
Income (loss) from operations 1,681 1,062 (4,732) (1,989)
Three months ended September 30, 1999
-------------------------------------
Towing and
Transport Recovery Corporate Total
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Net revenues from external customers $38,437 25,713 - 64,150
Cost of revenue, including depreciation 31,585 21,201 - 52,786
Income (loss) from operations 1,859 599 (4,101) (1,643)
</TABLE>
The following are reconciliations of the information used by the chief
operating decision-maker to the Company's consolidated totals.
<TABLE>
<CAPTION>
Three months ended
September 30,
Reconciliation of income before income taxes: 2000 1999
---- ----
<S> <C> <C>
Total profit from reportable segments $ 2,743 2,458
Unallocated amounts:
Interest expense, net (4,576) (3,350)
Other selling, general and administrative costs (4,732) (4,101)
Other expense (47) (7)
---------- --------
Loss before income taxes $(6,612) (5,000)
=========== ========
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 2000
------------------------------------
Towing and
Transport Recovery Corporate Total
--------- -------- --------- -----
<S> <C> <C> <C> <C>
Net revenues from external customers $116,674 72,852 - 189,526
Cost of revenue, including depreciation 97,802 60,454 - 158,256
Impairment charge 81,151 48,304 - 129,455
Loss from operations (74,951) (46,741) (9,981) (131,673)
Nine months ended September 30, 1999
------------------------------------
Towing and
Transport Recovery Corporate Total
--------- -------- --------- -----
Net revenues from external customers $115,108 73,977 - 189,085
Cost of revenue, including depreciation 88,842 57,892 - 146,734
Income (loss) from operations 13,137 4,636 (9,531) 8,242
</TABLE>
The following are reconciliations of the information used by the chief
operating decision-maker to the Company's consolidated totals
<TABLE>
<CAPTION>
Nine months ended
September 30,
<S> <C> <C>
Reconciliation of income (loss) before income taxes: 2000 1999
---- ----
Total profit (loss) from reportable segments $(121,692) 17,773
Unallocated amounts:
Interest expense, net (11,080) (7,972)
Other selling, general and administrative costs (9,981) (9,531)
Other expense (421) (137)
--------- ------
Income (loss) before income taxes $(143,174) 133
========= ======
</TABLE>
(6) Disposition
On February 11, 2000, the Company incurred a loss of $212,000 relating to
the sale of the capital stock of Northshore Towing, Inc., North Shore
Recycling, Inc. and Evanston Reliable Maintenance, Inc. (collectively
"Northshore") located in Chicago, Illinois, for cash proceeds of $450,000
and a secured non-interest bearing promissory note in the principal amount
of $500,000. Northshore was a division within the Company's towing and
recovery segment.
(7) Impairment Charge
The Company periodically reviews the recorded value of its long-lived
assets to determine if the carrying amount of those assets may not be
recoverable based upon the future operating cash flows expected to be
generated by those assets. In accordance with SFAS No.121, during the
second quarter of 2000, based upon a comprehensive review of the Company's
long-lived assets, the Company recorded a non-cash impairment charge of
$11.4 million related to the write-down of a portion of the recorded asset
values, including allocated goodwill. The impairment charge recorded under
SFAS No. 121 included impairment expenses of $2.5 million on the
recoverability of vehicles and equipment at the Company's transport
divisions and $2.1 million on the recoverability of vehicles and equipment
at the Company's towing and recovery divisions and impairment charges of
$2.9 million on the recoverability of allocated goodwill at the Company's
transport divisions and $3.9 million on the recoverability of allocated
goodwill at the Company's towing and recovery divisions. The impairment
charge was recognized when the future undiscounted cash flows of these
divisions were estimated to be insufficient to recover their related
carrying values. As such, the carrying values of these assets were written
down to the Company's estimates of fair value.
-12-
<PAGE>
Additionally, in connection with its analysis of the recoverability of
goodwill as described in note 1 (g), the Company recorded an impairment
charge of $118.1 million during the second quarter of 2000. The non-cash
impairment charge recorded included $75.7 million related to the
recoverability of goodwill at the Company's transport divisions and $42.4
million related to the recoverability of goodwill at the Company's towing
and recovery divisions.
(8) Income Taxes
The use of loss carry forwards may be limited if a change in ownership of
the Company occurs under Section 382 of the Internal Revenue Code. As
described in note 4, on July 20, 2000, the Company sold shares of its
Series A participating convertible preferred stock. This sale caused an
Internal Revenue Code Section 382 ownership change resulting in a $7.5
million write off of the Company's 1999 and 1998 net operating loss carry
forwards, $1.9 million of which was written off during the three months
ended September 30, 2000.
Additionally, in reviewing the ability to realize the deferred tax assets
at June 30, 2000, the Company established a valuation allowance of $4.0
million.
-13-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
interim condensed consolidated financial statements and notes thereto included
in Item 1 of this Quarterly Report.
On May 4, 2000, the Company effected a one-for-ten reverse stock split of its
common stock. All share and per-share amounts in the accompanying unaudited
condensed consolidated financial statements have been restated to give effect to
the reverse stock split.
Cautionary Statements
From time to time, in written reports and oral statements, management may
discuss its expectations regarding United Road Services, Inc.'s future
performance. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies or other actions taken or to be taken by the Company,
including the impact of such plans, strategies or actions on the Company's
results of operations or components thereof, projected or anticipated benefits
from operational changes, acquisitions or dispositions made or to be made by the
Company, or projections, involving anticipated revenues, costs, earnings or
other aspects of the Company's results of operations. The words "expect,"
"believe," "anticipate," "project," "estimate," "intend" and similar
expressions, and their opposites, are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance but rather are based on currently available competitive, financial
and economic data and management's operating plans. These forward-looking
statements involve risks and uncertainties that could render actual results
materially different from management's expectations. Such risks and
uncertainties include, without limitation, the availability of capital to fund
operations, including expenditures for new equipment, risks related to the
Company's limited operating history, risks related to the Company's ability to
successfully implement its revised business strategy, the loss of significant
customers and contracts, changes in applicable regulations, including but not
limited to, various federal, state and local laws and regulations regarding
equipment, driver certification, training, recordkeeping and workplace safety,
risks related to the Company's ability to integrate acquired companies, risks
related to the adequacy, functionality, sufficiency and cost of the Company's
information systems, potential exposure to environmental and other unknown or
contingent liabilities, risks associated with the Company's labor relations,
changes in the general level of demand for towing, recovery and transport
services, price changes in response to competitive factors, seasonal and other
variations in the demand for towing, recovery and transport services, general
economic conditions, and other risk factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission (the "Risk
Factors"). All statements herein that are not statements of historical fact are
forward-looking statements. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that those expectations will prove to have been correct. Certain
other important factors that could cause actual results to differ materially
from management's expectations ("Cautionary Statements") are disclosed in this
Report. All written forward-looking statements by or attributable to management
in this Report are expressly qualified in their entirety by the Risk Factors and
the Cautionary Statements. Investors must recognize that events could turn out
to be significantly different from what management currently expects.
Overview
The Company operates in two reportable operating segments: (1) transport and (2)
towing and recovery. Through its transport segment, the Company provides
transport services for new and used vehicles to a broad range of customers
throughout the United States. Through its towing and recovery segment, the
Company provides a variety of towing and recovery services in its local markets,
including towing, impounding and storing motor vehicles, conducting lien sales
and auctions of abandoned vehicles, towing heavy equipment and recovering and
towing heavy-duty commercial and recreational vehicles. The Company's customers
include commercial entities, such as automobile manufacturers, automobile
leasing companies, insurance companies, automobile auction companies, automobile
dealers, repair shops and fleet operators; law enforcement agencies such as
police, sheriff and highway patrol departments; and individual motorists.
The Company derives revenue from towing, recovery and transport services based
on distance, time or fixed charges and from related impounding and storage fees.
If an impounded vehicle is not claimed within a period prescribed by law
(typically between 30 and 90 days), the Company initiates and completes lien
proceedings and the vehicle is sold at auction or to a scrap metal facility,
depending on the value of the vehicle. Depending on the jurisdiction, the
Company
-14-
<PAGE>
may either keep all the proceeds from the vehicle sales, or keep the proceeds up
to the amount of the towing and storage fees and pay the remainder to the
municipality or law enforcement agency. Services are provided in some cases
under contracts with towing, recovery and transport customers. In other cases,
services are provided to towing, recovery and transport customers without a
long-term contract. The prices charged for towing and storage of impounded
vehicles for municipalities or law enforcement agencies are limited by
contractual provisions or local regulation.
In the case of law enforcement and private impound towing, payment is obtained
either from the owner of the impounded vehicle when the owner claims the vehicle
or from the proceeds of lien sales, scrap sales or auctions. In the case of the
Company's other operations, customers are billed upon completion of services
provided, with payment generally due within 30 days. Revenue is recognized as
follows: towing and recovery revenue is recognized at the completion of each
engagement; transport revenue is recognized upon the delivery of the vehicle or
equipment to its final destination; revenue from lien sales or auctions is
recognized when title to the vehicle has been transferred; and revenue from
scrap sales is recognized when the scrap metal is sold. Expenses related to the
generation of revenue are recognized as incurred.
Cost of revenue consists primarily of the following: salaries and benefits of
drivers, dispatchers, supervisors and other employees; fees charged by
subcontractors; fuel; depreciation, repairs and maintenance; insurance; parts
and supplies; other vehicle expenses; and equipment rentals.
Selling, general and administrative expenses consist primarily of the following:
compensation and benefits to sales and administrative employees; fees for
professional services; depreciation of administrative equipment and software;
advertising; and other general office expenses.
At the time of its initial public offering in May 1998, the Company acquired the
seven Founding Companies. Between May 6, 1998 and May 5, 1999, the Company
acquired a total of 49 additional motor vehicle and equipment towing, recovery
and transport service businesses. During the third quarter of 1999, the Company
made the strategic decision not to pursue its acquisition program in the near
term in order to allow the Company to focus primarily on integrating and
profitably operating the 56 businesses it had acquired within its first year of
operations. The goal of the Company's revised business strategy is to improve
the operational efficiency and profitability of its existing businesses in order
to build a stable platform for future growth, which may or may not include
additional acquisitions. Key elements of the Company's revised business strategy
include providing high quality service, expanding the Company's scope of
services and customer base and improving operating performance and
profitability. The Company has not completed any acquisitions since May 5,
1999. The Company's ability to complete acquisitions in the future will depend,
to a great degree, upon its success in implementing operational improvements and
the availability of capital.
Management's discussion and analysis addresses the Company's historical results
of operations as shown in its unaudited condensed consolidated financial
statements for the three and nine months ended September 30, 2000 and 1999. The
historical results for each of the three and nine months ended September 30,
1999 include the results of all businesses acquired prior to September 30, 1999
from their respective dates of acquisition.
Results of Operations
In the first quarter of 1999, the Company acquired nine transport businesses and
three towing and recovery businesses. In the second quarter of 1999, the
Company acquired one transport business and one towing and recovery business.
In the first quarter of 2000, the Company sold one towing and recovery division.
In the second quarter of 2000, the Company closed two transport divisions and
one towing and recovery division, and in some cases allocated certain equipment
to other divisions. In the third quarter of 2000, the Company closed one towing
and recovery division and allocated certain equipment to other divisions.
The following tables set forth selected statement of operations data by segment
and for the Company as a whole, as well as such data as a percentage of net
revenue, for the periods indicated:
-15-
<PAGE>
Three months ended September 30, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Transport Towing and Recovery Total
--------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue........................................... $37,003 100.0% $24,343 100.0% $61,346 100.0%
Cost of revenue, including depreciation............... 31,322 84.6 19,963 82.0 51,285 83.6
Selling, general and administrative
expenses (1).................................... 3,562 9.6 3,016 12.4 11,310 18.4
Amortization of goodwill ............................. 438 1.2 302 1.2 740 1.2
------- ----- ------- ----- ------- ------
Income (loss) from operations......................... $ 1,681 4.5% $ 1,062 4.4% (1,989) (3.2)
======= ===== ======= =====
Interest expense, net................................. 4,576 7.5
Other expense, net.................................... 47 0.1
------- ------
Loss before income taxes.............................. (6,612) (11.2)
Income tax expense.................................... 813 1.1
------- ------
Net loss.............................................. $(7,425) (12.1)%
======= ======
</TABLE>
Three months ended September 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Transport Towing and Recovery Total
---------------- -------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue........................................... $38,437 100.0% $25,713 100.0% $64,150 100.0%
Cost of revenue, including depreciation............... 31,585 82.2 21,201 82.5 52,786 82.3
Selling, general and administrative
expenses (1).................................... 4,202 10.9 3,256 12.7 11,535 18.0
Amortization of goodwill.............................. 791 2.1 657 2.5 1,472 2.3
------- ----- ------- ---- ------- -----
Income (loss) from operations......................... $ 1,859 4.8% $ 599 2.3% (1,643) (2.6)
======= ===== ======= ====
Interest expense, net................................. 3,350 5.2
Other expense, net.................................... 7 -
------- -----
Loss before income taxes.............................. (5,000) (7.8)
Income tax benefit... ................................ 1,313 2.0
------- -----
Net loss.............................................. $(3,687) (5.8)%
======= =====
</TABLE>
_______________________________
(1) Total selling, general and administrative expenses include corporate
selling, general and administrative expenses of $4,732 and $4,101 for the
three months ended September 30, 2000 and 1999, respectively.
Three months ended September 30, 2000 compared to three months ended September
30, 1999
Net Revenue. Net revenue decreased $2.9 million, or 4.5%, from $64.2 million
for the three months ended September 30, 1999 to $61.3 million for the three
months ended September 30, 2000. Of the net revenue for the three months ended
September 30, 2000, 60.3% related to transport services and 39.7% related to
towing and recovery services. Transport net revenue decreased $1.4 million, or
3.6%, from $38.4 million for the three months ended September 30, 1999 to $37.0
million for the three months ended September 30, 2000. The decrease in transport
net revenue was due to weak performance of certain transport businesses
subsequent to the Company's consolidation of divisions and the closure of two
transport divisions in the second quarter of 2000. Towing and recovery net
revenue decreased $1.4 million, or 5.4%, from $25.7 million for the three months
ended September 30, 1999 to $24.3 million for the three months ended September
30, 2000. The decrease in towing and recovery net revenue was due to weak
performance of certain towing and recovery businesses subsequent to acquisition,
which performance was, in some cases, also negatively affected by the Company's
consolidation of divisions, the sale of one towing division and the closure of
two other towing and recovery divisions during 2000.
Cost of Revenue. Cost of revenue, including depreciation, decreased $1.5
million, or 2.8%, from $52.8 million for the three months ended September 30,
1999 to $51.3 million for the three months ended September 30, 2000. Transport
cost of revenue decreased $263,000, or 0.8%, from $31.6 million for the three
months ended September 30, 1999 to $31.3 million for the three months ended
September 30, 2000. The principal components of the decrease in transport cost
of revenue consisted of a decrease in transport labor costs of $831,000 and a
decrease in insurance expense of $386,000 (each
-16-
<PAGE>
of which was due in part to the closure of two transport divisions during 2000),
offset in part by an increase in parts and supplies of $724,000 and an increase
in fuel costs of $277,000. Towing and recovery cost of revenue decreased $1.2
million, or 5.7%, from $21.2 million for the three months ended September 30,
1999 to $20.0 million for the three months ended September 30, 2000. The
principal components of the decrease in towing and recovery cost of revenue
consisted of a decrease in towing and recovery operating labor costs of
$983,000, a decrease in scrap vehicle purchases of $227,000 and a decrease in
facility rental expense of $104,000, offset in part by an increase in fuel costs
of $153,000. These decreases were due, in part, to the sale of one towing and
recovery division and the closure of two other towing and recovery divisions
during 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $225,000, or 2.2%, from $11.5 million for the
three months ended September 30, 1999 to $11.3 million for the three months
ended September 30, 2000. Transport selling, general and administrative
expenses decreased $640,000, or 15.2%, from $4.2 million for the three months
ended September 30, 1999 to $3.6 million for the three months ended September
30, 2000. The principal components of the decrease in the Company's transport
selling, general and administrative expenses for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999,
consisted of a decrease in wages and benefits expense of $481,000, a decrease in
travel expense of $88,000 and a decrease in computer and telecommunications
expenses of $52,000 (each of which was due in part to the closure of two
transport divisions during 2000). Towing and recovery selling, general and
administrative expenses decreased $240,000, or 7.4%, from $3.3 million for the
three months ended September 30, 1999 to $3.0 million for the three months ended
September 30, 2000. The principal component of the decrease in the Company's
towing and recovery selling, general and administrative expenses for the three
months ended September 30, 2000 as compared to the three months ended September
30, 1999, consisted of a decrease in salary and wages expense of $272,000, which
was due, in part, to the sale of one towing and recovery division and the
closure of two other towing and recovery divisions during 2000.
Corporate selling, general and administrative expenses increased $655,000, or
16.0%, from $4.1 million for the three months ended September 30, 1999 to $4.7
million for the three months ended September 30, 2000. The increase in
corporate selling, general and administrative expenses was primarily due to a
non-recurring charge of $2.1 million in 2000 related to contractual change of
control payments to certain members of management and an increase in
professional fees of $226,000. Such increase in corporate selling, general and
administrative expenses was offset, in part, by a decrease in acquisition-
related costs of $1.5 million as a result of the curtailment of the Company's
acquisition program in the third quarter of 1999, a decrease in computer and
telecommunications expense of $317,000, a decrease in salary and wage expense of
$196,000 and a decrease in travel expenses of $149,000.
Amortization of Goodwill. Amortization of goodwill decreased $732,000, or
49.7%, from $1.5 million for the three months ended September 30, 1999 to
$740,000 for the three months ended September 30, 2000. The decrease in
goodwill amortization was the result of impairment charges of $118.1 million as
of June 30, 2000 and $28.3 million as of December 31, 1999 associated with the
Company's ongoing review of the recorded value of its long-lived assets and the
recoverability of goodwill and the sale of one towing and recovery division in
the first quarter of 2000.
Income (loss) from Operations. Income from operations decreased $346,000, or
21.0%, from a loss of $1.6 million for the three months ended September 30, 1999
to a loss of $2.0 million for the three months ended September 30, 2000.
Transport income from operations decreased $178,000, or 9.6%, from income of
$1.9 million for the three months ended September 30, 1999 to income of $1.7
million for the three months ended September 30, 2000. The decrease in transport
income from operations was primarily due to a decline in revenue, offset, in
part, by decreased labor costs associated with transport cost of revenue and
decreased administrative wages, travel costs and computer and telecommunications
expenses related to the operation of the transport business segment, each of
which was due, in part, to the closure of two transport divisions during 2000.
Towing and recovery income from operations increased $464,000, or 77.5%, from
$599,000 for the three months ended September 30, 1999 to $1.1 million for the
three months ended September 30, 2000. The increase in towing and recovery
income from operations was primarily due to decreased administrative wages,
operating labor costs, scrap vehicle purchases and facility rental expenses,
each of which was due, in part, to the sale of one towing and recovery division
and the closure of two other towing and recovery divisions during 2000, offset
in part by a decline in revenue.
Interest Expense, net. Interest expense increased $1.2 million, or 35.3%, from
interest expense of $3.4 million for the three months ended September 30, 1999
to interest expense of $4.6 million for the three months ended September 30,
2000. Interest income increased $90,000 from interest income of $3,000 for the
three months ended September 30, 1999 to interest income of $93,000 for the
three months ended September 30, 2000. The increase in interest expense, net
was
-17-
<PAGE>
related to a non-recurring charge of $1.7 million relating to the refinancing of
the Company's credit facility with a new group of lenders, an effective interest
rate increase of approximately 1.4% in the third quarter of 2000 as compared to
the third quarter of 1999 and higher levels of debt incurred to finance the
acquisitions that occurred during the first half of 1999, offset in part by
lower borrowings in 2000 as a result of a $27.0 million equity investment in
July 2000.
Income Tax Expense. Income tax expense increased $2.1 million, from a benefit
of $1.3 million for the three months ended September 30, 1999 to an expense of
$813,000 for the three months ended September 30, 2000. The increase in income
tax expense was largely due to the Company's write off of net operating loss
carry forwards of $1.9 million in the three months ended September 30, 2000
combined with an income tax benefit of $1.2 million for the same period.
Net Income (loss). Net income decreased $3.7 million, from a net loss of $3.7
million for the three months ended September 30, 1999 to a net loss of $7.4
million for the three months ended September 30, 2000. The decrease in net
income related largely to the decrease in income from operations of $346,000
(which includes the non-recurring charge of $2.1 million related to contractual
change of control payments), the increase in net interest expense of $1.2
million (which includes the non-recurring charge of $1.7 million related to the
refinancing of the Company's credit facility), and the increase in income tax
expense of $2.1 million (which includes the non-recurring charge of $1.9 million
related to the write-off of operating loss carry forwards).
Nine months ended September 30, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Transport Towing and Recovery Total
----------------- --------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................................ $116,674 100.0% $ 72,852 100.0% $ 189,526 100.0%
Cost of revenue, including depreciation.................... 97,802 83.8 60,454 83.0 158,256 83.5
Selling, general and administrative
expenses (1)......................................... 10,687 9.2 9,401 10.6 30,069 15.9
Amortization of goodwill................................... 1,985 1.7 1,434 1.8 3,419 1.8
Impairment charge.......................................... 81,151 69.6 48,304 68.3 129,455 68.3
-------- ----- -------- ----- --------- ------
Loss from operations....................................... $(74,951) (64.2)% $(46,741) (64.2)% (131,673) (69.5)
======== ===== ======== =====
Interest expense, net...................................... 11,080 5.8
Other expense, net......................................... 421 0.2
--------- ------
Loss before income taxes................................... (143,174) (75.5)
Income tax expense......................................... 7,598 4.0
--------- ------
Net loss................................................... $(150,722) (79.5)%
========= ======
</TABLE>
Nine months ended September 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Transport Towing and Recovery Total
---------------- ------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................................ $115,108 100.0% $73,977 100.0% $189,085 100.0%
Cost of revenue, including depreciation.................... 88,842 77.2 57,892 78.3 146,734 77.6
Selling, general and administrative
expenses (1)......................................... 10,820 9.4 9,564 12.9 29,843 15.7
Amortization of goodwill................................... 2,309 2.0 1,855 2.5 4,266 2.3
-------- ---- ------- ---- -------- -----
Income from operations..................................... $ 13,137 11.4% $ 4,666 6.3% 8,242 4.4
======== ==== ======= ====
Interest expense, net...................................... 7,972 4.2
Other expense, net......................................... 137 0.1
-------- -----
Income before income taxes................................. 133 0.1
Income tax expense......................................... 1,340 0.7
-------- -----
Net loss .................................................. $ (1,207) 0.6%
======== ====
</TABLE>
____________________
(1) Total selling, general and administrative expenses include corporate
selling, general and administrative expenses of $9,981 and $9,531 for the
nine months ended September 30, 2000 and 1999, respectively.
-18-
<PAGE>
Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Net Revenue. Net revenue increased $441,000, or 0.2%, from $189.1 million for
the nine months ended September 30, 1999 to $189.5 million for the nine months
ended September 30, 2000. Of the net revenue for the nine months ended
September 30, 2000, 61.6% related to transport services and 38.4% related to
towing and recovery services. Transport net revenue increased $1.6 million, or
1.3%, from $115.1 million for the nine months ended September 30, 1999 to $116.7
million for the nine months ended September 30, 2000. The increase in transport
net revenue was largely due to the impact of the ten transport businesses
acquired during the first half of 1999 offset, in part, by weak performance of
certain transport businesses subsequent to the Company's consolidation of
certain divisions and the impact of the closure of two transport divisions
during 2000. Towing and recovery net revenue decreased $1.1 million, or 1.5%,
from $74.0 million for the nine months ended September 30, 1999 to $72.9 million
for the nine months ended September 30, 2000. The decrease in towing and
recovery net revenue was largely due to the sale of one towing and recovery
division and the closure of two other towing and recovery divisions during 2000,
and weak performance of certain towing and recovery businesses subsequent to
acquisition, which performance was, in some cases, also negatively affected by
the Company's consolidation of divisions, offset in part by the impact of the
four towing and recovery businesses acquired during the first half of 1999.
Cost of Revenue. Cost of revenue, including depreciation, increased $11.6
million, or 7.9%, from $146.7 million for the nine months ended September 30,
1999 to $158.3 million for the nine months ended September 30, 2000. Transport
cost of revenue increased $9.0 million, or 10.1%, from $88.8 million for the
nine months ended September 30, 1999 to $97.8 million for the nine months ended
September 30, 2000. The increase in transport cost of revenue was primarily due
to the impact of the ten transport businesses acquired during the first half of
1999 offset, in part, by the impact of the closure of two transport divisions
during 2000. The principal components of the increase in transport cost of
revenue consisted of an increase in transport operating labor costs of $1.7
million, an increase in fuel costs of $1.6 million, an increase in costs of
independent contractors, brokers and subcontractors of $3.4 million, an increase
in insurance liabilities associated with workers compensation and other claims
(that individually did not meet insurance deductibles) of $851,000 and an
increase in depreciation costs of $815,000. Towing and recovery cost of revenue
increased $2.7 million, or 4.7%, from $57.8 million for the nine months ended
September 30, 1999 to $60.5 million for the nine months ended September 30,
2000. The increase in towing and recovery cost of revenue was primarily due to
the impact of the four towing and recovery businesses acquired during the first
half of 1999 offset, in part, by the impact of the sale of one towing and
recovery division and the closure of two other towing and recovery divisions
during 2000. The principal components of the increase in towing and recovery
cost of revenue consisted of an increase in insurance liabilities associated
with workers compensation and other claims (that individually did not meet
insurance deductibles) of $1.1 million, an increase in fuel costs of $930,000
and an increase in towing and recovery operating labor costs of $542,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $226,000 from $29.8 million for the nine
months ended September 30, 1999 to $30.0 million for the nine months ended
September 30, 2000. Transport selling, general and administrative expenses
decreased $132,000, or 1.2%, from $10.8 million for the nine months ended
September 30, 1999 to $10.7 million for the nine months ended September 30,
2000. The principal components of the decrease in the Company's transport
selling, general and administrative expenses for the nine months ended September
30, 2000 as compared to the nine months ended September 30, 1999, consisted of a
decrease in salary and wages expense of $477,000 and a decrease in bad debt
expense of $135,000 (each of which was due, in part, to the closure of two
transport divisions during 2000), offset in part by an increase in computer and
telecommunication expenses of $127,000, an increase in advertising expense of
$158,000 and increased costs associated with managing and integrating the ten
transport businesses acquired during the first half of 1999. Towing and
recovery selling, general and administrative expenses decreased $164,000, or
1.7%, from $9.6 million for the nine months ended September 30, 1999 to $9.4
million for the nine months ended September 30, 2000. The principal components
of the decrease in the Company's towing and recovery selling, general and
administrative expenses for the nine months ended September 30, 2000 as compared
to the nine months ended September 30, 1999, consisted of a decrease in salary
and wages expense of $841,000 (which was due, in part, to the sale of one towing
and recovery division and the closure of two other towing and recovery divisions
during 2000), offset, in part, by an increase in advertising expense of
$308,000, an increase in professional fees of $79,000, an increase in bad debt
expense of $75,000, and an increase in other administrative expense of $129,000,
and increased costs associated with managing and integrating the four towing and
recovery businesses acquired during the first half of 2000.
Corporate selling, general and administrative expenses increased $522,000, or
5.5%, from $9.5 million for the nine months ended September 30, 1999 to $10.0
million for the nine months ended September 30, 2000. The increase in corporate
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selling, general and administrative expenses was primarily due to an increase in
salary and wages expense of $1.8 million (resulting primarily from a non-
recurring charge of $2.1 million in the third quarter of 2000 relating to
contractual change of control payments to certain members of management) and an
increase in professional fees of $1.2 million, offset, in part, by the absence
of certain non-recurring compensation charges and salary and wage expenses
incurred in 1999 (approximately $735,000 relating to the departure of the
Company's former chairman and chief executive officer and approximately $145,000
relating to salary and wage expenses), a decrease of $1.2 million in acquisition
costs as a result of the curtailment of the acquisition program in the third
quarter of 1999, and a decrease in insurance expense of $766,000.
Amortization of Goodwill. Amortization of goodwill decreased $847,000, or
19.9%, from $4.3 million for the nine months ended September 30, 1999 to $3.4
million for the nine months ended September 30, 2000. The decrease in goodwill
amortization was the result of impairment charges of $118.1 million as of June
30, 2000 and $28.3 million as of December 31, 1999 associated with the Company's
ongoing review of the recorded value of its long-lived assets and the
recoverability of goodwill and the sale of one towing and recovery division in
the first quarter of 2000.
Impairment Charge. Impairment charges were $129.5 million for the nine months
ended September 30, 2000. The impairment charges consisted of a non-cash charge
of $118.1 million related to recoverability of goodwill under APB Opinion No. 17
and a non-cash charge of $11.4 million related to the Company's comprehensive
review of its long-lived assets in accordance with SFAS No. 121. The impairment
charge recorded under APB Opinion No.17 included $75.7 million related to the
recoverability of goodwill at the Company's transport divisions and $42.4
million related to the recovery of goodwill at the Company's towing and recovery
divisions. The impairment charge recorded under SFAS No. 121 included
impairment charges of $2.5 million on the recoverability of vehicles and
equipment at the Company's transport divisions and $2.1 million on the
recoverability of vehicles and equipment at the Company's towing and recovery
divisions and impairment charges of $2.9 million on the recoverability of
allocated goodwill at the Company's transport divisions and $3.9 million on the
recoverability of allocated goodwill at the Company's towing and recovery
divisions.
Income (loss) from Operations. Income from operations decreased $139.9
million, from income of $8.2 million for the nine months ended September 30,
1999 to a loss of $131.7 million for the nine months ended September 30, 2000.
Excluding the effect of the impairment charge of $129.5 million, income from
operations decreased $10.4 million, or 126.8%, from income of $8.2 million for
the nine months ended September 30, 1999 to a loss of $2.2 million for the nine
months ended September 30, 2000. Transport income from operations decreased
$88.1 million, from income of $13.1 million for the nine months ended September
30, 1999 to a loss of $75.0 million for the nine months ended September 30,
2000. Excluding the effect of the transport impairment charge of $81.2 million,
transport income from operations decreased $6.9 million, or 52.7%, from $13.1
million for the nine months ended September 30, 1999 to $6.2 million for the
nine months ended September 30, 2000. The decrease in transport income from
operations was primarily due to increased labor and fuel expenses associated
with transport cost of revenue, offset, in part, by the impact of the ten
transport businesses acquired during the first half of 1999. Towing and
recovery income from operations decreased $51.3 million, from income of $4.6
million for the nine months ended September 30, 1999 to a loss of $46.7 million
for the nine months ended September 30, 2000. Excluding the effect of the
towing and recovery impairment charge of $48.3 million, towing and recovery
income from operations decreased $3.0 million, or 65.2%, from $4.6 million for
the nine months ended September 30, 1999 to $1.6 million for the nine months
ended September 30, 2000. The decrease in towing and recovery income from
operations was primarily due to increased operating labor, insurance and fuel
expenses and increased advertising and bad debt expenses offset, in part, by the
impact of the four towing and recovery businesses acquired during the first half
of 1999.
Interest Expense, net. Interest expense increased $3.3 million, or 41.3%, from
interest expense of $8.0 million for the nine months ended September 30, 1999 to
interest expense of $11.3 million for the nine months ended September 30, 2000.
Interest income increased $250,000 from interest income of $12,000 for the nine
months ended September 30, 1999 to interest income of $262,000 for the nine
months ended September 30, 2000. The increase in interest expense, net was
related to a non-recurring charge of $1.7 million relating to the refinancing of
the Company's credit facility with a new group of lenders, an effective interest
rate increase of approximately 1.4% in the nine months ended September 30, 2000
as compared to the nine months ended September 30, 1999 and higher levels of
debt incurred to finance the acquisitions that occurred during the first half
1999, offset, in part, by lower borrowings in third quarter of 2000 as a result
of a $27.0 million equity investment in July 2000.
Income Tax Expense. Income tax expense increased $6.3 million, from $1.3
million for the nine months ended September 30, 1999 to $7.6 million for the
nine months ended September 30, 2000. The increase in income tax expense was
largely
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due to the Company's write offs of net operating loss carry forwards of $1.9
million in September 2000 and $5.6 million in June 2000 and the establishment of
a valuation allowance of $4.0 million against the deferred tax asset, $883,000
of which was expensed and $3.1 million of which was recorded within the
effective tax rate offset by a tax benefit generated from a third quarter
operating loss.
Net Income (loss). Net income decreased $149.6 million, from a net loss of
$1.2 million for the nine months ended September 30, 1999 to a net loss of
$150.8 million for the nine months ended September 30, 2000. The decrease in
net income related largely to the decrease in income from operations of $139.9
million and an increase in income tax expense of $6.3 million for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999.
Liquidity and Capital Resources
As of September 30, 2000, the Company had approximately:
. $3.1 million of cash and cash equivalents,
. working capital deficit of $15.5 million (including the $27.6 million
outstanding under the credit facility which is reflected as a current
libility), and
. $85.9 million of outstanding indebtedness, excluding current installments.
During the nine months ended September 30, 2000, the Company generated $7.2
million of cash from operations. Cash provided by operations consisted
primarily of a decrease in trade receivables of $1.9 million and an income tax
refund of $1.8 million. During the nine months ended September 30, 2000, the
Company used $4.7 million of cash in investing activities and provided $3.6
million of cash from financing activities. Financing activities consisted of
the repayment of the Company's previous revolving credit facility of $50.7
million, net borrowings under its current credit facility of $27.6 million, the
issuance of preferred stock, net of registration costs, of $22.5 million,
payments on long-term debt and payments of deferred financing costs of $3.6
million. The Company expects to be able to fund its liquidity needs for the
foreseeable future through cash flow from operations and borrowings of amounts
available under its current revolving credit facility.
On July 20, 2000, in connection with the KPS Transaction (as described below),
the Company and its subsidiaries, entered into a new senior secured revolving
credit facility (the "GE Capital Credit Facility") with a group of banks for
which General Electric Capital Corporation ("GE Capital") acts as agent. On the
same date, the Company terminated its revolving credit facility with a group of
banks for which Bank of America, N.A. ("Bank of America") acted as agent (the
"Bank of America Credit Facility") and repaid all amounts outstanding thereunder
(approximately $54.9 million, including of letter of credit obligations of
approximately $4.7 million).
The GE Capital Credit Facility has a term of five years and a maximum borrowing
capacity of $100 million. The facility includes a letter of credit subfacility
of up to $15 million. The Company's borrowing capacity under the GE Capital
Credit Facility is limited to the sum of (i) 85% of the Company's eligible
accounts receivable, (ii) 80% of the net orderly liquidation value of the
Company's existing vehicles for which GE Capital has received title certificates
and other requested documentation, (iii) 85% of the lesser of the actual
purchase price and the invoiced purchase price of new vehicles purchased by the
Company for which GE Capital has received title certificates and other requested
documentation, and (iv) either 60% of the purchase price or 80% of the net
orderly liquidation value of used vehicles purchased by the Company for which GE
Capital has received title certificates and other requested documentation,
depending upon whether an appraisal of such vehicles has been performed, in each
case less reserves. As of September 30, 2000, approximately $35.9 million was
outstanding under the GE Capital Credit Facility (including letters of credit of
$8.3 million) and an additional $15.8 million was available for borrowing.
Interest accrues on amounts borrowed under the GE Capital Credit Facility, at
the Company's option, at either the Index Rate (as defined in the GE Capital
Credit Agreement) plus an applicable margin or the reserve adjusted LIBOR Rate
(as defined in the GE Capital Credit Agreement) plus an applicable margin. The
rate is subject to adjustment based upon the performance of the Company, the
occurrence of an event of default or certain other events. The GE Capital
Credit Facility provides for payment by the Company of customary fees and
expenses.
The obligations of the Company and its subsidiaries under the GE Capital Credit
Facility are secured by a first priority security interest in the existing and
after-acquired real and personal, tangible and intangible assets of the Company
and its subsidiaries.
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On May 19, 2000, the Company paid a commitment fee of $581,000 relating to the
GE Capital Credit Facility. On July 20, 2000, in connection with the closing of
the GE Capital Credit Facility, the Company paid a closing fee of $581,000 and
approximately $850,000 for legal and other expenses incurred by GE Capital and
CFE in connection with the GE Capital Credit Facility and the CFE Transaction
(as described below). At September 30, 2000, $1.9 million of these fees were
recorded within deferred financing costs and will be amortized over the five
year term of the GE Capital Credit Facility.
The GE Capital Credit Facility contains additional covenants requiring the
Company, among other things and subject to agreed-upon exceptions contained in
the GE Capital Credit Facility, to (a) make certain prepayments against
principal, (b) maintain specified cash management systems, (c) maintain
specified insurance protection, (d) refrain from commercial transactions,
management agreements, service agreements and borrowing transactions with
certain related parties, (e) refrain from making payments of cash dividends and
other distributions to equity holders, payments in respect of subordinated debt,
payments of management fees to certain affiliates and redemption of capital
stock, (f) refrain from mergers, acquisitions or sales of capital stock or a
substantial portion of the assets of the Company or its subsidiaries, (g)
refrain from direct or indirect changes in control, (h) limit capital
expenditures and (i) meet certain financial covenants.
The Company spent $4.6 million on purchases of vehicles and equipment during the
nine months ended September 30, 2000. These expenditures were primarily for the
purchase of, and capitalized repairs on, transport and towing and recovery
vehicles. During the nine months ended September 30, 2000, the Company made
expenditures of $404,000 on towing and recovery vehicles and $3.5 million on
transport vehicles. These expenditures were financed primarily with cash flow
from operations. During the three months ended September 30, 2000, 10 vehicles
were delivered (with a total purchase price of $1.7 million) pursuant to the
Company's March 2000 commitment to purchase 60 vehicles from a vehicle
manufacturer. Approximately $394,000 of the Company's $1.6 million deposit was
applied to the purchase of these vehicles. As of September 30, 2000, 25 of the
60 vehicles subject to the commitment had been delivered (with a total purchase
price of $3.8 million) and $922,000 of the deposit had been applied to such
purchases.
On July 20, 2000, the Company sold 613,073.27 shares of its Series A
Participating Convertible Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock") to Blue Truck Acquisition, LLC, a Delaware limited
liability company ("Blue Truck") which is controlled by KPS Special Situations
Fund, L.P. ("KPS"), for $25.0 million in cash consideration (the "KPS
Transaction"). In addition, on July 20, 2000, the Company sold 49,045.86
shares of its Series A Preferred Stock to CFE, Inc. ("CFE"), an affiliate of
General Electric Capital Corporation ("GE Capital") for $2.0 million in cash
consideration (the "CFE Transaction").
In connection with the KPS Transaction, the Company agreed to pay KPS Management
LLC, an entity affiliated with KPS, a transaction fee of $2.5 million ($1.25
million of which was paid in cash at closing and the remainder of which was paid
on October 31, 2000). The Company also reimbursed KPS for its fees and expenses
incurred in connection with the KPS Transaction, which totaled approximately
$750,000. In addition, the Company agreed to pay KPS Management LLC an annual
management fee of $1.0 million, which may be lowered to $500,000 and then to
zero based upon the amount of Series A Preferred Stock held by Blue Truck and
its permitted transferees. The Company also paid its financial advisor,
Donaldson, Lufkin & Jenrette Securities Corporation, a fee of $1.35 million in
cash upon closing of the KPS Transaction.
On July 20, 2000, in connection with the KPS Transaction, the Company cancelled
all of its 8% Convertible Subordinated Debentures due 2008 (the "1998
Debentures") issued to Charter URS LLC ("Charterhouse") pursuant to the Purchase
Agreement entered into between Charterhouse and the Company in November 1998,
and in lieu thereof, issued to Charterhouse $84.5 million aggregate principal
amount of new 8% Convertible Subordinated Debentures due 2008 (the "Debentures")
(which aggregate principal amount was equal to the aggregate principal amount of
the 1998 Debentures then outstanding plus accrued interest thereon to July 20,
2000). Under the terms of the Amended and Restated Purchase Agreement entered
into between the Company and Charterhouse (the "Amended Charterhouse Purchase
Agreement"), the Debentures are redeemable at par plus accrued interest under
certain circumstances. Charterhouse also waived its right to require the
Company to redeem the 1998 Debentures at 106.5% of the aggregate principal
amount of the 1998 Debentures upon consummation of the KPS Transaction and
waived certain corporate governance rights that existed under its Investor's
Agreement with the Company. In connection with these transactions, the Company
paid Charterhouse a fee of 183,922 shares of Common Stock, and reimbursed
Charterhouse for its fees and expenses incurred in connection with the
transaction, which totaled approximately $200,000.
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In connection with the closing of the KPS Transaction, the Company also paid an
aggregate amount equal to approximately $1.15 million to five of its senior
executives pursuant to the change of control provisions of each executive's
employment agreement with the Company. In addition, on September 30, 2000, the
Company paid its former Chief Financial Officer approximately $164,000 (in
addition to the $293,000 he received upon closing of the KPS Transaction)
pursuant to the change of control provisions of his employment agreement.
Subject to their continued employment, the Company is also obligated under such
change of control provisions to pay its executives an additional aggregate
amount of approximately $430,000 on each of the first and second anniversaries
of the closing of the KPS Transaction.
The Company currently has a negative net tangible book value. Accordingly,
based upon the current market price of the Common Stock, if the Company were
required to issue additional equity securities at this time, such issuance would
result in immediate and substantial dilution in book value to existing
investors.
Seasonality
The Company may experience significant fluctuations in its quarterly operating
results due to seasonal and other variations in the demand for towing, recovery
and transport services. Specifically, the demand for towing and recovery
services is generally highest in extreme or inclement weather, such as heat,
cold, rain and snow. Although the demand for automobile transport tends to be
strongest in the months with the mildest weather, since extreme or inclement
weather tends to slow the delivery of vehicles, the demand for automobile
transport is also a function of the timing and volume of lease originations, new
car model changeovers, dealer inventories and new and used auto sales.
General Economic Conditions and Inflation
The Company's future operating results may be adversely affected by (i) the
availability of capital to fund operations, including expenditures for new and
replacement equipment, (ii) the Company's success in improving operating
efficiency and profitability and in integrating its acquired businesses, (iii)
the loss of significant customers or contracts, (iv) the timing of expenditures
for new equipment and the disposition of used equipment (v) changes in
applicable regulations, including but not limited to, various federal, state and
local laws and regulations regarding equipment, driver certification, training,
recordkeeping and workplace safety, (vi) changes in the general level of demand
for towing, recovery and transport services, (vii) price changes in response to
competitive factors, (viii) event-driven variations in the demand for towing,
recovery and transport services, (ix) risks related to the adequacy,
functionality, sufficiency and cost of the Company's information systems and (x)
general economic conditions. Although the Company cannot accurately anticipate
the effect of inflation on its operations, management believes that inflation
has not had, and is not likely in the foreseeable future to have, a material
impact on its results of operations.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there have been no material changes in the Company's
interest rate risk position since December 31, 1999. Other types of market
risk, such as foreign exchange rate risk and commodity price risk, do not arise
in the normal course of the Company's business activities.
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PART II OTHER INFORMATION
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ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On July 20, 2000, the Company sold 613,073.27 shares of its Series A Preferred
Stock to Blue Truck, which is controlled by KPS, for $25.0 million in cash
consideration. In addition, on July 20, 2000, the Company sold 49,045.86
shares of its Series A Preferred Stock to CFE, an affiliate of GE Capital for
$2.0 million in cash consideration.
Holders of the Series A Preferred Stock are entitled to vote together with the
holders of the Common Stock as a single class on matters submitted to the
Company's stockholders for a vote (other than with respect to certain elections
of directors). The holder of each share of Series A Preferred Stock is entitled
to the number of votes equal to the number of full shares of Common Stock into
which such share of Series A Preferred Stock could be converted on the record
date for such vote. The holders of Series A Preferred Stock have the right to
designate and elect six members of the Company's Board of Directors, which
constitutes a majority, for so long as Blue Truck and its permitted transferees
continue to own specified amounts of Series A Preferred Stock. At lower levels
of ownership, the holders of Series A Preferred Stock will be entitled to
designate and elect three directors, one director, or no directors, depending
upon the amount of Series A Preferred Stock then held by Blue Truck and its
permitted transferees, as set forth in the Investors' Agreement relating to the
KPS Transaction.
Prior to July 20, 2008, holders of the outstanding Series A Preferred Stock are
entitled to receive cumulative dividends on the Series A Preferred Stock each
quarter at the rate per annum of (i) 5.5% until July 20, 2006, and (ii) 5.0%
thereafter, of the Series A Preferred Base Liquidation Amount (as defined below)
per share of Series A Preferred Stock. The "Series A Preferred Base Liquidation
Amount" is equal to the purchase price per share of the Series A Preferred Stock
($40.778), subject to certain adjustments. The dividends are payable in cash at
the end of each quarter or, at the election of the Company, will cumulate to the
extent unpaid. In the event that the Company elects to cumulate such dividends,
dividends will also accrue on the amount cumulated at the same rate. Once the
election to cumulate a dividend has been made, the Company may no longer pay
such dividend in cash, other than in connection with a liquidation, dissolution
or winding up of the Company. In addition, holders of the Series A Preferred
Stock are entitled to participate in all dividends payable to holders of the
Common Stock. The Company's obligation to pay dividends terminates on July 20,
2008, or earlier if the Company's Common Stock trades above a specified price
level.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary (a "Liquidation Event"), each holder of outstanding
shares of Series A Preferred Stock is entitled to be paid out of the assets of
the Company available for distribution to stockholders, before any amount will
be paid or distributed to the holders of any other capital stock of the Company,
an amount per share of Series A Preferred Stock (the "Series A Preferred
Liquidation Preference Amount") in cash equal to the sum of (i) the purchase
price per share of the Series A Preferred Stock, subject to certain adjustments
(the "Series A Preferred Base Liquidation Amount"), plus (ii) the amount of any
and all unpaid dividends on such shares of Series A Preferred Stock. Holders of
a majority of the shares of Series A Preferred Stock may elect to treat certain
mergers or consolidations involving the Company, sales of securities or
substantially all of the assets of the Company or capital reorganizations of the
Company (any of the foregoing, an "Organic Change") as a Liquidation Event.
In the event that the amounts payable with respect to the Series A Preferred
Stock upon any Liquidation Event are not paid in full, the holders of the Series
A Preferred Stock will share ratably in any distribution of assets in proportion
to the amounts that would be payable to such holders if such assets were
sufficient to permit payment in full. In the event that the Series A Preferred
Liquidation Preference Amount is paid in full, the holders of the Series A
Preferred Stock will thereafter share ratably with the holders of the Common
Stock in the value received for the remaining assets and properties of the
Company, if any, with distributions and payments, as the case may be, to be made
to the holders of Series A Preferred Stock as if each share of Series A
Preferred Stock had been converted into shares of Common Stock immediately prior
to such Liquidation Event.
In addition to the mandatory dividends described in above, the holders of the
Series A Preferred Stock will be entitled to receive, out of funds legally
available therefor, dividends (other than dividends paid in additional shares of
Common Stock with respect to which an adjustment of the Conversion Price (as
defined below) has been made at the same rate as dividends are paid with respect
to the Common Stock (treating each share of Series A Preferred Stock as being
equal to
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the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted on the record date for determining the
holders of Common Stock entitled to such dividend).
Each share of Series A Preferred Stock is convertible at any time by its holder
into a number of shares of Common Stock equal to the sum of (i) the quotient
obtained by dividing (x) the Series A Preferred Base Liquidation Amount by (y)
the conversion price per share for the Series A Preferred Stock (currently
$4.0778 and subject to certain adjustments) (the "Conversion Price") plus (ii)
the quotient obtained by dividing (x) the amount, if any, by which the Series A
Preferred Liquidation Preference Amount (as defined below) that has accrued at
any time prior to July 20, 2005 exceeds the Series A Preferred Base Liquidation
Amount by (y) the product of the Conversion Price and 0.85. The "Series A
Preferred Liquidation Preference Amount" is the sum of the Series A Preferred
Base Liquidation Amount and the amount of any and all unpaid dividends on the
Series A Preferred Stock. The Series A Preferred Stock automatically converts
into Common Stock upon the occurrence of certain business combinations, unless
the holders elect to exercise their liquidation preference rights.
On July 20, 2000, in connection with the KPS Transaction, the Company cancelled
all of its 1998 Debentures issued to Charterhouse pursuant to the Purchase
Agreement entered into between Charterhouse and the Company in November 1998,
and in lieu thereof, issued to Charterhouse $84.5 million aggregate principal
amount of new 8% Convertible Subordinated Debentures due 2008 (which aggregate
principal amount was equal to the aggregate principal amount of the 1998
Debentures then outstanding plus accrued interest thereon to July 20, 2000).
Under the terms of the Amended Charterhouse Purchase Agreement, the new
Debentures are redeemable at par plus accrued interest under certain
circumstances.
On September 30, 2000, the Company issued approximately $1.3 million aggregate
principal amount of new Debentures to Charterhouse, which represented the
quarterly payment-in-kind interest payment due with respect to $84.5 million
aggregate principal amount of the new Debentures previously issued to
Charterhouse.
The issuance of these securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act or
Regulation D promulgated thereunder as a transaction by an issuer not involving
a public offering. The recipient of the securities was an accredited investor
and represented its intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were attached to the certificates issued in such
transactions.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on July 20, 2000
(the "Special Meeting"). At the Special Meeting, the stockholders considered (a)
a proposal by the Company to issue (i) $25,000,000 worth of Series A Preferred
Stock to Blue Truck and (ii) $2,000,000 worth of its Series A Preferred Stock to
CFE; and (b) an amendment to the Company's 1998 Stock Option Plan (the "Stock
Option Plan") to (i) increase the maximum number of shares of the Company's
common stock which may be covered by awards under the plan from 127,889 to
327,889 shares, and (ii) make certain other changes in an effort to ensure that
options granted under the Stock Option Plan will qualify for the "performance-
based compensation" exception to the $1 million compensation deduction
limitation generally imposed by Section 162(m) of the Internal Revenue Code of
1986, as amended. Each proposal was approved, and the voting results were as
follows: with respect to the KPS and CFE Transactions, 869,008 shares voting in
favor; 156,941 shares voting against; and 43,604 shares abstaining; and with
respect to the amendments to the Stock Option Plan, 852,387 shares voting in
favor, 202,963 shares voting against, and 13,203 shares abstaining.
ITEM 5 OTHER EVENTS
On July 20, 2000, pursuant to the Investors' Agreement entered into in
connection with the closing of the KPS Transaction, Richard A. Molyneux, Grace
M. Hawkins, Mark J. Henninger and Merril M. Halpern resigned from the Company's
Board of Directors. Six persons nominated by Blue Truck pursuant to the terms
of the Investors' Agreement (Michael G. Psaros, Eugene J. Keilin, David Shapiro,
Stephen Presser, Brian Riley and Raquel Palmer) were appointed to the Board of
Directors to fill the vacancies created by such resignations.
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits
3.1 Certificate of Amendment to Amended and Restated Certificate of
Incorporation (incorporated by reference to the same-numbered Exhibit
to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2000).
3.2 Amendment to Amended and Restated Bylaws of the Company (incorporated
by reference to the same-numbered Exhibit to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000).
4.1 Certificate of Powers, Designations, Preferences and Rights of Series
A Participating Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3 to the Schedule 13D of Blue
Truck Acquisition, LLC and KPS Special Situations Fund, L.P. filed
with the SEC on July 28, 2000).
4.2 Certificate of Correction of Certificate of Powers, Designations,
Preferences and Rights of Series A Participating Convertible Preferred
Stock of the Company (incorporated by reference in Exhibit 4 to the
Schedule 13D of Blue Truck Acquisition, LLC and KPS Special Situations
Fund, L.P. filed with the SEC on July 28, 2000).
4.3 Form of Stock Certificate for the Company's Series A Participating
Convertible Preferred Stock (filed herewith).
4.4 Form of Debenture for the Company's 8% Convertible Subordinated
Debentures due 2008 (filed herewith).
10.1 Stock Purchase Agreement, dated as of April 14, 2000, by and between
the Company and Blue Truck Acquisition, LLC (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
April 14, 2000 and filed with the SEC on April 18, 2000).
10.2 Amendment No. 1, dated as of May 26, 2000, to Stock Purchase
Agreement, dated as of April 14, 2000, by and between the Company and
Blue Truck Acquisition, LLC (incorporated by reference to Appendix F
to the Company's Definitive Proxy Statement on Schedule 14A dated June
13, 2000).
10.3 Investors' Agreement, dated as of July 20, 2000, between the Company
and Blue Truck Acquisition, LLC (incorporated by reference to Exhibit
5 to the Schedule 13D of Blue Truck Acquisition, LLC and KPS Special
Situations Fund, L.P. filed with the SEC on July 28, 2000).
10.4 Registration Rights Agreement, dated as of July 20, 2000, by and
among the Company, Blue Truck Acquisition, LLC and CFE, Inc.
(incorporated by reference to Exhibit 6 to the Schedule 13D of Blue
Truck Acquisition, LLC and KPS Special Situations Fund, L.P. filed
with the SEC on July 28, 2000).
10.5 Amended and Restated Purchase Agreement, dated as of April 14, 2000,
between the Company and Charter URS LLC (incorporated by reference to
Appendix D to the Company's Definitive Proxy Statement on Schedule 14A
dated June 13, 2000).
10.6 Amended and Restated Investors' Agreement, dated as of April 14,
2000, between the Company and Charter URS LLC (incorporated by
reference to the same-numbered Exhibit to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000).
10.7 Amended and Restated Registration Rights Agreement, dated as of April
14, 2000, between the Company and Charter URS LLC (incorporated by
reference to the same-numbered Exhibit to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2000).
10.8 Amendment, dated as of May 26, 2000, to Amended and Restated Purchase
Agreement and Amended and Restated Investors' Agreement, each dated as
of April 14, 2000, by and between the Company and
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<PAGE>
Charter URS LLC (incorporated by reference to Appendix G to the
Company's Definitive Proxy Statement on Schedule 14A dated June 12,
2000).
10.9 Second Amendment, dated as of July 20, 2000, to Amended and Restated
Purchase Agreement and Amended and Restated Registration Rights
Agreement, each dated as of April 14, 2000, by and between the Company
and Charter URS LLC (incorporated by reference to the same-numbered
Exhibit to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2000).
10.10 Stock Purchase Agreement, dated as of July 20, 2000, by and between
the company and CFE, Inc. (incorporated by reference to the same-
numbered Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 2000).
10.11 Credit Agreement, dated as of July 20, 2000, by and among the
Company, each of its subsidiaries, various financial institutions,
General Electric Capital Corporation, as Agent and Fleet Capital
Corporation, as Documentation Agent (incorporated by reference to the
same-numbered Exhibit to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 2000).
10.12 Amendment to United Road Services, Inc. 1998 Stock Option Plan
(incorporated by reference to the same-numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
2000).
10.13 Employment Agreement, dated July 20, 2000, by and between the
Company and Gerald R. Riordan (filed herewith).
10.14 Employment Agreement, dated July 20, 2000, by and between the
Company and Michael A. Wysocki (filed herewith).
10.15 Employment Agreement, dated July 20, 2000, by and between the
Company and Harold W. Borhauer II (filed herewith).
10.16 Amendment No. 1, dated as of September 25, 2000 to Credit Agreement,
dated as of July 20, 2000, by and among the Company, each of its
subsidiaries, various financial institutions, General Electric Capital
Corporation, as Agent and Fleet Capital Corporation, as Documentation
Agent (filed herewith).
11.1 Statement of Computation of Earnings per Share (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the quarterly
period ended September 30, 2000:
1. Current Report on Form 8-K, dated July 20, 2000 and filed August 4,
2000, to report under Item 1 that, pursuant to the KPS Transaction,
Blue Truck had acquired control of the Company, and to report under
Item 5 that, in connection with the KPS Transaction, the Company had
entered into the GE Capital Credit Facility and that the Company had
terminated the Bank of America Credit Facility and repaid all amounts
outstanding thereunder.
2. Current Report on Form 8-K, dated September 27, 2000 and filed
September 27, 2000, to report under Item 5 that Donald J. Marr had
resigned his position as Chief Financial Officer of the Corporation
effective September 30, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED ROAD SERVICES, INC.
Registrant
Date: November 14, 2000 /s/ Gerald R. Riordan
---------------------------------------
Chief Executive Officer
/s/ Michael T. Moscinski
---------------------------------------
Acting Chief Accounting Officer
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<PAGE>
INDEX OF EXHIBITS FILED HEREWITH*
Number Description of Document
------- -----------------------
4.3 Form of Stock Certificate for the Company's Series A Participating
Convertible Preferred Stock.
4.4 Form of Debenture for the Company's 8% Convertible Subordinated
Debentures due 2008.
10.13 Employment Agreement, dated July 20, 2000, by and between the Company
and Gerald R. Riordan.
10.14 Employment Agreement, dated July 20, 2000, by and between the Company
and Michael A. Wysocki.
10.15 Employment Agreement, dated July 20, 2000, by and between the Company
and Harold W. Borhauer II.
10.16 Amendment No. 1, dated as of September 25, 2000 to Credit Agreement,
dated as of July 20, 2000, by and among the Company, each of its
subsidiaries, various financial institutions, General Electric Capital
Corporation, as Agent and Fleet Capital Corporation, as Documentation
Agent.
11.1 Statement regarding Computation of Earnings per Share.
27.1 Financial Data Schedule.
