U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ended to
Commission File Number: 33-30123-A
GENERAL PARCEL SERVICE, INC.
(Exact name of small business issuer in its charter)
State of Florida 59-2576629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8923 Western Way, Suite 22,
Jacksonville, FL 32256
(Address of principal executive offices)
(904) 363-0089
(Issuer's telephone number)
Check whether issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
There were 3,758,671 shares of the Company's common stock
outstanding as of May 14, 1996.
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1
------
Consolidated Balance Sheets
as of March 31, 1996 and
December 31, 1995. . . . . . . . . . . . . 2
Consolidated Statements of
Earnings for the three months
ended March 31, 1996 and 1995. . . . . . . 3
Consolidated Statements of Cash
Flows for the three months
ended March 31, 1996 and 1995. . . . . . . 4
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 5
Item 2
------
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION . . . . . . . . . .11
Item 6
------
Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
(B) Exhibits:
Exhibit 10, Material Contracts
Exhibit 27, Financial Date Schedule
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
current assets:
Cash $ 6,739 $ 6,739
Accounts receivable (net of allowance for doubtful
accounts of $7,551 and $7,846 at March 31, 1996
and December 31, 1995 respectively) 2,290,047 2,068,975
Other current assets 425,606 380,090
------------ ------------
Total current assets 2,722,392 2,455,804
------------ ------------
Long term assets:
Equipment, at net book value 7,396,798 7,593,626
Goodwill 998,114 1,015,784
Other assets 187,251 187,251
------------ ------------
Total long term assets 8,582,163 8,796,661
------------ ------------
Total assets $ 11,304,555 $ 11,252,465
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings $ 2,902,906 $ 1,599,000
Current obligations under capital leases 855,836 860,309
Current maturities of long-term debt 427,894 518,842
Accounts payable 1,768,549 1,953,468
Accrued expenses and other current liabilities 605,605 738,404
------------ ------------
Total current liabilities 6,560,790 5,670,023
------------ ------------
Long term liabilities:
Long-term obligations under capital leases 1,481,648 1,605,802
Long-term debt 845,601 3,910,808
Convertible debentures 300,000 300,000
------------ ------------
Total long term liabilities 2,627,249 5,816,610
------------ ------------
Total liabilities 9,188,039 11,486,633
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 500,000 shares
authorized, 220,000 issued and outstanding at March 31,
1996, 100,000 issued and outstanding at December 31,
1995, liquidation preference $5,500,000. 2,200 1,000
Common stock, $.01 par value, 10,000,000 shares authorized,
3,758,671 shares issued and outstanding at March 31, 1996
and December 31, 1995. 37,586 37,586
Additional paid-in capital 16,388,455 13,389,655
Deficit (14,311,725) (13,662,409)
------------ ------------
Total stockholders' equity (deficit) 2,116,516 (234,168)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 11,304,555 $ 11,252,465
============ ============
<FN>
<F1>
Read accompanying notes.
2
</FN>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months ended March 31,
1996 1995
------------ ------------
Revenue $ 5,783,671 $ 5,063,330
------------ ------------
Operating expenses:
Operations salaries & benefits 3,079,190 2,536,693
Fuel 355,500 287,558
Equipment Rental 29,091 8,699
Insurance 364,165 449,000
Tires & maintenance 200,014 174,185
Depreciation & amortization 431,949 410,632
Facilities expense 352,815 331,587
Terminal expense 112,969 56,054
Purchased transportation 98,159 53,726
Other operating costs 59,834 39,250
Selling and administrative expense 967,521 711,849
------------ ------------
Total operating expenses 6,051,207 5,059,233
------------ ------------
Operating loss (267,536) 4,097
Interest expense (206,780) (152,074)
------------ ------------
Net loss (474,316) (147,977)
Preferred stock dividend requirement (58,992) (43,750)
------------ ------------
Earnings available to common shares $ (533,308) $ (191,727)
============ ============
Net loss per common
share (primary and fully diluted) $ (0.14) $ (0.05)
============ ============
Weighted average number of common
shares outstanding 3,758,671 3,758,671
============ ============
<FN>
<F1>
Read accompanying notes.
3
</FN>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three months ended March 31,
1996 1995
------------ ------------
Cash flows (used in) provided by operating activities:
Net loss $ (474,316) $ (147,977)
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Loss on disposal of fixed assets -- 2,718
Depreciation and amortization 454,678 423,263
Changes in assets and liabilities:
Increase in accounts receivable (221,072) (216,150)
Decrease (increase) in other current assets (45,516) 105,837
Increase in other assets -- (2,670)
Increase in accounts payable 572,151 468,986
Decrease in accrued expenses (132,797) (150,012)
------------ ------------
Total adjustments 627,444 631,972
------------ ------------
Net cash (used in) provided by
operating activities 153,128 483,995
------------ ------------
Cash flows for investing activities:
Business combination -- (151,674)
Proceeds from disposal of equipment -- --
Purchase of equipment (172,149) (354,913)
------------ ------------
Net cash used in investing activities (172,149) (506,587)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 3,000,000 --
Dividends paid on preferred stock (175,000) (175,000)
Repayment of long-term debt (3,156,155) (150,893)
Principal payments under capital lease obligations (196,660) (264,617)
Increase in short-term borrowings 1,303,906 725,000
Decrease in bank overdraft (757,070) (83,516)
----------- ------------
Net cash provided by financing activities 19,021 50,974
----------- ------------
Increase (decrease) in cash -- 28,382
Cash, beginning of period 6,739 575
----------- ------------
Cash, end of period $ 6,739 $ 28,957
=========== ============
Supplemental cash flow data
Cash paid during the period for interest $ 165,916 $ 145,693
=========== ============
Supplemental schedule of noncash investing and
financing activities
Capital lease and notes payable obligations
incurred for new vehicles and equipment $ 68,033 $ 1,195,394
=========== ============
Business combination
Fair value of assets acquired $ -- $ 1,408,670
Fair value of liabilities assumed -- (1,256,996)
----------- ------------
Net cash payments $ -- $ 151,674
=========== ============
<FN>
<F1>
Read accompanying notes
4
</FN>
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The information presented herein as of March 31, 1996, and for
the three months ended March 31, 1996 and 1995, is unaudited.
The December 31, 1995, balance sheet data was derived from
audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
1. Summary of Significant Accounting Policies
Management's Representation
In the opinion of management, all adjustments necessary for a
fair presentation of such consolidated financial statements are
reflected in the interim periods presented. Such adjustments
consisted of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as
permitted by Form 10-QSB and do not contain certain information
included in the annual consolidated financial statements and
notes of General Parcel Service, Inc. (the "Company").
Net Loss per Common Share
Net loss applicable to common share is based on the weighted
average number of shares outstanding during the periods
reported. Any assumption of conversion of common stock
equivalents, such as options and warrants, is anti-dilutive and
has not been considered in determining net loss per share or the
weighted average number of shares outstanding.
Preferred Stock
On February 28, 1996, the Board of Directors amended the
Articles of Incorporation to provide for 300,000 shares of Class
A, Series 2 Cumulative Preferred Stock. On March 4, 1996,
120,000 shares were sold for a total price of $3,000,000 to an
Affiliate of the Company's Chairman. Proceeds from the sale
were used to retire $3,000,000 of bank debt. The preferred
shares are non-voting and generally provide for a conversion
into common stock at a rate of $2.50 per share, and provide for
a cumulative dividend of $1.75 per annum, paid quarterly. At
March 31, 1996, the Company had preferred stock dividends in
arrears of $58,992.
5
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements including the footnotes and is
qualified in its entirety by the foregoing and other more
detailed financial information appearing elsewhere herein.
Historical results of operations and the percentage
relationships among any amounts included in the Consolidated
Statements of Earnings, and any trends which may appear to be
inferable therefrom, should not be taken as being necessarily
indicative of trends in operations or results of operations for
any future periods.
Liquidity and Capital Resources
Except for the year ending December 31, 1993, the Company has
experienced negative annual operating cash flows since its
inception. Expansion of operations and operating losses since
inception have been funded from six major sources: 1) private
placements of restricted shares of common and preferred stock to
its principal shareholders, 2) proceeds from its initial public
offering of common stock in November, 1989, 3) installment loans
and leases from third party lenders collateralized by equipment
acquired to support business growth, 4) a bank line of credit
collateralized by accounts receivable and stock owned by a major
shareholder and his affiliates, 5) short term borrowings from
banks and shareholders, 6) debt issued and liabilities assumed
in connection with the acquisition of the assets of Transit
Express of Charlotte, Inc. ("TE").
As of March 31, 1996, the Company had raised net equity capital
of $8,145,052 from private placements of restricted common
shares, $5,417,489 from private placements of preferred stock,
$2,715,700 from its initial public offering of November 2, 1989
and $150,000 from the sale of unrestricted common shares. When
combined with cumulative operating losses since inception of
$13,961,725 and $350,000 of dividends paid on preferred stock,
the Company's net stockholders' equity as of March 31, 1996 was
$2,116,516. The Company issued $3,000,000 of preferred stock on
March 5, 1996, but has issued no restricted common stock in 1996.
As of March 31, 1996 the Company was contractually obligated to
repay $6,513,885 of indebtedness to equipment lessors, banks and
other secured lenders and $300,000 to holders of its convertible
debentures. In addition, the Company owed $1,768,549 to
suppliers of goods and services necessary for the conduct of
ongoing business including amounts represented by issued and
outstanding checks, and had accrued salaries and other expenses
of $605,605, which were unpaid at March 31, 1996.
Cash provided by operations during the three months ended March
31, 1996 was $153,128 as compared to cash provided by operations
for the first three months of 1995 of $483,995. The net cash
provided by operations resulted primarily from the non-cash
expense of depreciation and amortization and an increase in
accounts payable. These were partially offset by the net loss,
an increase in accounts receivable and a decrease in accrued
expenses. The Company's cash balance remained unchanged during
the first three months of 1996.
6
The Company decreased its borrowings under its bank lines of credit
by $1,696,094 during the first three months of 1996. The Company
repaid its $3,000,000 bank term loan and borrowed $1,303,906 under
its revolving credit agreement.
The aggregate principal amount due under the Company's bank
lines increased during 1995 and the form of the debt was
modified to include a $3,000,000, five year term loan and a
$2,700,000 revolving credit loan at December 31, 1995. The term
loan provided and the revolving credit agreement provides for
interest payable monthly for advances of $1,000,000 or greater
at the lower interest of the thirty day LIBOR rate plus .75% or
the Bank's prime interest rate less .75% and for all other
advances at the Bank's prime interest rate less .75%. The
revolving credit agreement is collateralized by the Company's
accounts receivable and certain stock certificates pledged by
the Company's Chairman. As of December 31, 1995, the Company
had borrowed $3,000,000 under the term loan and $1,599,000
against the line of credit and had $1,101,000 of credit
available. As noted above, the Company has repaid the term loan
and increased its line of credit to $3,250,000 in the first
quarter of 1996. As of March 31, 1996, the Company has borrowed
$2,902,906 against the line of credit.
Management's estimates of cash requirements to fund operating
losses and debt service are substantial. All of these factors
raise the question as to whether the Company will continue to
operate as a going concern. While revenues continue to increase
and expense containment measures have been instituted,
management is nonetheless pursuing several strategies for
raising additional resources through debt or equity transactions.
Management believes, but can offer no assurances, that it can
improve operating performance and cash flows through the
following measures:
*A large portion of the Company's expenses since
inception have been related to efforts to develop its
marketing, distribution and service network. The Company
has developed extensive distribution networks in Florida
and in Atlanta, Georgia and is endeavoring to expand its
North Carolina service area. Management believes that it
has acquired sufficient delivery vehicles to service its
market area, although the Company continues to replace or
upgrade equipment as deemed necessary. Management believes
that additional market penetration will improve the
productivity of its delivery fleet and result in
profitable operations.
*During 1996, the Company plans to concentrate on continuing
to build volume in its Florida and Atlanta markets where
excess capacity exists and selectively expand its
operations in North Carolina or other Southeastern areas
where profitable volume can be obtained with minimum capital
outlays. Because of the Company's limited resources, any
expansion will be into areas where the Company will be able to
produce positive cash flows in a short period of time by
shipping a large volume of parcels from existing customers
into areas covered by new terminals and avoid substantial
start-up losses.
*Management has reassessed the operating practices at each of
its terminals and has instituted a number of changes directed
towards cost containment including elimination of unprofitable
delivery routes. Strict accountability over all costs are being
implemented at all locations through budgetary controls and improved
reporting of actual operating results to operations managers.
7
*The Board of Directors has engaged KPMG Baymark Capital LLC
("BayMark") to render certain financial advisory and investment
banking services to the Company. Under the terms of the engagement,
BayMark will familiarize itself to the extent it deems appropriate
and feasible with the business, operations, properties, financial
condition and prospects of the Company and will advise and assist
the Company in identifying and/or evaluating various strategic or
financial alternatives that may be available to the Company to
enhance shareholder value. Among the alternatives which may be
available to the Company are an acquisition of all or a significant
portion of the assets or equity securities of another corporation
or business entity; a sale of the Company or significant portion of
it equity securities, assets or businesses to one or more third
parties; a recapitalization or restructuring of the Company;
repurchases by the Company of its common stock or other securities;
a public or private sale of additional equity or debt securities of
the Company; or such other form of transaction that BayMark
believes may be of possible interest to the Company.
*Should the Company not obtain additional funding through the
efforts of BayMark and not be able to provide cash for its
operations to fund operations losses or debt service, it will
rely on the commitment of one of its major shareholders to fund
losses of the Company through December 31, 1996.
Financial Condition
As of March 31, 1996, the Company's working capital deficit
(current liabilities less current assets) was $3,838,398, which
was an increase of $624,179 from the $3,214,219 working capital
deficit at December 31, 1995. Total current assets of
$2,722,392 included cash of $6,739, accounts receivable of
$2,290,047, prepaid insurance premiums and deposits of $245,432,
inventories of tires, parts, uniforms and supplies of $98,001
and other prepaid expenses of $82,173.
Current liabilities of $6,560,790 included current obligations
under leases and other lending agreements of $4,186,636, amounts
owed to trade creditors of $1,768,549, including amounts
represented by issued and outstanding checks, and other accrued
expenses of $605,605.
Total assets as of March 31, 1996, increased by $52,090 (or
4.6%) during the three months ended March 31, 1996 to
$11,304,555.
Accounts receivable increased by $221,072 (or 10.7%) during the
three months ended March 31, 1996 to $2,290,047 primarily
because of a 9.0% increase in revenue for the month of March 31,
1996, compared to the month of December 1995. The number of
weeks sales in outstanding receivables was 5.1 at March 31,
1996, compared to 5.2 at December 31, 1995. Other current
assets of $425,606 increased by $45,516 (or 12.0%) primarily
because of an increase in prepaid insurance premiums.
The net book value of equipment decreased by $196,828 (or 2.6%)
to $7,396,798 during the three months ended March 31, 1996 as a
result of depreciation of $437,008 exceeding additions of
$240,180. There were no disposals during this period. The
8
additions included $68,033 for 4 new delivery vans, $59,743 for
life-extending equipment repairs, $107,899 for terminal
equipment and $4,503 for computers and other office equipment.
Total liabilities of $9,188,039 decreased by $2,298,594 (or
20.0%) during the three months ended March 31, 1996. This
resulted primarily from an decrease in total bank and other debt
by $1,852,249 (or 29.3 %) to $4,476,401, an decrease in
accounts payable by $184,919 (or 9.5%) to $1,768,549, a
decrease in accrued expenses by $132,799 (or 18.0%) to $605,605
and a decrease in obligations under capital leases of 128,627
(or 5.2%).
Capital lease obligations of $2,377,484 decreased during the
three months ended March 31, 1996 as a result of $196,660 of
scheduled principal payments in excess of $68,033 of new
additions. The additions to capitalized leases were for 4 new
delivery vans. Long term debt of $845,601 decreased $3,156,155
(or 78.4%) as a result of repayment of the $3,000,000 term loan
and $156,155 of scheduled principal payments. Short-term
borrowings increased by $1,303,906 to $2,902,906 (or 81.5%) as a
result of an increase in the Company's utilization of its line
of credit to fund operations, service debt and pay lease
payments.
The Company's stockholders' equity increased during three months
ended March 31, 1996 by $2,350,684 to $2,116,516 at March 31,
1996, as a result of the sale of $3,000,000 of preferred stock
and was reduced by the net loss for the period and the payment
of a dividend on the Company's preferred stock.
Results of Operations - Three months ended March 31, 1996 Versus
three months ended March 31, 1995
Revenue for three months ended March 31, 1996 was $5,783,671 and
represented an increase of $720,341 (or 14.2%) over the revenue
for the same period last year.
Total operating expenses (excluding interest expense) of
$6,051,207 for three months ended March 31, 1996 increased by
$991,974 (or 19.6%) compared to the same 1995 period total. The
operating ratio (total operating expenses excluding interest as
a percentage of revenue), was 104.7% in the three months ended
March 31, 1996 compared to 99.9% in the same period of 1995.
Operating salaries and benefits of $3,079,190 increased by
$542,497 (or 21.4%) in three months ended March 31, 1996, and
were 53.0% of revenue compared to 50.0% in 1995. The increase
in operating salaries and benefits occurred primarily in the
Charlotte terminal because of the TE acquisition and in Atlanta
where significant new business was generated.
Fuel costs of $355,500 in three months ended March 31, 1996,
increased $67,942 (or 23.6%) from the three months ended March
31, 1995 level and were 6.1% of revenue in the three months
ended March 31, 1996 compared to 5.7% in the year earlier
period. Tires and maintenance expense of $200,014 increased by
$25,829 (or 14.8%) from the 1995 level and represented 3.5% of
revenue compared to 3.4% in same period of 1995. Insurance costs
decreased by $84,835 (or 18.9%) to $364,165 (or 6.2%) of revenue
9
in three months ended March 31, 1996 as compared to 8.9% of
revenue during the three months ended March 31, 1995. The
decrease in insurance costs resulted from continued success of
the safety control program.
The fixed components of operating cost (depreciation and
amortization, facilities and terminal expense) increased in
three months ended March 31, 1996 because of an increase in the
number of vehicles in service for the full year, the utilization
of electronic clipboards and amortization of intangible assets
acquired in the TE acquisition. Depreciation and amortization
attributable to operations of $431,949 increased by $21,317 (or
5.2%) and was 7.5% of revenue for three months ended March 31,
1996 compared to 8.1% in same 1995 three month period.
Facilities expense (rent plus utilities) of $352,815 increased
by $21,228 (or 6.4%) and was 6.1% of three months ended March
31, 1996 revenue versus 6.5% in 1995. Terminal expense
increased by $56,915 (or 101.5%) to $112,969 which was 2.0% of
revenue in three months ended March 31, 1996 versus 1.1% of
revenue in same 1995 period, due to significant increases in
security costs and terminal maintenance.
Purchased transportation, which includes amounts paid to
trucking companies to bring packages from customers'
distribution points outside the Company's geographical operating
area to the Company's terminals for delivery, increased to
$98,159 in three months ended March 31, 1996, from $53,726 for
the three months ended March 31, 1995. The $44,433 (or 82.7%)
increase was a result of additional packages brought into the
Company's distribution area from outside its operating area.
Selling and administrative expense of $967,521 was 35.9% higher
than the 1995 same period level and increased as a percentage of
revenue from 14.0% in the three months ended March 31, 1995 to
16.7% in three months ended March 31, 1996. The increase relates
primarily to additional legal and professional fees which increased
by $188,237 over those of the same period last year and additional
personnel costs of $23,181 which increased 7.9% from those for
three months ended March 31, 1995.
Interest expense of $206,780 increased by $54,706 (or
36.0%) compared to the same 1995 period as the Company incurred
new debt to fund operating losses and acquire assets.
10
GENERAL PARCEL SERVICE, INC. AND SUBSIDIARY
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The Company filed a Form 8-K dated January 10, 1996,
reporting that the Company's Audit Committee had approved the
selection of Grenadier, Appleby, Collins & Company to audit
the Company's financial statements for the year ended
December 31, 1995.
(b) The Company filed a Form 8-K dated March 4, 1996 reporting
that on February 28, an affiliate of the Chairman of the
Board of the Company entered into a subscription agreement
with the Company to purchase $3,000,000 of the Class A,
Series 2 Cumulative Convertible Preferred Stock of the
corporation. Such subscription was fully funded on March 4,
1996. After the sale of the stock, the Company was in
compliance with the capital requirements of NASD bylaws.
(c) The Company filed a Form 8-K dated March 5, 1996 reporting
that on February 28, 1996, the Company's Board of Directors
approved an amendment to the Company's Articles of
Incorporation, creating a new Class A, Series 2 Preferred
Stock ("Series 2 Preferred"). The Series 2 Preferred is
identical to the Company's Class A, Series 1 Preferred except
that the conversion price per share is at a rate of $2.50 per
share rather than $3.00 per share. The Company issued 120,000
shares of the newly authorized Series 2 Preferred to an
affiliate of the Chairman of the Board of the Registrant for
a total purchase price of $3 million or $25.00 per share on
March 5, 1996.
Exhibit 10 - Promissory note and loan agreement dated March 8, 1996,
governing an addition to the line of credit agreement
between the Company and First Union National Bank of Florida
Exhibit 27 - Financial Data Schedule
Signature
---------
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.
General Parcel Service, Inc.
Date: May 14, 1996 By: (Signed)
------------------------
Wayne N. Nellums
Vice President,
Chief Financial Officer