SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: July 11, 1997 ------------- AMERITRUCK DISTRIBUTION CORP. --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-99716 75-2619368 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission File Number) (I.R.S. Employer of Incorporation) Identification No.) City Center Tower II, Suite 1101 301 Commerce Street, Fort Worth, TX 76102-5384 ----------------------------------------------- Address of principal executive offices Registrant's telephone number, including area code: (817) 332-6020 -------------- Item 5. Other Events On June 27, 1997, AmeriTruck Distribution Corp. (the "Company") acquired ------- all of the capital stock of Tran-Star, Inc. ("Tran-Star"), which was owned by --------- Allways Services, Inc. ("Allways"). Tran-Star is a carrier of refrigerated and ------- non-refrigerated products. Tran-Star had 1996 revenues of $68.5 million. The purchase price was $2.6 million, $1.6 million of which was paid in cash and $1 million of which was delivered in the form of a subordinated promissory note due in 2000 (the "Seller Note"). Of this, $1.5 million in cash and the Seller Note ----------- were assigned to Norfolk Southern Corporation ("Norfolk") as satisfaction of all ------- amounts owed to Norfolk. The Company also assumed or refinanced indebtedness estimated at approximately $30 million. In addition, under the terms of the agreement, the Company leased a terminal at Etters, Pennsylvania from an Allways affiliate for one year, and will purchase the property at the end of the lease term for $400,000, less the amount of certain environmental remediation costs incurred by the Company or Tran-Star in connection with the property. Tran- Star, headquartered in Waupaca, Wisconsin, operates primarily in between the upper midwestern U.S. and the northeast and southeast, with terminals at Etters and Wyalusing, Pennsylvania. Also as part of the transaction, the Company, Tran-Star, and Norfolk entered into an Indemnity Agreement, pursuant to which Tran-Star and the Company agreed to indemnify Norfolk for certain environmental liabilities with respect to the Etters, Pennsylvania property. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits Exhibit Number Description ------ ----------- (a) Financial Statements of Business Acquired ----------------------------------------- (i) Audited: Report of Independent Auditors Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) and Cash Flows for years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements (ii) Unaudited: Note: It is currently impractical to provide financial statements for Tran-Star, Inc. for the three months ended March 31, 1997. These financial statements will be filed as soon as they are available, but not later than September 8, 1997. (b) Pro Forma Financial Information ------------------------------- Note: It is currently impracticable to provide the pro forma financial information required by Article 11 of Regulation S-X. This pro forma financial information will be filed as soon as it is available, but not later than September 8, 1997. (c) Exhibits -------- 2 Stock Purchase Agreement, dated as of June 27, 1997, among AmeriTruck Distribution Corp., Allways Services, Inc., and Transtar Services, Inc. The following exhibits have been omitted:* Exhibit A: Seller Note Exhibit B-1: Norfolk Southern Settlement Exhibit B-2: Norfolk Southern Indemnity Exhibit C: Lease Agreement Exhibits D-1, D-2, D-3 and D-4: Employment Agreements Exhibits E-1, E-2, and E-3: Non-Competition Agreements Exhibit F: Tax Agreement Exhibit G: Opinion of Counsel to Seller, Tran-Star, and Services Exhibit H: Opinion of Counsel to Buyer * The Registrant undertakes to furnish supplementally to the Commission, upon request, any omitted exhibit. 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 hereunto duly authorized. AMERITRUCK DISTRIBUTION CORP. Dated: July 11, 1997 By: /s/ J. Michael May ------------------ J. Michael May Title: General Counsel and Secretary Tran-Star, Inc. Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 CONTENTS Report of Independent Auditors..................................................... 1 Consolidated Financial Statements Consolidated Balance Sheets........................................................ 2 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit).. 4 Consolidated Statements of Cash Flows.............................................. 5 Notes to Consolidated Financial Statements......................................... 7 Report of Independent Auditors The Stockholder Tran-Star, Inc. We have audited the accompanying consolidated balance sheets of Tran-Star, Inc. (the Company), a wholly owned subsidiary of Allways Services, Inc. (Allways), as of December 31, 1996 and 1995, and the related consolidated statements of operations and retained earnings (accumulated deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the CompanyOs management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Ernst & Young LLP Milwaukee, Wisconsin February 27, 1997, except for Note 4, as to which the date is February 28, 1997, and Notes 2 and 9, as to which the date is June 27, 1997 1 Tran-Star, Inc. Consolidated Balance Sheets DECEMBER 31 1996 1995 -------------------------- ASSETS Current assets: Cash and cash equivalents (Note 4) $ 101,903 $ 888,317 Short-term investments (Note 4) 1,800,000 1,800,000 Accounts receivable, less allowance for uncollectible accounts of $188,610 in 1996 and $61,380 in 1995 (Note 4) 6,677,362 6,939,729 Advances to drivers, less allowance for uncollectible accounts of $35,857 in 1996 and $60,605 in 1995 99,499 173,502 Due from Norfolk Southern 7,269 - Corporation (Note 2) Deposits 112,500 112,500 Prepaid expenses: Licenses and permits 273,748 1,107,110 Messaging services - 228,001 Insurance 348,449 305,821 Other 37,916 36,889 Tires, maintenance parts and supplies 486,331 391,033 Lease receivables from drivers, less allowance for uncollectible accounts of $74,250 (Note 3) 87,428 - Deferred income taxes (Note 6) 1,778,545 1,559,070 ------------------------ Total current assets 11,810,950 13,541,972 Lease receivables from drivers, less allowance for uncollectible accounts of $133,151 (Note 3) 156,503 - Property and equipment: Land 109,907 109,907 Building and improvements 1,096,675 1,037,793 Tractors and trailers (Note 4) 49,613,143 50,129,743 Systems and communications equipment 2,701,911 2,649,719 Office and garage equipment 183,590 154,989 Automobiles 103,757 103,757 ------------------------- 53,808,983 54,185,908 Less accumulated depreciation 19,629,986 11,849,558 ------------------------- 34,178,997 42,336,350 ------------------------- Total assets $46,146,450 $55,878,322 ========================= See accompanying notes 2 DECEMBER 31 1996 1995 --------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 2,018,514 $ 2,000,905 Due to Norfolk Southern Corporation (Note 2) 774,835 266,443 Due to affiliate (Note 8) 508,087 - Accrued liabilities 2,531,445 2,182,213 Reserve for purchase liabilities (Note 2) - 215,140 Reserve for freight and casualty claims 2,972,813 3,133,767 Long-term debt due within one year (Note 4) 10,091,413 10,250,623 -------------------------- Total current liabilities 18,897,107 18,049,091 Other long-term liabilities (Note 2) - 704,835 Long-term debt (Note 4) 21,808,387 25,889,887 Deferred income taxes (Note 6) 5,291,901 6,647,563 Commitments and contingencies (Note 5) Stockholder's equity (Note 4): Common stock, no par value, 2,800 shares authorized; 206 shares issued and outstanding 6,123,000 6,123,000 Accumulated deficit (2,587,642) (319,813) --------------------------- 3,535,358 5,803,187 Less net due from affiliates (Note 8) (3,386,303) (1,216,241) Total stockholder's equity 149,055 4,586,946 --------------------------- Total liabilities and stockholder's equity $46,146,450 $55,878,322 =========================== See accompanying notes 3 Tran-Star, Inc. Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) YEAR ENDED DECEMBER 31 1996 1995 1994 ----------------------------------------- Operating revenue $68,475,522 $65,565,888 $60,338,842 Operating expenses: Salaries, wages and benefits 27,330,195 25,933,094 23,044,972 Operations and maintenance 23,705,631 20,362,481 17,765,193 Rents and purchased transportation 3,818,140 3,638,185 4,646,227 Operating taxes and licenses 2,213,706 2,159,769 2,128,425 Insurance and claims 3,123,186 3,919,911 3,186,646 Depreciation 8,044,477 6,739,192 5,700,368 Communications and utilities 879,471 888,776 899,270 Miscellaneous operating expenses 517,671 189,390 293,620 --------------------------------------- Total operating expenses 69,632,477 63,830,798 57,664,721 --------------------------------------- Income (loss) from (1,156,955) 1,735,090 2,674,121 operations Other income (expense): Interest expense, net (2,644,911) (2,319,634) (2,143,174) Gain on sale of equipment, net 13,900 38,311 45,346 --------------------------------------- Income (loss) before income taxes (3,787,966) (546,233) 576,293 Income taxes (Note 6) (1,520,137) (158,443) 508,316 --------------------------------------- Net income (loss) (2,267,829) (387,790) 67,977 Retained earnings (accumulated deficit), beginning of year (319,813) 67,977 - --------------------------------------- Retained earnings (accumulated deficit), end of year $(2,587,642) $ (319,813) $ 67,977 ========================================= See accompanying notes. 4 Tran-Star, Inc. Consolidated Statements of Cash Flows YEAR ENDED DECEMBER 31 1996 1995 1994 ------------------------------------------ OPERATING ACTIVITIES Net income (loss) $(2,267,829) $ (387,790) $ 67,977 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 8,044,477 6,739,192 5,700,368 Gain on sale of equipment, net (13,900) (38,311) (45,346) Deferred income taxes (1,575,137) (212,966) 459,423 Reversal of reserve for purchase (215,140) - - liabilities Change in assets and liabilities: Accounts receivable 262,367 (692,727) 1,552,088 Advances to drivers 74,003 (66,169) (62,033) Deposits - - (112,500) Prepaid expenses 1,017,708 (199,736) (735,925) Tires, maintenance parts and supplies (95,298) 156,327 108,625 Other long-term assets - 390,148 65,853 Accounts payable 17,609 343,912 284,497 Accrued liabilities 349,232 289,847 720,495 Accrued acquisition costs and - (1,371) (111,516) purchase liabilities Reserve for freight and casualty claims (160,954) 1,316,980 171,791 ---------------------------------------- Net cash provided by operating activities 5,437,138 7,637,336 8,063,797 INVESTING ACTIVITIES Property and equipment additions (236,789) (20,035,406) (4,747,223) Proceeds from sale of equipment, net 141,530 796,849 1,313,469 Payment of deferred expenses related to lease receivables from drivers (70,839) - - Proceeds from payment on lease 48,943 - - receivables from drivers Reimbursement from (payment to) Norfolk Southern Corporation (203,712) 34,092 1,381,982 Net advances to affiliates (1,661,975) (166,341) (1,181,773) Purchase of short-term investments - (1,800,000) - ---------------------------------------- Net cash used in investing activities (1,982,842) (21,170,806) (3,233,545) FINANCING ACTIVITIES Proceeds from borrowings on long-term debt 1,284,342 18,794,553 5,279,313 Payments on long-term debt (5,525,052) (9,252,222) (7,881,134) ---------------------------------------- Net cash provided by (used in) financing activities (4,240,710) 9,542,331 (2,601,821) ---------------------------------------- Net increase (decrease) in cash and cash equivalents (786,414) (3,991,139) 2,228,431 Cash and cash equivalents at beginning of year 888,317 4,879,456 2,651,025 ---------------------------------------- Cash and cash equivalents at end of year $ 101,903 $ 888,317 $ 4,879,456 ======================================== See accompanying notes. 5 Tran-Star, Inc. Consolidated Statements of Cash FLows (continued) YEAR ENDED DECEMBER 31 1996 1995 1994 --------------------------------------- Cash paid during the year for: Interest $2,696,349 $2,626,805 $2,331,788 Income taxes 62,359 69,331 103,702 Significant non-cash transactions are as follows: During 1996, as discussed in Note 3, the net book value of $222,035 of certain tractors was accounted for as sold to drivers pursuant to capital leases; and During 1994, prepaid messaging units of $716,750 were received from Norfolk Southern pursuant to the Transtar Agreement, as discussed in Note 2. 6 Tran-Star, Inc. Notes to Consolidated Financial Statements December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Tran-Star, Inc. (Tran-Star or the Company) and its wholly owned subsidiary Pro-Trans Services, Inc. (Pro-Trans). All significant intercompany accounts and transactions have been eliminated in consolidation. ORGANIZATION On December 31, 1993, Allways Services, Inc. (Allways) purchased all of the issued and outstanding common stock of Transtar Services, Inc. (Transtar Services), which owned Tran-Star, Inc., from Norfolk Southern (NS) pursuant to a stock purchase agreement (the Transtar Agreement) (see Note 2). After the acquisition, Transtar Services was a wholly owned subsidiary of Allways, and Tran-Star was a wholly owned subsidiary of Transtar Services. On December 31, 1994, Transtar Services declared a stock dividend transferring the shares of Tran-Star to Allways. After the dividend, Tran-Star was a wholly owned subsidiary of Allways. NATURE OF OPERATIONS The Company is a motor carrier operating throughout the United States and certain Canadian provinces, specializing in time and temperature sensitive services. The CompanyOs corporate office and main terminal is located in Waupaca, Wisconsin. The Company's revenues are generated primarily in the United States. The Company performs periodic credit evaluations of its customersO financial condition and generally does not require collateral. Approximately 15%, 16% and 20% of the CompanyOs 1996, 1995 and 1994 consolidated operating revenue, respectively, were from one customer. 7 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. These investments are carried at cost which approximates market. SHORT-TERM INVESTMENTS Short-term investments are classified as available-for-sale securities and are highly liquid debt instruments. These securities have a put option feature that allows the Company to liquidate the investments at its discretion and are backed by a letter of credit from the financial institution. These investments are carried at cost which approximates market. LICENSES AND PERMITS Licenses and permits are amortized to expense over the term (generally one year) of the applicable license or permit. PREPAID MESSAGING SERVICES The Company prepaid the cost of certain messaging services that were amortized over the term of the agreement which expired in 1996. TIRES, MAINTENANCE PARTS AND SUPPLIES Tires, maintenance parts and supplies are recorded at cost and expensed when used. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over the following useful lives (in years): Buildings and improvements 5 - 35 Tractors and trailers 2 - 7 Systems and communication equipment 1 - 5 Office and garage equipment 1 - 5 Automobiles 1 - 4 In calculating depreciation for tractors and trailers, a 20% salvage factor is utilized. 8 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company recognizes revenue and related transportation costs upon delivery. INCOME TAXES The Company is part of the consolidated income tax return of Allways. The provision for income taxes recorded in the consolidated statements of operations and retained earnings (accumulated deficit) reflects the provision for income taxes of the Company on a stand-alone basis. Also, reported net operating loss carryforwards and the related deferred tax assets represent those net operating loss carryforwards created by the Company. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 2. ACQUISITION OF TRAN-STAR Allways accounted for its acquisition of Transtar Services and Tran-Star, discussed in Note 1, under the purchase method. The $33,554,873 purchase price consisted of $27,131,873 in cash and a $6,423,000 subordinated note due NS and has been allocated based on the fair value of the assets acquired and liabilities assumed and pushed down into the Company's consolidated financial statements as follows: Cash $ 451,025 Accounts receivable 7,799,090 Due from NS 2,110,750 Other assets 1,899,446 Fixed assets 31,824,192 Accounts payable (751,098) Accrued liabilities (2,086,396) Reserve for purchase liabilities (234,900) Reserve for freight and casualty claims (2,594,200) Deferred income taxes, net (4,863,036) ------------- Total purchase price $33,554,873 ============= 9 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 2. ACQUISITION OF TRAN-STAR (CONTINUED) The Transtar Agreement had a base working capital provision which provided that, to the extent the December 31, 1993 working capital, as defined, varied from the agreed-upon amount, Allways or NS would be required to reimburse the other for the difference. Accordingly, because the working capital was below the specified amount at December 31, 1993, the Company established a receivable from NS totaling $1,300,000, which was received in August 1994. In addition, due to a shortfall in the number of tractors and trailers acquired at December 31, 1993, the Company established a receivable from NS totaling $810,750. This receivable was settled through a payment of $94,000 in cash and $716,750 of messaging units in 1994. The Transtar Agreement has cross-indemnification provisions relating to tax and claim matters providing that, to the extent the actual payments are more or less than the liabilities in place at December 31, 1993, NS will pay Allways or Allways will pay NS, as the case may be, for any resulting difference. On January 12, 1996, the Company signed an agreement with NS to settle the claim payment matter (Claims Agreement). Pursuant to the Claims Agreement, all the related claims will be settled by NS, which retains all risks related thereto. The Claims Agreement provided for monthly payments of the recorded balance through June 1998. On June 27, 1997, the Company and Allways entered into a settlement agreement with NS, amending the payment terms of the Claims Agreement, pursuant to which Tran-Star paid the remaining liability. During 1996, management determined that the remaining reserve for purchase liabilities, which was originally established at the time of the acquisition, was unnecessary and reversed the remaining amount recorded. Accordingly, $215,140 of income is included in insurance and claims expenses in the 1996 consolidated results of operations related to this reversal. 3. LEASE RECEIVABLES FROM DRIVERS During 1996, the Company leased certain of its tractors to independent operators under sales-type leases. The net gain generated upon sale and any interest subsequently earned on the receivable balance have been deferred as an allowance against the related lease 10 3. LEASE RECEIVABLES FROM DRIVERS (CONTINUED) receivables. The leases bear interest at 10% to 13% and are secured by the respective tractor units. Future minimum lease payments under these leases subsequent to December 31, 1996 are as follows: Year Lease Payments Allowance Net Balance --- ------------------------------------------------------ 1997 $ 161,678 1998 170,907 1999 118,747 ----------- Total 451,332 $ 207,401 $ 243,931 Less current portion 161,678 74,250 87,428 ----------------------------------------------------- Long-term portion $ 289,654 $ 133,151 $ 156,503 ===================================================== 4. LONG-TERM DEBT Long-term debt consists of the following at December 31: 1996 1995 --------------------------------- Notes due in monthly principal and interest payments, at various interest rates ranging from 6.52% to 10% per annum, through various dates through January 2001 $31,899,800 $36,140,510 Less current maturities 10,091,413 10,250,623 ----------- ----------- $21,808,387 $25,889,887 At December 31, 1996, all of the above notes were guaranteed by Allways and secured by specific fleet assets, which, in total, comprise the majority of the CompanyOs fleet. Over 75% of the Company's outstanding debt is also secured by the Company's accounts receivable, contract rights, chattel paper and general intangibles. The Company, pursuant to covenants in the loan and security agreement covering various notes, may not pay dividends or make certain investments, except as provided for in the Transtar Agreement or as approved by the lender. Aggregate maturities of long-term debt outstanding as of December 31, 1996, are as follows: 1997 $10,091,413 1998 9,717,140 1999 6,785,670 2000 5,015,675 2001 289,902 ----------- $31,899,800 =========== 11 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 4. LONG-TERM DEBT (CONTINUED) At December 31, 1996, the Company had $3,032,000 of letters of credit outstanding to support certain insurance policies. On February 28, 1997, the Company obtained a revolving credit facility (the Credit Facility), with interest payable monthly at 2% above the Citibank, N.A. base rate, expiring March 31, 1998. Amounts available are limited to the lesser of $6,000,000 or the amount of eligible receivables, as defined. The Credit Facility requires the Company to maintain a debt service coverage ratio, as defined, places limitations on employee advances and executive compensation increases and prohibits payment of dividends. Outstanding balances and letters of credit are collateralized by the accounts receivable and general intangible assets of the Company, as defined. Outstanding letters of credit may not exceed $4,000,000 and reduce the amount available under the Credit Facility. A fee of 2% per annum is due monthly on the outstanding letters of credit. It was not practicable to estimate the fair value of the CompanyOs long-term debt securities because of a lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. 5. COMMITMENTS AND CONTINGENCIES The Company leases office space and parking facilities under noncancelable operating leases expiring in 1999. The Company also rents office equipment under cancelable operating leases. Certain leases provide for purchase or renewal options. Rent expense charged to operations relating to all operating leases totaled $65,068 in 1996, $84,847 in 1995 and $69,346 in 1994. Future minimum payments, under noncancelable operating leases with remaining terms in excess of one year, consisted of the following at December 31, 1996: 1997 $ 53,648 1998 33,914 1999 15,000 ---------- $102,562 ========== The Company is involved in various litigation and legal proceedings, including bodily injury and property damage claims. In the case of bodily injury and property damage, the Company is partially self-insured and has accrued for all claim exposure for which a loss is probable and reasonably estimable. Based on current information, management 12 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) believes that any difference between the future costs and the amounts accrued, if any, for all existing litigation will not be material to the CompanyOs financial position or results of operations. 6. INCOME TAXES At December 31, 1996, Tran-Star has federal and state net operating loss carryforwards of $11,264,000 and $6,725,000, which begin to expire in 2009 and 1997, respectively. The provision (benefit) for income taxes is comprised of the following: YEARS ENDED DECEMBER 31 1996 1995 1994 --------------------------- (In Thousands) Current - State $ 55 $ 55 $ 49 Deferred: Federal (1,339) (181) 390 State (236) (32) 69 (1,575) (213) 459 --------------------------- Provision (benefit) for income taxes $(1,520) $(158) $ 508 =========================== The differences between the provision (benefit) for income taxes and income taxes (benefit) computed using the U.S. federal income tax rate (34%) for the years ended December 31, 1996, 1995 and 1994, are as follows: YEARS ENDED DECEMBER 31 1996 1995 1994 --------------------------- (In Thousands) Provision (benefit) at statutory rate $(1,288) $(186) $ 196 State taxes (benefit), net of federal benefit (123) 13 56 Effect of nondeductible (nontaxable) items (22) 31 242 Other (87) (16) 14 --------------------------- Provision (benefit) for income taxes $(1,520) $(158) $ 508 =========================== 13 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 6. INCOME TAXES (CONTINUED) At December 31, 1996 and 1995, the Company has the following net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes: 1996 1995 ------------------- (In Thousands) Deferred tax liabilities: Fixed assets $ 9,437 $ 8,657 Prepaid expenses 271 628 ------------------- Total deferred tax 9,708 9,285 liabilities Deferred tax assets: Accounts receivable 165 47 Freight, casualty, health and worker's 1,572 1,706 compensation claims Reserve for purchase - 82 liabilities Revenue recognition-- 107 160 difference inEaccounting methods Vacation accrual 164 164 Net operating loss 4,145 2,009 carryforwards Other 41 28 Total deferred tax assets 6,194 4,196 ------------------- Net deferred tax liability $ 3,514 $ 5,089 =================== The net current and noncurrent components of deferred taxes recognized at December 31, 1996 and 1995 are as follows: 1996 1995 ------------------- (In Thousands) Net current asset $ 1,778 $ 1,559 Net noncurrent liability (5,292) (6,648) ----------------- $(3,514) $(5,089) ================= 7. PROFIT-SHARING PLAN Tran-Star has a defined contribution profit-sharing plan covering substantially all full-time employees (the Plan) that permits employees to make 401(k) contributions. The Plan also provides for discretionary employer matching and lump-sum contributions. The Company incurred expenses of approximately $45,000, $32,000 and $23,000 related to the profit-sharing plan in 1996, 1995 and 1994, respectively. 14 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 8. RELATED-PARTY TRANSACTIONS Effective January 1, 1995, the Company was charged a fee for management services provided by Allways on behalf of the Company. For both 1996 and 1995, the charge was $107,979, based on an allocation of specific management personnel salaries. The Company rents a service terminal in Etters, Pennsylvania (Etters) from Transtar Services under a month-to-month lease. Under the terms of the agreement, in lieu of rental payments, the Company is responsible for payment of property taxes and maintenance of the property. Total amounts expensed by the Company relating to this property were $56,400, $54,052 and $52,522 for 1996, 1995 and 1994, respectively. Management believes these payments would approximate rent to an unrelated third party for similar property. Certain services, such as legal and accounting, are performed by third parties for the benefit of both Tran-Star and Proline Carriers, Inc. (Proline), also a wholly owned subsidiary of Allways. Where possible, these costs are allocated to each entity based on actual services rendered. For expenses incurred benefiting both Tran-Star and Proline, costs have been allocated 60% to Tran-Star and 40% to Proline based upon an agreement between the companies. The Company performed services, such as certain finance functions (e.g., credit and collections, payroll, accounts payable and general ledger accounting and reporting), on behalf of Proline and Proline-performed services, such as risk management administration and driver recruitment, on behalf of the Company. Costs for such services are determined from the salaries of the respective employees performing these tasks, allocated based on the estimated time spent by the employees serving the Company and Proline. Net amounts charged by Tran-Star to Proline for these services totaled $536,000 and $372,000 for 1996 and 1995, respectively. No amounts were charged for 1994. The Company advances funds to certain entities owned by Allways. These advances are reflected in the Due from Affiliates account in the accompanying consolidated balance sheets. Interest is charged monthly based on the average monthly outstanding balance at a rate approximating the Company's incremental borrowing rate, which averaged 8.7%, 8.8% and 8.6% in 1996, 1995 and 1994, respectively. The Company recorded interest income of $181,100, $71,400 and $12,900 during 1996, 1995 and 1994, respectively, from these entities. On February 18, 1997, the Board of Directors authorized, through 15 Tran-Star, Inc. Notes to Consolidated Financial Statements (continued) 8. RELATED-PARTY TRANSACTIONS (CONTINUED) various intercompany transactions, the forgiveness of the Due from Affiliates. Accordingly, these advances have been presented in the accompanying consolidated balance sheets as reductions to stockholder's equity. This presentation is reflective of the assumption that the advances are deemed dividends by the Company to Allways and its affiliates. On February 18, 1997, Allways and its wholly owned subsidiaries, including the Company, entered into a Separation and Services Agreement (Separation Agreement) effective January 1, 1997, confirming the 60/40 cost allocations described above. Also, pursuant to the Separation Agreement, net cash collected or paid by the Company on behalf of Proline from December 1, 1996, through and including February 18, 1997, is to be remitted to Proline ($103,087 collected on behalf of Proline through December 31, 1996). In addition, $405,000 is to be paid by the Company to Proline as part of the Separation Agreement. At December 31, 1996, management has recorded the amounts due Proline related to the Separation Agreement of $508,087 as a current liability in the consolidated balance sheet. 9. SUBSEQUENT EVENT On June 27, 1997, the Company was sold to AmeriTruck Distribution Corporation. 16