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, 1998.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 000-24019
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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.)
8 Automation Lane
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 12, 1998, the registrant had 14,538,730 shares of
common stock issued and outstanding.
UNITED ROAD SERVICES, INC.
Form 10-Q For The Quarterly Period Ended September 30, 1998
Index Page
Part I. Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended
September 30, 1998 4
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 2 Changes in Securities and Use of Proceeds 15
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1998 1997
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,290 $50
Trade receivables, net 14,779 -
Other receivables 1,040 -
Prepaid expenses and deposits 2,317 -
------- ----
Total current assets 20,426 50
Property and equipment, net 37,092 -
Goodwill, net 137,516 -
Deferred financing costs, net 997 -
Other non-current assets 597 -
------- ----
Total assets $196,628 $50
------- ----
------- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases $ 1,435 $ -
Notes payable 170 -
Accounts payable 10,011 62
Accrued income taxes 616 -
Other accrued liabilities 4,245 -
Due to related parties 2,198 92
Deferred income taxes 516 -
----- ---
Total current liabilities 19,191 154
Credit facility borrowings 26,000 -
Capitalized lease obligations less
current portion 2,253 -
Deferred income taxes 2,736 -
------- ---
Total liabilities 50,180 154
------ ---
Stockholders' equity (deficit):
Preferred stock; 5,000,000 shares authorized; no shares
issued or outstanding - -
Common stock, $.001 par value; 35,000,000 shares
authorized;
Issued and outstanding 14,497,384 and 2,604,000
shares at September 30, 1998 and December 31,
1997, respectively 14 3
Additional paid-in capital 144,413 67
Retained earnings (deficit) 2,021 (174)
------- -----
Total stockholders' equity (deficit) 146,448 (104)
------- -----
Total liabilities and stockholders' equity $196,628 $ 50
-------- ----
-------- ----
See accompanying notes to condensed consolidated financial statements.
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1998
(Unaudited)
(In thousands, except per share amounts)
Three Months Nine Months
Revenue $36,374 $44,842
Cost of revenue 25,307 30,765
Amortization of goodwill 694 883
Depreciation 969 1,308
Selling, general and administrative expenses 5,237 7,565
------ ------
Income from operations 4,167 4,321
Other income (expense):
Interest income 138 615
Interest expense (412) (526)
------- ------
Income before income taxes 3,893 4,410
Income tax expense 1,923 2,215
Net income $1,970 $2,195
------ ------
------ ------
Per share amounts:
Basic earnings $.14 $ .25
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----- -------
Diluted earnings $.14 $ .25
----- -------
----- -------
See accompanying notes to condensed consolidated financial statements.
UNITED ROAD SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended September 30, 1998
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net income $2,195
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,308
Amortization of goodwill 883
Amortization of deferred loan costs 96
Deferred income taxes 516
Changes in operating assets and liabilities, net of effects
of acquisitions:
Increase in trade receivables (3,994)
Decrease in other receivables 1,081
Decrease in prepaid expenses and deposits 79
Increase in other non-current assets (186)
Increase in accounts and notes payable 2,367
Increase in accrued income taxes 616
Decrease in other accrued liabilities (127)
-------
Net cash provided by operating activities 4,834
------
Cash flows from investing activities:
Acquisition of companies, net of cash acquired (95,336)
Purchase of property and equipment (5,127)
Amounts related to acquisitions payable to related parties 2,106
------
Net cash used in investing activities (98,357)
--------
Cash flows from financing activities:
Proceeds from issuance of stock, net 90,982
Borrowings on credit facility 26,000
Payment of deferred financing costs (622)
Payments on long-term debt and capital leases (20,597)
-------
Net cash provided by financing activities 95,763
-------
Net increase in cash and cash equivalents 2,240
Cash and cash equivalents at beginning of period 50
------
Cash and cash equivalents at end of period $ 2,290
------ ------
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 169
------
------
Warrant issued to lender as partial loan fee $ 471
------
------
See accompanying notes to condensed consolidated financial statements.
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1998
(1)Description of Business and Summary of Significant Accounting Policies
~
~ ~(a) Interim~Financial~Statements
~
~
~The interim financial information included in these condensed
consolidated financial statements is unaudited but reflects all
adjustments (consisting of only normal recurring accruals) which
are, in the opinion of management, necessary for a fair presentation
of the results for the interim periods presented. Results of
operations for the three and nine months ended September 30, 1998
are not necessarily indicative of results to be expected for the
year ending December 31, 1998.
~(b) Description~of~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 and transport services. From inception through
September 30, 1998, United Road Services, Inc. acquired thirty-three
businesses (the "Acquisitions"), seven of which (the "Founding
Companies") were acquired simultaneously with the consummation of an
initial public offering (the "Offering") of its common stock (the
"Common Stock") on May 6, 1998.
United Road Services, Inc. commenced operations when it acquired the
Founding Companies on May 6, 1998. As such, it has a limited
combined operating history and future success is dependent upon a
number of factors which include, among others, the ability to
integrate operations, reliance on the identification and integration
of satisfactory acquisition candidates, the availability of
acquisition financing, and the ability to manage growth and attract
and retain quality management.
~(c) Income~Taxes
~
From July 25, 1997 (inception) to December 31, 1997, United Road
Services, Inc. elected to file federal and State income tax returns
under S-corporation provisions. As such, earnings or losses flowed
through to the stockholder level. Accordingly, no income tax
expense or benefit has been recorded by United Road Services, Inc.
as of December 31, 1997.
Effective January 1, 1998, United Road Services, Inc. elected to
file federal and State income tax returns under C-corporation
provisions. As a result of United Road Services, Inc. profit for
the nine month period ended September 30, 1998, a tax expense has
been recorded at September 30, 1998 at the effective tax rate
expected by United Road Services, Inc. for the year ending December
31, 1998.
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(1) - Continued
~(d) Use~of~Estimates
~
Management of United Road Services, Inc. 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 interim consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
~(e) Per~Share~Amounts
~
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings 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 of
the entity (such as stock options and warrants).
The following table provides calculations of both basic and diluted
earnings per share:
Three months ended September 30, 1998
- -------------------------------------
Weighted Per
Net average share
Income shares amounts
------- -------- -------
Basic $ 1,970,000 14,079,898 $ .14
----------- ---------- -------
----------- ---------- -------
Diluted $ 1,970,000 14,267,622 $ .14
---------- ---------- -------
---------- ---------- -------
Nine months ended September 30, 1998
------------------------------------
Weighted Per
Net average share
Income shares amounts
-------- -------- -------
Basic $2,195,000 8,799,686 $ .25
---------- --------- -------
---------- --------- -------
Diluted $2,195,000 8,937,442 $ .25
---------- --------- -------
---------- --------- -------
~(f) Impact~of~Recently~Issued~Accounting~Standards
~
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
SFAS No. 130 requires all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal
prominence with the other financial statements. United Road
Services, Inc. adopted SFAS No. 130 during the period ended March
31, 1998, however the adoption of SFAS No. 130 did not have any
effect on the reporting and display of the financial position,
results of operations or cash flows of United Road Services, Inc.
There is no difference in the three months and nine months ended
September 30, 1998 between net income and comprehensive income.
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(1) - Continued
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
established standards for the way public companies are to report
information about operating segments in annual financial statements
and requires those enterprises to report selected information about
operating segments in interim financial reports issued to
shareholders. SFAS No. 131 focuses on a "management approach"
concept as the basis for identifying reportable segments. The
management approach is based on the way that management organizes
the segments within the enterprise for making operating decisions
and assessing performance. United Road Services, Inc. continues to
evaluate the provisions of SFAS No. 131 and will adopt SFAS No. 131
as of and for the period ending December 31, 1998.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. SOP
98-1 also requires that costs related to the preliminary project
stage and post-implementation/operations stage of an internal-use
computer software development project be expensed as incurred.
United Road Services, Inc. adopted SOP 98-1 as of January 1, 1998.
In March 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5 requires the expensing of certain
costs such as pre-operating expenses and organizational costs
associated with the company's start-up activities. The effect of
adoption is required to be accounted for as a cumulative change in
accounting principle. United Road Services, Inc. adopted SOP 98-5
as of January 1, 1998. Since January 1, 1998, all start-up costs as
defined under SOP 98-5 have been expensed.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15,
1999. Management is currently evaluating the impact of SFAS No. 133
on the United Road Services, Inc. consolidated financial statements.
(2) Stockholders' Equity
United Road Services, Inc. effected a 100-for-one stock split on
December 18, 1997. In addition, United Road Services, Inc. increased
its authorized shares of Common Stock to 1,000,000 shares with a $.001
par value. Subsequently, and pursuant to an amended and restated
certificate of incorporation of United Road Services, Inc., filed on
February 23, 1998, the authorized number of shares have been increased
to 40,000,000 (35,000,000 common shares and 5,000,000 preferred shares).
Also, on February 23, 1998, United Road Services, Inc. effected a 3.72
for 1 stock split. Common Stock has been retroactively reflected in the
condensed consolidated financial statements.
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(2) - Continued
On December 18, 1997, United Road Services, Inc. authorized the issuance
of 188,976 shares of Common Stock pursuant to the terms and conditions
of a subscription agreement. At December 31, 1997, United Road
Services, Inc. had obtained subscription agreements to purchase all of
such shares of Common Stock. These shares were issued and fully paid on
January 1, 1998 for $3.36 per share.
In January 1998, United Road Services, Inc. issued 29,760 shares of
Common Stock to a member of the board of directors for a purchase price
of $3.36 per share. In addition, options to purchase 669,350 shares of
Common Stock were granted as of September 30, 1998 to officers,
directors and employees of United Road Services, Inc. Such stock
options were issued at an average exercise price of $13.46 per share and
vest over a three-year period.
On May 6, 1998, United Road Services, Inc. completed its initial public
offering of 6,600,000 shares of Common Stock. On May 6, 1998, the
Underwriters also exercised their overallotment option to purchase an
additional 990,000 shares of Common Stock. The proceeds to the Company,
net of underwriters' discount and commission, were $91,800,000.
On May 6, 1998, United Road Services, Inc. issued 2,375,741 shares of
Common Stock in conjunction with the acquisition of the Founding
Companies.
During the period from May 7, 1998 through September 30, 1998 the
Company acquired 26 other businesses using a combination of Common Stock
and cash. The total number of shares issued in connection with these
acquisitions was 1,708,907 with a recorded fair value of $28.8 million.
(3)Due to Related Parties
At December 31, 1997 United Road Services, Inc. was indebted to two of
its primary stockholders under unsecured notes, bearing interest at 8.5%
per annum. The notes and unpaid interest were repaid subsequent to the
Offering. At September 30, 1998 the balance represents amounts owed to
former owners of companies acquired being held to offset potential
contingencies related to the purchases.
UNITED ROAD SERVICES, INC.
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(4) Acquisitions
On May 6, 1998, United Road Services, Inc. acquired the seven businesses
referred to as the Founding Companies. Between May 7, 1998 and September 30,
1998, United Road Services, Inc. acquired 26 other businesses for aggregate
consideration (excluding assumed indebtedness) of approximately $63.7
million in cash and 1,708,907 shares of Common Stock with a recorded value
of $28.8 million. The acquired companies are located throughout the United
States, with the majority located in the Western region of the country.
These companies are engaged in the business of motor vehicle and equipment
towing, recovery and transport services. The acquisitions have been
accounted for using the purchase method of accounting. The excess of the
purchase price over the fair value of the assets acquired of $83.7 million
has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years.
The following unaudited pro forma financial information presents the
combined results of operations of United Road Services, Inc. as if all the
acquisitions that were completed through September 30, 1998 had occurred as
of the beginning of the period presented, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, agreed-upon reductions in salaries and bonuses to former
shareholders and related income tax effects. This pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had a single entity operated during such periods.
Year ended Nine months ended
December 31, 1997 September 30, 1998
------------------ ------------------
Net revenue $139,209 $121,567
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Net income $ 5,693 $ 6,948
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Diluted net income per share $ 0.59 .72
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(5) Subsequent Events~
~
(a) Since September 30, 1998, United Road Services, Inc. has
acquired three motor vehicle and equipment towing, recovery and
transport services businesses, for aggregate consideration (excluding
assumed indebtedness) of $4.5 million in cash and 41,346 shares of
Common Stock.~
~ ~
~ (b) In connection with its acquisition program, United Road
Services, Inc. may enter into agreements with the stockholders of
acquired companies to lease buildings for use in United Road
Services, Inc.' s continuing operations for negotiated amounts
and terms.
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
financial statements and notes thereto included in Item 1 of this Quarterly
Report.
Cautionary Statements
- ---------------------
From time to time, in written reports and oral statements, management may
discuss their expectations regarding United Road Services, Inc.' s future
performance. These "forward-looking statements" are based on currently
available competitive, financial and economic data and management's
operating plans and involve risks and uncertainties that could render
actual results materially different from management's expectations. Such
risks and uncertainties include, without limitation, general economic
conditions, changes in applicable regulations, including but not limited
to, various federal, state and local laws and regulations regarding
equipment, driver certification, training and recordkeeping and workplace
safety, the loss of significant customers and contracts, risks related to
the Company's acquisition strategy and its ability to integrate acquired
companies, changes in the level of demand for towing and transport
services, price changes in response to competitive factors, seasonal
variations and the timing of expenditures for new equipment and the
disposition of used equipment. Investors must recognize that events could
turn out to be significantly different from what management expects.
Overview
- --------
United Road Services, Inc. ("United Road" or the "Company") was formed in
July 1997 to become a leading national provider of motor vehicle and
equipment towing and transport services. Simultaneously with its initial
public offering of Common Stock (the "Offering") in May 1998, United Road
acquired (the "Founding Company Acquisitions") seven motor vehicle and
equipment towing and transport services businesses (the "Founding
Companies") and is now one of the largest providers of these services in
the United States. During the month of June 1998, United Road acquired five
additional motor vehicle and equipment towing, recovery and transport
service businesses. From July 1 through September 30, 1998, the Company
acquired 21 other motor vehicle and equipment towing, recovery and
transport businesses (including Keystone Towing, Inc.) (the "Third Quarter
Acquisitions"). Since September 30, 1998, United Road has acquired three
additional motor vehicle and equipment towing and transport services
businesses (all of the foregoing acquisitions being referred to herein as
the "Acquisitions").
United Road offers a broad range of towing, recovery and transport
services, including towing, impounding and storing motor vehicles,
conducting lien sales and auctions of abandoned vehicles, recovering heavy-
duty commercial vehicles and transporting new and used vehicles and heavy
construction equipment. The Company derives revenue from towing and
transport services based on distance, time or fixed charges and from
related impounding and storage fees. In the event that impounded vehicles
are not claimed by their owners within prescribed time periods, United Road
is paid from the proceeds of lien sales or auctions. United Road's
customers include commercial entities, such as 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.
Results of Operations - Three Months Ended September 30, 1998
- -------------------------------------------------------------
Revenue was $36.4 million for the three months ended September 30, 1998.
Cost of revenue was $25.3 million, or 69.6% of revenue, for the three
months ended September 30, 1998, consisting primarily of $12.4 million in
labor and subcontractor costs, resulting in a gross profit, including
depreciation and amortization of goodwill, of $9.4 million or 25.9% of
revenue.
Selling, general and administrative expenses were $5.2 million, or 14.4% of
revenue, for the three months ended September 30, 1998, consisting
primarily of $2.8 million in salary and wages, resulting in income from
operations of $4.2 million, or 11.5% of revenue. Other income (expense)
was ($274,000), or 0.8 % of revenue, for the three months ended September
30, 1998, consisting primarily of $412,000 of interest expense.
Results of Operations - Nine months ended September 30, 1998
- ------------------------------------------------------------
Revenue was $44.8 million for the nine months ended September 30, 1998.
Cost of revenue was $30.8 million, or 68.6% of revenue, for the nine
months ended September 30, 1998, consisting primarily of $13.8 million in
labor and subcontractor costs, resulting in a gross profit, including
depreciation and amortization, of $11.9 million or 26.5% of revenue.
Selling, general and administrative expenses were $7.6 million, or 16.9% of
revenue, for the nine months ended September 30, 1998, consisting primarily
of $3.8 million in salary and wages, resulting in income from operations of
$4.3 million or 9.6% of revenue. Other income (expense) was $89,000, or
0.2% of revenue, for the nine months ended September 30, 1998, consisting
of $615,000 of interest income and $526,000 of interest expense.
Liquidity and Capital Resources
- -------------------------------
During the third quarter of 1998, United Road incurred costs associated
with its operations and its acquisition program. These cash needs were met
primarily through capital provided by the Offering and bank borrowings. At
September 30, 1998, working capital was $1.2 million.
The Company completed its Offering of 6,600,000 shares of Common Stock
(7,590,000 shares upon exercise of the underwriters' over-allotment option)
in May 1998. A portion of the net proceeds available to United Road from
the Offering (which proceeds totaled $91.8 million after giving effect to
exercise of the underwriters' over-allotment option) were used to pay the
cash portion of the purchase price for the Third Quarter Acquisitions, as
described in notes 1(b) and 4 of the quarterly financial information
included herein, expenses incurred in connection with the Third Quarter
Acquisitions, and the repayment of certain indebtedness assumed as part of
the Acquisitions.
In May 1998, United Road obtained a $50 million revolving credit facility
with a group of financial institutions (the "Credit Facility"). On November
2, 1998, the Credit Facility was expanded to an amount not to exceed $100.0
million. As of the date of this Report, the Company has obtained
commitments to fund up to $90.0 million under the Credit Facility. The
Credit Facility terminates in October 2001, at which time all outstanding
indebtedness will be due. Borrowings under the Credit Facility accrue
interest, at United Road's option, at either (a) the Base Rate (which is
equal to the greater of (i) the Federal Funds Rate ~plus~0.5% and (ii) Bank
of America's reference rate), or (b) the Eurodollar Rate (which is equal to
Bank of America's reserve adjusted eurodollar rate ~plus~a margin ranging
from 1.5% to 2.5% per annum). The obligations of United Road under the
Credit Facility are guaranteed by each of its subsidiaries. The
obligations of United Road and its subsidiaries under the Credit Facility
and related guarantees are secured by substantially all of the assets of
United Road, the assets of the subsidiaries and the stock of the
subsidiaries. The Credit Facility requires United Road to comply with
various loan covenants including (i) maintenance of certain financial
ratios, (ii) restrictions on additional indebtedness, and (iii)
restrictions on liens, guarantees, advances and dividends. The Credit
Facility is subject to customary drawing conditions. At September 30, 1998,
United Road had borrowed $26.0 million under the Credit Facility. In
connection with the Credit Facility, the Company issued to Bank of America
National Trust and Savings Association a warrant to purchase 117,789 shares
of Common Stock at an exercise price of $13.00 per share. The warrant
expires on June 16, 2003.
United Road's near-term principal sources of cash are cash flow from
operations and borrowings under the Credit Facility. These sources of cash
will be used for future acquisitions, capital expenditures, refinancing of
outstanding debt and for general corporate purposes, and should enable
United Road to fund its day-to-day working capital requirements in the near
term.
United Road has centralized its accounting and financial reporting
activities at its headquarters in Albany, New York. In addition,
management is in process of developing a national dispatch system for its
transport operations.
To date, the Company has spent approximately $3.2 million to install its
integrated information system. Management estimates that the Company will
spend an additional $2.3 million on installation of the integrated
information system during the remainder of 1998. The vendors of the
information software have informed management that the system will be year
2000 compliant. Although United Road expects that it will be required to
upgrade and expand this system in the future, management cannot quantify
such expenditures at this time.
United Road spent $5.1 million on purchases of property and equipment
(including amounts spent in connection with installation of the integrated
information system) for the nine months ended September 30, 1998. United
Road expects to make capital expenditures of an additional $3.9 million
during the remainder of 1998. Sources of liquidity to meet these demands
are expected to be generated from earnings and related cash flow.
United Road intends to continue to pursue additional acquisition
opportunities and expects to fund future acquisitions through the issuance
of additional Common Stock, borrowings under the Credit Facility, and cash
flow from operations. There can be no assurance that any such financing
will be available on terms satisfactory to United Road or at all.
General Economic Conditions and Inflation
- -----------------------------------------
United Road's future operating results may be adversely affected by (i)
changes in general economic conditions, including various federal, state
and local laws and regulations regarding equipment, driver certification,
training and recordkeeping and workplace safety, (ii) the loss of
significant customers or contracts, (iii) success in integrating acquired
companies and future acquisitions, (iv) price changes in response to
competitive factors, (v) seasonal variations, and (vi) the timing of
expenditures for new equipment and the disposition of used equipment.
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.
Year 2000 Compliance
- --------------------
There has been a great deal of public discussion regarding the ''year 2000
problem.'' The issue arises because many existing computer programs only
use the last two digits to refer to a year and therefore do not properly
recognize that a year that ends with ''00'' (i.e. ''2000'') should follow
the year that ends with ''99'' (i.e. ''1999''). If not corrected, there is
fear that many computer applications will fail or create errors. No one
knows the extent of the potential impact of the year 2000 problem
generally.
The Company has taken a variety of steps in an effort to assess its
readiness for this year 2000 situation. It has considered whether it will
have a year 2000 problem with regard to:
~National~Operations~. All of the Company's accounting and financial
reporting activities have been centralized at its headquarters in Albany,
New York. The software that the Company has implemented in this regard is
year 2000 compliant. In addition, in order to make the Company's transport
operations more efficient, the Company is in the process of developing a
national dispatch system to replace the local systems that are currently in
use. The proposed national transport system is year 2000 compliant and
management expects that it will be installed prior to January 1, 2000. If
an unforeseeable event were to make it impossible to install the national
transport system by 2000, the Company would need to rely on its local
transport dispatch systems, which it believes may not be year 2000
compliant. If the local transport systems become inoperable, the Company
expects that it will be able to manually perform such functions, although
not as efficiently. The Company cannot now predict the likelihood, extent
or impact of such effects on its results of operations or financial
condition. The Company's payroll operations are managed by a national
payroll processor which has informed the Company that the systems are year
2000 compliant.
~Local~Operations~. Certain of the operating functions of some of the
companies that United Road has acquired are computerized. The Company has
reviewed these systems and determined that some are not year 2000
compliant. In order to make United Road's operations more efficient (and to
address year 2000 issues) the Company intends to replace all of the local
operating systems with standardized operational software which will be year
2000 compliant. Management expects this replacement to be completed by
January 1, 2000. In the event that the Company is unable to install new
software, it would need to rely on its existing systems. While the
computerized systems are expected to make the Company more efficient, if
they become inoperable, management believes the Company can manually
perform all necessary functions, although not as efficiently. Management
cannot now predict the likelihood, extent or impact of such effects on the
Company's results of operations or financial condition.
~Vendors~and~Customers~. The Company is currently developing a plan to
review with its significant vendors, customers and financial institutions
their individual year 2000 compliance. Such a review has not yet been
formally commenced. As a result, it is difficult to predict the impact that
year 2000 problems at such vendors, customers or financial institutions
will have on United Road. One of the Company's customers, Insurance Auto
Auctions ("IAA"), accounted for approximately 9.3% of the Company's
combined net revenue in the first nine months of 1998. Management believes
that IAA is in the process of upgrading its systems so that they are year
2000 compliant. If there is a year 2000 problem at IAA, this could have an
impact on the Company's results of operations and financial condition,
although management expects that manual performance of functions at IAA
could minimize such impact.
The Company is unable to estimate the costs management will incur to fully
install its national transport system or to replace its local operating
systems. Other than ensuring that its centralized systems are year 2000
compliant, given that the Company's operations and its interactions with
vendors and customers have historically been conducted in a substantially
manual mode, management has not developed a contingency plan to guide the
Company's responses to year 2000 problems when they may arise. The Company
intends to continue to examine the potential impact of the year 2000 issue,
and will develop a contingency plan if it believes one is necessary. The
Company cannot predict the likelihood that year 2000 problems will cause a
significant disruption in the economy as a whole.
Part II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the third quarter of 1998, the Company has issued and sold the
following unregistered securities, the purchasers of which were all
accredited investors.
(1) On July 1, 1998, the Company issued an aggregate of 29,778 shares
of Common Stock in connection with its acquisition of Bill and
Wags, Inc.
(2) On July 1, 1998, the Company issued an aggregate of 125,000
shares of Common Stock in connection with its acquisition of
Schroeder Auto Carriers, Inc.
(3) On July 2, 1998, the Company issued an aggregate of 144,785
shares of Common Stock in connection with its acquisitions of
PBM, Inc. and Alert Auto Transport.
(4) On July 2, 1998, the Company issued an aggregate of 24,757 shares
of Common Stock in connection with its acquisition of West
Nashville Wrecker Service, Inc.
(5) On July 14, 1998, the Company issued an aggregate of 36,657
shares of Common stock in connection with its acquisition of
AAAmazing, Inc.
(6) On July 20, 1998, the Company issued an aggregate of 99,602
shares of Common Stock in connection with its acquisition of
Healey Automotive, Inc.
(7) On July 21, 1998, the Company issued an aggregate of 17,735
shares of Common Stock in connection with its acquisition of
Sid's Wrecker Service, Inc.
(8) On July 22, 1998, the Company issued an aggregate of 113,208
shares of Common Stock in connection with its acquisition of
Patrick K. Willis and Company, Inc.
(9) On July 31, 1998, the Company issued an aggregate of 9,724 shares
of Common Stock in connection with its acquisition of Kirk's
Sineath Motor Company, Inc.
(10) On August 3, 1998, the Company issued an aggregate of 29,148
shares of Common Stock in connection with its acquisition of
Better All Auto Transport, Inc.
(11) On August 6, 1998, the Company issued an aggregate of 91,116
shares of Common Stock in connection with its acquisition of El
Paso Towing, Inc.
(12) On August 7, 1998, the Company issued an aggregate of 377,624
shares of Common Stock in connection with its acquisition of
Keystone Towing, Inc.
(13) On August 14, 1998, the Company issued an aggregate of 23,480
shares of Common Stock in connection with its acquisition of A&B
Towing, Inc.
(14) On August 21, 1998, the Company issued an aggregate of 173,498
shares of Common Stock in connection with its acquisition of
Environmental Auto Removal, Inc.
(15) On August 26, 1998, the Company issued and aggregate of 9,424
shares of Common Stock in connection with its acquisition of Arri
Brothers, Inc.
(16) On September 8, 1998, the Company issued an aggregate of 39,467
shares of Common Stock in connection with its acquisition of 1113
Enterprises, Inc. d/b/a Central Service Center and T.J. West,
Inc.
The sales of the above securities were 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 transactions by an
issuer not involving a public offering. The recipients of securities in
each such transaction represented their 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 share
certificates issued in such transactions.
Certain Information Concerning the Company's Initial Public Offering
Set forth below is certain information concerning the use of proceeds
from the Company's initial public offering ("the "Offering").
The gross proceeds to the Company from the Offering were $91.8
million. As of June 30, 1998, approximately $42.0 million of such proceeds
remained after deducting the expenses paid by the Company related to the
Offering and the $49.8 million of proceeds used by the Company through June
30, 1998. During the period from July 1, 1998 through September 30, 1998,
the Company used all of such remaining proceeds as follows:
a. $22.2 million to pay the cash portion of the purchase price of
the Third Quarter Acquisitions, none of which was paid directly
or indirectly to persons who are directors, officers or
affiliates of the Company or persons owning more than 10% of the
outstanding Common Stock of the Company;
b. $15.4 million to repay certain indebtedness assumed as part of
the Third Quarter Acquisitions; and
c. $4.4 million to pay expenses related to the Third Quarter
Acquisitions.
Item 5. Other Information
Effective August 14, 1998, Mark J. Henninger was appointed to the
Company's Board of Directors to fill a vacancy thereon. Effective August
27, 1998, Edward D. Smith resigned from the Board of Directors to pursue
other commitments.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description of Documents
2.1 Stock Purchase Agreement, dated as of August 21, 1998, by and
among the Company, E&R Towing and Garage, Inc., Gerald J.
Corcoran, Edward V. Corcoran, Edward V. Corcoran, Jr. and David
Corcoran (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed September 1, 1998).
2.2 Stock Purchase Agreement, dated as of August 21, 1998, by and
among the Company, Environmental Auto Removal, Inc., Gerald J.
Corcoran and Edward V. Corcoran (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K filed
September 1, 1998).
10.1 Second Amendment to Credit Agreement dated July 15, 1998 among
the Company, various financial institutions and Bank of America
National Trust and Savings Association, as Agent (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998).
10.2 Third Amendment to Credit Agreement, dated as of September 30,
1998, by and among the Company, various financial institutions
and Bank of America National Trust and Savings Association, as
Agent (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (Registration No.
333-65563)).
27.1 Financial Data Schedule (filed herewith).
(a) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarterly
period ended September 30, 1998:
(i) Current Report on Form 8-K dated August 21, 1998, to report,
under Item 2, that the Company had acquired all of the Capital
Stock of E&R Towing and Garage, Inc. and Environmental Auto
Removal, Inc. from the stockholders thereof.
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 13, 1998 /s/ Edward T. Sheehan
-------------------------
Edward T. Sheehan
Chairman and Chief Executive Officer
Date: November 13, 1998 /s/ Donald J. Marr
------------------------
Donald J. Marr
Chief Financial Officer
Exhibit Index
Number Description of Document
27.1 Financial Data Schedule.