ITEM 1. BUSINESS --------
Background - - - ----------
Amertranz Worldwide Holding Corp. ("Company") provides freight forwarding services and logistics services, through its wholly owned subsidiaries, Amertranz Worldwide, Inc. ("Amertranz") and Caribbean Air Services, Inc. ("CAS"). The Company has a network of offices in 25 cities throughout the United States and Puerto Rico. The Company believes that it is one of the dominant freight forwarders between the continental United States and Puerto Rico.
The Company was incorporated in Delaware in January 1996 as the successor to operations commenced in 1970 as the "Wrangler Aviation" division of Blue Bell, Inc., an apparel manufacturer. The Wrangler Aviation division transported raw material to Blue Bell facilities in Puerto Rico and returned the finished goods to its facilities in Greensboro, North Carolina. In 1988, new owners of Blue Bell, Inc. separately incorporated the division in Delaware as Wrangler Aviation, Inc. ("Wrangler"), and then sold Wrangler in October 1990. At that time, Caribbean Freight System, Inc. ("CFS") was incorporated in Puerto Rico as a wholly owned subsidiary of Wrangler to act as the marketing arm of Wrangler.
In December 1991, the owners of Wrangler engaged a new management team following the discovery of certain improprieties performed under the old management. As a result of investigations by the new management, it was determined to reorganize both Wrangler and CFS under Chapter 11 of the United States Bankruptcy Code. CFS and Wrangler both successfully emerged from the Chapter 11 proceedings in November 1992 and June 1993, respectively. In January 1994, Wrangler changed its name to TIA, Inc. ("TIA"). Thereafter, TIA and CFS continued to specialize in the movement of large freight shipments for manufacturers, and maintained sales and/ or full offices in Philadelphia, New York, Chicago, Los Angeles, Hartford, and Greensboro, North Carolina, as well as a network of sales persons in Puerto Rico.
Amertranz and its predecessor began operations in June 1985 as an independently owned exclusive agent of a domestic and international air freight forwarder. During the next eight years, Amertranz opened nine offices under its exclusive agency arrangement.
In January 1994, Amertranz acquired the domestic air freight forwarding business (i.e., the transport of freight which has both its point of origin and its point of destination within the United States) of the freight forwarder for which Amertranz was acting as an exclusive agent, as a result of the settlement of a lawsuit. Thereafter, Amertranz owned and operated 20 offices primarily focusing on the movement of domestic freight and, in its original nine offices, international air freight. As an independent freight operation, Amertranz established an internal infrastructure, including accounting, data processing and communications departments, to support its 20 office network.
On February 7, 1996 pursuant to the terms of an Assets Exchange Agreement, the Company acquired all of the issued and outstanding stock of Amertranz and received the freight forwarding business of TIA and CFS, and contributed the TIA and CFS freight forwarding business to CAS.
As a result Amertranz became a wholly-owned subsidiary of the Company and continues to conduct Amertranz's freight forwarding and logistics services businesses, and the freight forwarding business of TIA and CFS was transferred to the Company and is conducted by CAS.
Description of Business - - - -----------------------
The Company's freight forwarding services involve arranging for the total transport of customers' freight from the shippers' location to the designated recipients, including the preparation of shipping documents and the providing of handling, packing and containerization services. The Company concentrates on cargo shipments weighing more than 50 pounds and generally requiring second-day delivery. The Company also assembles bulk cargo and arranges for insurance. The Company has a network of offices in 24 cities throughout the United States and Puerto Rico,including exclusive agency relationships in two cities. The Company has international freight forwarding operations consisting of strategic relationships in four countries. The Company has recently begun to provide logistics services to manufacturers for the movement of raw materials and finished goods.
Operations - - - ----------
Movement of Freight. The Company does not own any airplanes or significant trucking equipment and relies on independent contractors for the movement of its cargo. The Company utilizes its expertise to provide forwarding services that are tailored to meet customers' requirements. It arranges for transportation of customers' shipments via commercial airlines and/or air cargo carriers and, if delivery schedules permit, the Company makes use of lower cost inter-city truck transportation services. The Company selects the carrier for particular shipments on the basis of cost, delivery time and available cargo capacity. Through the Company's advanced data processing system, it can provide, at no additional cost to the customer, value-added services such as electronic data interchange, computer based shipping and tracking systems and customized computer generated reports. Additionally, the Company provides cargo assembly and warehousing services.
The rates charged by the Company to its customers are based on destination, shipments weight and required delivery time. The Company offers graduated discounts for shipments with later scheduled delivery items and rates generally decrease in inverse proportion to the increasing weight of shipments. Due to the high volume of freight controlled by the Company, it is able to obtain favorable contract rates from airlines and is often able to book freight space at times when available space is limited. When possible, the Company consolidates different customers' shipments to reduce its cost of transportation.
Under the terms of the Cargo Aircraft Charter Agreement dated February 29, 1994, amended ("L-1011 Charter"), the Company has exclusive rights, until June 30, 1998, to the use of a Lockheed L-1011 cargo aircraft that is operated on behalf of Tradewinds Airlines, Inc. between the Company's Borinquen, Puerto Rico location and its Greensboro, North Carolina and Hartford, Connecticut, locations. The L-1011 aircraft carries a payload of 110,000 pounds. Under the terms of the L-1011 Charter, the L-1011 aircraft must be available at all times (except during scheduled maintenance) for use by the Company, as needed. While the Company is guaranteed the use of the L-1011 aircraft as needed, the Company pays only for its actual use of the aircraft at market rates. Freight originating throughout the United States is generally transported by truck to either Greensboro or Hartford for loading onto the aircraft. Similarly, freight originating in Puerto Rico is flown on the L-1011 aircraft to either Greensboro or Hartford, and then transported by truck to its destination.
Information Systems. An important component of the Company's business strategy is to provide accurate and timely information to its management and customers. Accordingly, the Company has invested, and will continue to invest, substantial management and financial resources in developing these information systems.
The Company leases an IBM AS 400 mainframe computer and has a customized commercial (i.e., not proprietary to the Company) freight forwarding software system which the Company has named "Amertrax". Amertrax is an integrated freight forwarding and financial management data processing system. It provides the Company with the information needed to manage its sourcing and distribution activities by providing up-to-date information on the status of shipments, both internally and to customers, through either printed or electronic medium.
Specifically, the Amertrax system permits the Company to track the flow of a particular shipment from the point of origin through the transportation process to the point of delivery. The Company intends to continuously upgrade Amertrax to enhance its ability to maintain a competitive advantage. The Company believes that this will allow it and its customers to reduce transportation costs through the automation of many parts of the shipping process. For example, the Company expects shortly to offer customers the ability to receive shipping invoices electronically. This will reduce the Company's costs of issuing invoices and the customer's cost of processing these invoices and will reduce the time required for transmittal.
International Operations. The Company has recently reduced its international operations to re-focus its efforts on its domestic markets. The Company's international freight forwarding accounted for less than 4% of the Company's operating revenue.
Logistics Services. The Company recently began offering logistic services to large manufacturing companies. These services consist of providing the total transportation requirements for a customer, including shipment in and out of warehouse, maintenance of warehousing of customer inventory, individual order organizing for shipment and order packing and shipment. The Company currently provides these services to a large computer hardware manufacturer. To properly provide its logistics services to this customer, the Company has leased a warehouse adjacent to this customer's manufacturing complex dedicated to the customer and its suppliers. While the Company's logistics service is not currently a major component of the Company's business, the Company intends to increase this portion of its business.
Customers and Marketing - - - -----------------------
The Company's principal customers include large manufacturers and distributors of pharmaceuticals, computers and other electronic and high-technology equipment, computer software and wearing apparel. The Company currently has more than 2,000 accounts.
The Company markets its services through an organization of approximately 30 full-time salespersons supported by the sales efforts of senior management, the Company's five regional managers and the operations staff in the Company's offices. The Company strongly promotes team selling, wherein the salesperson is able to utilize expertise from other departments in the Company to provide value-added services to gain a specific account. The Company has a national account sales group that targets high-revenue national accounts with multiple shipping locations. These industry specialists discern the specific freight transportation requirements of the customers and are able to prepare customized shipping programs to meet these specific requirements. The Company staffs each office with operational employees to provide support for the sales team, develop frequent contact with the customer's traffic department, and maintain customer service. The Company believes that it is important to maintain frequent contact with its customers to assure satisfaction and to immediately react to resolve any problem as quickly as possible.
The Company has a specialized Fashion Air division for the garment industry. This division targets customers from manufacturers to retail establishments and provides specific expertise in handling fashion-related shipments. Fashion Air specializes in the movement of wearing apparel for manufacturing customers to their department store customers located throughout the United States. This division accounted for approximately 8% of the Company's operating revenues (on a combined consolidated pro forma basis) in 1995.
Many of the Company's customers utilize more than one air freight transportation provider. In soliciting new accounts, the Company uses a strategy of becoming an approved carrier in order to demonstrate the quality and cost-effectiveness of its services. Using this approach, the Company has advanced its relationships with several of its major customers, from serving as a back-up freight services provider to primary freight forwarder.
Competition - - - -----------
Although there are no weight restrictions on the Company's shipments, the Company focuses primarily on cargo shipments weighing more than 50 pounds and requiring second-day delivery. As a result, the Company does not directly compete for most of its business with overnight couriers and integrated shippers of principally small parcels, such as United Parcel Service of America, Inc., Federal Express Corporation, DHL Worldwide Express, Inc., Airborne Freight Corporation and the United States Postal Service. However, some integrated carriers, such as Emery Air Freight Corporation and Burlington Air Express, Inc., primarily solicit the shipment of heavy cargo in competition with forwarders. Most air freight forwarders do not compete with the major commercial airlines, which to a certain extent depend on forwarders to procure shipments and supply freight for the available cargo space on their scheduled flights.
There is intense competition within the freight forwarding industry. While the industry is highly fragmented, the Company most often competes with a relatively small number of forwarders who have nationwide networks and the capability to provide a full range of service similar to that offered by the Company. These include Eagle USA Air Freight, Inc., Pilot Air Freight, Inc., and LEP Profit International, Inc. There is also competition from passenger and cargo air carriers and trucking companies. On the international side of the business, the Company competes with forwarders that have a predominantly international focus, such as Fritz Companies, Inc., Air Express International Corporation and Harper Group, Inc. All of these companies, as well as many other competitors, have substantially greater facilities, resources and financial capabilities than those of the Company. The Company also faces competition from regional and local air freight forwarders, cargo sales agents and brokers, surface freight forwarders and carriers and associations of shippers organized for the purpose of consolidating their members' shipments to obtain lower freight rates from carriers.
While the Company's logistics service is not currently a major component of the Company's business, the Company intends to increase this portion of its business. In logistics services, the Company competes with many well established transportation and other firms, many of whom have facilities, resources, and financial capabilities far greater than those of the Company.
Employees - - - ---------
The Company and its subsidiaries had approximately 221 full-time employees as of June 30, 1996. None of the Company's employees are currently covered by a collective bargaining agreement. The Company has experienced no work stoppages and considers its relations with its employees to be good.
Regulation - - - ----------
The Company's freight forwarding business as an indirect air cargo carrier is subject to regulation by the United States Department of Transportation ("DOT") under the Federal Aviation Act. However, air freight forwarders (including the Company) are exempted from most of such Act's requirements by the Economic Aviation Regulations promulgated thereunder. The Company's foreign air freight forwarding operations are subject to regulation by the regulatory authorities of the respective foreign jurisdictions. The air freight forwarding industry is subject to regulatory and legislative changes which can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and the costs of providing, services to customers.
ITEM 2.
ITEM 2. PROPERTIES ----------
The Company leases terminal facilities consisting of office and warehouse space in 24 cities located in the United States and Puerto Rico, and also utilizes two offices operated by exclusive agents. The Company's headquarters are located in Lake Success, New York, in 7,000 square feet of leased office space. The Company's 23 facilities range in size from 1,000 square feet to 26,000 square feet and consist of offices and warehouses with loading bays. All of such properties are leased from third parties. In addition, the Company leases approximately 40,000 square feet of warehouse space in Fort Worth, Texas, for its logistics services business. Management believes that its current facilities are underutilized. Accordingly, management believes that the Company's facilities are more than sufficient for its planned growth. The principal facilities are set forth in the following table:
Approximate Square Feet Lease Location of Floor Space Expiration - - - -------- ----------------------- ----------
Fort Worth, TX 46,720 July, 1997 Los Angeles, CA 17,400 February, 1998 Aquadilla, PR 45,000 Month-to-Month
The Company has an additional twenty-one terminal facilities in the following locations.
Atlanta, Georgia Denver, Colorado Houston, Texas Chicago, Illinois Detroit, Michigan Indianapolis, Indiana Cincinnati, Ohio Greensboro, North Carolina Miami, Florida Cleveland, Ohio Hartford, Connecticut Minneapolis, Minnesota Dallas, Texas Newark, New Jersey New York, New York Philadelphia, Pennsylvania San Diego, California San Juan, Puerto Rico St. Louis, Missouri Kansas City, Missouri San Francisco, California
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
Amertranz is a defendant in a lawsuit initiated by the trustee in bankruptcy of Aeronautics Express, Inc. ("AEI"), a company with whom Amertranz engaged in discussions concerning a prospective business combination during the early spring of 1994. The complaint was filed in the United States Bankruptcy Court for the Southern District of New York in December, 1995, and alleges that Amertranz improperly obtained control over the assets of AEI, committed fraud in connection with the business discussion, breached on agreement not to solicit the business or customers of AEI, induced AEI to convey property to Amertranz for less than fair value and failed to pay AEI compensation for services rendered by AEI to Amertranz. The complaint seeks damages in excess of $11 million. The Company has reached an agreement with the trustee in bankruptcy to settle the litigation for $50,000. This settlement is conditioned upon the approval of the United States Bankruptcy Court.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT - - - ------------------------------------
Following is a listing of the executive officers of the Company. There are no family relationships between any Directors and Officers of the Company.
NAME AGE POSITION - - - ---- --- --------
Stuart Hettleman............. 46 President, Chief Executive Officer, Chief Financial Officer
Richard A. Faieta............ 50 Executive Vice President
Michael Barsa................ 51 Vice President and Secretary
STUART HETTLEMAN has been President, Chief Executive Officer, Chief Financial Officer and a Director of the Company and a Director and Executive Vice President of each of Amertranz and CAS, since February 7, 1996. Mr. Hettleman is also an Executive Officer of several of the Company's predecessors. Specifically, he has been Vice President of TIA since 1990 and is currently the Executive Vice President of TIA; and has been Vice President of CFS since 1991 and is currently Executive Vice President of CFS.
RICHARD A. FAIETA has been Executive Vice President and a Director of the Company, a director and President of CAS, and a Director and Chief Executive Officer of Amertranz, since February 7, 1996. He has served as President and Chief Executive Officer of each of TIA and CFS, the Company's predecessors, since April 1992. From 1987 through 1991 he served as Vice President-Operations of LEP Profit International Corporation, a domestic and international freight forwarder.
MICHAEL BARSA has been Vice President, Secretary and a director of the Company since February 7, 1996. Mr. Barsa served as Executive Vice President and Chief Financial Officer of Amertranz from September 1994 until February 7, 1996. From 1972 through September 1994, Mr. Barsa was employed by Allstate Legal Supply Company, a privately owned legal stationary and supply company, where he held successive positions as Controller, Chief Financial Officer and Senior Vice President.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------- MATTERS -------
The Company's initial public offering of its common stock, $.01 par value (the "Common Stock") and Redeemable Common Stock Purchase Warrants (the "Warrants") took place on June 28, 1996. Since that date both the Common Stock and the Warrants have been listed on the NASDAQ SmallCap Market under the symbols AMTZ and AMTZW, respectively;
The table below indicate the high and low prices of the Common Stock and Warrants for the year ended June 30, 1996. There have been no dividends declared.
COMMON STOCK WARRANTS High - 7 High - 1 7/8 Low - 6 Low - 1
On September 17, 1996 there were 1631 shareholders of record of the Company's Common Stock and 1415 warrant holders of record of the Company's Warrants. The closing price of the Common Stock on that date was $5.375 per share. The closing price of the warrant on that date was $1.625 per warrant.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - - - ------- -----------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------
Overview - - - --------
The Company was incorporated in January 1996 to continue the freight forwarding business of TIA and CFS and acquire Amertranz. The Company generated operating revenues of $27.4 million and had net losses before taxes of $6.4 million for the period January 1, 1996 through June 30, 1996. The loss included a one time charge of $3.3 million for debt placement expense in connection with financings prior to the Company's initial public offering which closed on July 3, 1996. The freight forwarding business of TIA and CFS generated operating revenues of $38.6 million and $38.2 million and had net income before taxes of $2.7 million and $2.4 million for the years ended December 31, 1994 and 1995, respectively.
Historically, the CAS business has derived substantial operating revenues from companies engaging in business in Puerto Rico who were taking advantage of significant United States income tax benefits available to such companies. In 1993, Congress reduced the tax benefits available to companies doing business in Puerto Rico, and legislation enacted into law in August 1996 contains a 10-year phaseout of these tax benefits. This legislation, or in the event that there is any further modification to these tax benefits available to United States companies doing business in Puerto Rico, could result in these companies reducing the level of the business they have been doing in Puerto Rico, which could have a material adverse effect on the Company's operating results.
While the freight forwarding business of TIA and CFS has been historically profitable, Amertranz has incurred losses in the last two years. Since the formation of the Company in February, 1996, in the combination of Amertranz and the freight forwarding business of TIA and CFS, management has attracted and hired additional experienced sales personnel for the domestic freight forwarding operation and thereby increased its sales team by more than 30%. In addition, management has begun maximizing the synergies created by the combination of its Amertranz and CAS businesses by (i) exploiting cross-selling opportunities, and (ii) taking advantage of underutilized operations infrastructure and purchased freight space.
Results of Operations - - - ---------------------
Six Months Ended June 30, 1996
The Company began its existence as the holding company for the combined operations of Amertranz and the freight forwarding business of TIA and CFS on February 8, 1996. From and after February 8, 1996, the freight forwarding business of TIA and CFS was operated through the Company's CAS subsidiary. Prior to such date, the operations of Amertranz and the freight forwarding business of TIA and CFS were independent of each other. The following discussion relates to the combined results of the Company for the period February 8, 1996 through June 30, 1996 and only the operations of the freight forwarding business of TIA and CFS for the period January 1, 1996 through February 7, 1996.
Operating Revenue. Operating revenue was $27.4 million for the period January 1, 1996 through June 30, 1996.
Cost of Transportation. Cost of transportation was 76.4% of operating revenue for the period.
Gross Profit. Gross profit for the period was 23.6% of operating revenue.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the period was 32.0% of operating revenue.
Years Ended December 31, 1994 and 1995
Operating Revenue. Operating revenue decreased 1.0% to $38.2 million in 1995 from $38.6 million in 1994. While TIA and CFS experienced volume increases from most major customers, there were several major accounts that had significant decreases in revenue in 1995 compared to 1994 revenue. Sales to two major customers decreased by an aggregate of approximately $2.0 million in 1995 compared to 1994, which offset the gain in revenue by other accounts. Furthermore, several major accounts had large volume increases in 1994 due to unusual situations which did not recur in 1995. As an example, a major pharmaceutical firm instituted a recall which necessitated substantial additional air freight needs over normal business operations. Also, due to market conditions, several major retail suppliers had to use air freight in substantially greater volume than those used in normal market conditions. Operating revenue in 1995 show an annual compounded growth rate of 8% per year for the two years of 1994 and 1995.
Cost of Transportation. Cost of transportation increased to 79.3% of 1995 operating revenue from 78.4% of 1994 operating revenue.
Gross Profit. As a result of the factors described in the preceding paragraphs, gross profit for the year ended December 31, 1995 decreased to 20.7% from 21.6% of operating revenue in the comparable period of 1994.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased slightly to 11.8% of operating revenue in the year ended December 31, 1995 from 12.0% of operating revenue in the comparable period in 1994.
Years Ended December 31, 1993 and 1994
Operating Revenue. Operating revenue increased 18.1% to $38.6 million in 1994 from $32.7 million in 1993. Most major customers had volume increases in 1994, including several major accounts that had unusually large volume increases in 1994 due to non-recurring situations.
Cost of Transportation. Cost of transportation increased to 78.4% of 1994 operating revenue from 74.2% of 1993 operating revenue. This increase occurred because TIA and CFS chartered a fully-staffed and maintained aircraft during the last ten months of 1994, while TIA operated a leased aircraft during 1993. This increase is more than offset by the corresponding decrease in selling, general and administrative expense.
Gross Profit. As a result of the factors described in the preceding paragraphs, gross profit for the year ended December 31, 1994 decreased to 21.6% from 25.8% of operating revenue for the comparable period in 1993.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 12.0% of operating revenue in the year ended December 31, 1994 from 19.9% of operating revenue in the comparable period in 1993. This decrease resulted from the cessation of TIA's operation of its leased aircraft and the elimination of the expenses associated therewith.
Liquidity and Capital Resources - - - -------------------------------
The Company used approximately $7.5 million of cash in operating activities for the period January 1, 1996 through June 30, 1996. This cash was provided primarily by cash on hand of approximately $4.9 million, the proceeds of a revolver note of approximately $4.0 million and an increase in accounts payable and accrued expenses of approximately $1.1 million. The cash used in operating activities was primarily attributable to increases in the Company's accounts receivable of approximately $3.6 million and a net loss incurred by the Company of approximately $6.4 million during such period. The increase in accounts receivable is due principally to an increase
in the trade receivables of the CAS operations from a zero balance at the beginning of the period to approximately $4.5 million at the end of the period.
Prior to the combination with the freight forwarding business of TIA and CFS on February 7, 1996 and the initial public offering of the Company's securities on June 28, 1996 ("IPO"), Amertranz' internally generated cash flow was not sufficient to finance trade receivables and business expansion or to support operations. Amertranz met its capital requirements prior to that time primarily through: (i) the private sales of $350,000 of equity and debt securities between November, 1995 and January, 1996 ("Interim Financings"); (ii) the private sales of $3.975 million of equity and debt securities in February and May, 1996 ("Bridge Financings"); (iii) borrowings of $800,000 from TIA (see below); (iv) borrowings under an accounts receivable financing facility (see below); and (v) other private financings which were converted into equity as part of the February 7, 1996 combination. In addition CAS has a credit facility of up to $4 million from TIA and CFS under a revolving credit loan (see below).
Of the $12,414,000 net proceeds to the Company on its initial public offering on June 28, 1996 (which closed on July 3, 1996), the Company applied $4,137,000 to repay the outstanding principal and interest balance on the Bridge Financings, $373,000 to repay the outstanding principal and interest balance on the Interim Financing, and $2 million as partial payment on the Exchange Note (see below). The $5,904,000 balance of proceeds from the IPO was retained by the Company for working capital and general corporate purposes.
Fidelity Facility. In March 1995, Amertranz entered into an accounts receivable Purchase and Sale Agreement ("Fidelity Facility") with Fidelity Funding of California, Inc. ("Fidelity"), as amended July 5, 1995, October 25, 1995, and February 7, 1996. The Fidelity Facility expires in March 1997. Under the agreement, as amended, the Company can borrow the lesser of $3.125 million or 75% of eligible accounts receivable. Amertranz's borrowings under the Fidelity Facility are secured by a first lien on all of Amertranz's assets and are guaranteed by the Company. At June 30, 1996, the Company had outstanding borrowings of approximately $1,641,347 under the Fidelity Facility which represented the full amount available thereunder.
TIA Loan. In October 1995, Amertranz obtained a $500,000 subordinated secured loan from TIA, which was increased to $800,000 in January 1996 ("TIA Loan"). The TIA Loan bears interest at the rate of 12% per annum and is repayable in 12 equal, consecutive monthly payments of principal and interest commencing August 2, 1996. However, TIA has agreed to defer repayment of the TIA Loan as described below. The TIA Loan is secured by a lien on all of the assets of Amertranz subordinated only to the lien granted to Fidelity in connection with the Fidelity Facility.
Revolver Note. As part of the combination of Amertranz and the freight forwarding business of TIA and CFS, TIA and CFS agreed to advance to CAS, on a revolving loan basis, the net collections of the accounts receivable of TIA and CFS as of February 7, 1996 and additional amounts in the discretion of TIA and CFS, up to an aggregate maximum of $4,000,000 outstanding at any time, pursuant to the terms of a Revolving Credit Promissory Note ("Revolver Note"). Funds advanced under the Revolver Note with respect to the TIA and CFS accounts receivable do not bear interest prior to maturity. Discretionary advances under the Revolver Note bear interest at the greater of (i) 1% per month, or (ii) a fluctuating rate equal to the prime rate of interest as published in The Wall Street Journal, plus 4%. Advances under the Revolver Note may be used only for ordinary, current operating expenses of CAS unless TIA and CFS consent to another use of such funds. The Revolver Note matured on July 6, 1996; however, TIA and CFS have agreed to defer payment of the Revolver Note as described below. All obligations under the Revolver Note are guaranteed by the Company and Amertranz. All obligations under the Revolver Note and the guarantees thereof are secured by a first priority lien on all of the issued and outstanding shares of CAS, a first priority lien on all of the assets of the Company and CAS, and a lien on the accounts receivable of Amertranz, subordinate only to the first priority lien granted to Fidelity in connection with the Fidelity Facility and the second position lien granted to TIA in connection with the TIA Loan. As of June 30, 1996, the Company had outstanding borrowings of approximately $3,954,989 under the Revolver Note.
Exchange Note. As part of the combination of Amertranz and the freight forwarding business of TIA and CFS, the Company issued to TIA and CFS a promissory note in the original principal amount of $10,000,000, which bears interest at the rate of 8% per annum ("Exchange Note"). The Exchange Note is payable in five consecutive monthly payments of principal and interest in the amount of $80,000 each, commencing March 1, 1996, and, thereafter, monthly payments of principal and interest in the amount of $166,667 each until the Exchange Note has been paid in full. Prior to the IPO, TIA and CFS exchanged $2,000,000 principal amount of the Exchange Note for 200,000 shares of the Company's Class A Preferred Stock, and of the proceeds of the IPO, $2,000,000 was used to repay a portion of the Exchange Note. As of June 30, 1996, the outstanding principal balance under the Exchange Note was $8 million. TIA and CFS have agreed to defer the balance of payments on the Exchange Note as described below.
Forbearance by TIA and CFS. Under the terms of the respective obligations described above, payments on the TIA Loan would have commenced on July 28, 1996, payments on the Exchange Note were due monthly commencing on March 1, 1996, and the full outstanding balance of the Revolver Note was due on July 6, 1996. TIA and CFS have agreed to defer each payment on the TIA Loan and the Exchange Note to the extent the aggregate of the payments thereon then due exceeds 80% of the Company's earnings before interest, taxes, depreciation and amortization ('EBITDA') for the month in respect of which such aggregate payments are due. During any deferral period, interest will continue to accrue on these obligations in accordance with their respective terms. Such deferral will continue until the earlier of (i) the date after which the Company's EBITDA exceeds the sum of $600,000 for any consecutive two-month period, or (ii) November 1, 1996. Furthermore, TIA and CFS have agreed that they will defer collection of amounts due under the Revolver Note until the earlier of (i) refinancing of Amertranz's and CAS's accounts receivable working capital facilities, or (ii) December 31, 1996. TIA and CFS have further agreed that they will not take any action to foreclose on their security interests in the assets of the Company, Amertranz or CAS until June 27, 1997 unless any other secured creditor of the Company, Amertranz or CAS takes action to foreclose on its security interest or any creditor obtains a final judgement against the Company, Amertranz or CAS in an amount of $50,000 or more which judgment is not stayed.
Working Capital Requirements. The Company believes that funds raised in the IPO, cash flows generated from operations and available funds under its existing loan facilities will be sufficient to finance its operations and obligations for the foreseeable future.
Inflation - - - ---------
The Company does not believe that the relatively moderate rates of inflation in the United States in recent years have had a significant effect on its operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The financial statements and supplementary data required by this Item 8 are included in the Company's Consolidated Financial Statements and set forth in the pages indicated in Item 14(a) of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURES ---------------------
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
The information with respect to the identity and business experience of the directors of the Company and their remuneration in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 1996 Annual Meeting of Shareholders, is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION ----------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------
The information required by this item is incorporated by reference from the Company's definitive Proxy Statement to be issued in conjunction with the 1996 Annual Meeting of Shareholders.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K -----------------------------------------------------------------
(a) 1. Financial Statements --------------------
All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K -----------------------------------------------------------
The following exhibits are filed herewith via EDGAR:
Exhibit No. - - - ----------- 3.2 Amendment to By-Laws of Amertranz Worldwide Holding Corp. and complete By-Laws as amended
10.13 Employment Agreement dated June 24,1 996 between Amertranz Worldwide Holding Corp. and Stuart Hettleman
10.14 Employment Agreement dated June 24, 1996 between Amertranz Worldwide Holding Corp. and Richard A. Faieta
10.18 Debt restructuring letter agreement between Amertranz Worldwide Holding Corp., TIA, Inc. and Caribbean Freight System, Inc.
The following exhibits are incorporated by reference to Amertranz Worldwide Holding Corp.'s Registration Statement on Form S-1, Registration No. 333-03613
Exhibit No. - - - -----------
3.1 Certificate of Incorporation of Amertranz Worldwide Holding Corp., as amended
10.1 1996 Stock Option Plan of Amertranz Worldwide Holding Corp.
10.2 Purchase and Sale Agreement dated March 16, 1995, between Amertranz Worldwide, Inc. and Fidelity Funding of California, Inc., as amended July 5, 1995, October 25, 1995, and February 7, 1996
10.3 Form of 7% Convertible Subordinated Promissory Notes of Amertranz Worldwide, Inc. and form of document evidencing the exchange thereof for shares of Common Stock, $.01 par value, of Amertranz Worldwide Holding Corp.
10.4 Form of 9-3/4% Convertible Subordinated Promissory Notes of Amertranz Worldwide, Inc. and form of document evidencing the exchange thereof for shares of Common Stock, $.01 par value, of Amertranz Worldwide Holding Corp.
10.5 Loan and Security Agreement dated October 25,1995 between Amertranz Worldwide, Inc. and TIA, Inc., as amended January 24, 1996
10.6 Form of Amended and Restated Promissory Note of Amertranz Worldwide, Inc. payable to TIA, Inc. in principal amount of $800,000
10.7 Form of 12% Subordinated Promissory Notes of Amertranz Worldwide, Inc. and form of document evidencing the exchange thereof for Notes of Amertranz Worldwide Holding Corp. on the same terms and conditions
10.8 Assets Exchange Agreement dated February 7, 1996 among Amertranz Worldwide Holding Corp., Caribbean Air Services, Inc., Amertranz Worldwide, Inc., Caribbean Freight System, Inc. and TIA, Inc.
10.9 Revolving Credit Promissory Note dated February 7, 1996 of Caribbean Air Services, Inc. payable to TIA, Inc. and Caribbean Freight System, Inc. in the principal amount of $4,000,000
10.10 Promissory Note dated February 7, 1996 of Amertranz Worldwide Holding Corp. payable to TIA, Inc. and Caribbean Freight System, Inc. in the principal amount of $10,000,000
10.11 Consulting Agreement dated February 7, 1996 among Amertranz Worldwide Holding Corp., Amertranz Worldwide, Inc. and Martin Hoffenberg
10.12 Employment Agreement dated September 27, 1994 between Amerford Domestic, Inc. and Bruce Brandi, as modified February 7, 1996
10.15 Cargo Aircraft Charter Agreement dated February 28, 1994 between TIA, Inc. and Florida West Airlines, Inc., as amended and assigned November 29, 1995
10.16 Lease Agreement dated March 31, 1994 between The Equitable Life Assurance Society of the U.S. and Integrity Logistics, Inc. for the premises at 2001 Marcus Avenue, Lake Success, New York
10.17 Lease Agreement dated August 7, 1990 between S Partners and Caribbean Freight System, Inc. for the premises at 7001 Cessna Drive, Greensboro, North Carolina, as amended and extended April 9, 1994
21. Subsidiaries of Amertranz Worldwide Holding Corp.
(b) Reports on Form 8-K -------------------
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
AMERTRANZ WORLDWIDE HOLDING CORP.
Date: September 27, 1996 By: /s/ Stuart Hettleman ------------------------------- Stuart Hettleman President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - - - --------- ----- ----
/s/ Stuart Hettleman President, Chief Executive September 27, 1996 - - - --------------------------- Officer, Principal Financial Stuart Hettleman Officer and Director
/s/ Richard A. Faieta Executive Vice President September 27, 1996 - - - --------------------------- and Director Richard A. Faieta
/s/ Michael Barsa Vice President and Director September 27, 1996 - - - --------------------------- Michael Barsa
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amertranz Worldwide Holding Corp.:
We have audited the accompanying consolidated balance sheet of Amertranz Worldwide Holding Corp., a Delaware corporation, as of June 30, 1996 and the related consolidated statement of operations, shareholders' deficit and cash flows for the six month period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amertranz Worldwide Holding Corp. as of June 30, 1996 and the results of its operations and cash flows for the six month period then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York August 28, 1996
AMERTRANZ WORLDWIDE HOLDING CORP. CONSOLIDATED BALANCE SHEET
The accompanying notes are an integral part of this consolidated balance sheet.
AMERTRANZ WORLDWIDE HOLDING CORP. CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 -------------
OPERATING REVENUE $ 27,445,583
DIRECT COSTS 20,961,019 ------------
Gross profit 6,484,564
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,772,226
Operating (loss) (2,287,662)
OTHER INCOME (EXPENSE):
Interest expense (4,057,864)
Other income (expense), net (50,998)
Net loss $ (6,396,524)
Net loss per common share $ (1.84) ------------
Weighted average number of common shares 3,482,504 ------------
The accompanying notes are an integral part of this consolidated statement.
AMERTRANZ WORLDWIDE HOLDING CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
Additional
The accompanying notes are an integral part of this consolidated statement.
AMERTRANZ WORLDWIDE HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The accompanying notes are an integral part of this consolidated statement.
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
In January 1996, Amertranz Worldwide Holding Corp. ("Holding" or the "Company") was incorporated in the state of Delaware. Effective February 7, 1996, Holding concluded an Asset Exchange Agreement (the "Agreement") with TIA, Inc. ("TIA"), Caribbean Freight System, Inc. ("CFS"), Amertranz Worldwide, Inc. ("Amertranz") and the stockholders and convertible note holders of Amertranz. As part of this transaction, Holding received (i) all of the issued and outstanding stock of Amertranz, (ii) $1,379,110 in convertible notes of Amertranz, and (iii) the air freight forwarding business of TIA and CFS. Holding then contributed the air freight forwarding business of TIA and CFS to Caribbean Air Services, Inc. ("CAS") in return for all of the issued and outstanding shares of CAS. TIA and CFS received 2,100,000 shares of common stock of the Company and a $10,000,000 promissory note, as discussed in Note 4, in addition to stock in the Company.
The transactions described above have been accounted for as a recapitalization of TIA and CFS, whereby the historical data for their freight forwarding operations are being presented as that of Holdings for all periods presented. The issuance of the $10,000,000 Promissory Note has been reflected as a charge to retained earnings and the distribution of assets and liabilities to TIA and CFS has been reflected as a net adjustment to equity, at book value (which approximates fair value). The transaction with Amertranz has been accounted for as an acquisition under purchase accounting.
On July 3, 1996, the Company completed an initial public offering ("IPO") of 2,300,000 shares of common stock and redeemable common stock purchase warrants at an initial offering price of $6.10 per share. Prior to the IPO, there was no public market for the Company's capital stock. The net proceeds to the Company of $12,414,117 were used to pay down existing debt of $6,503,000 and the balance is available for working capital purposes. Additionally, the Company issued 200,000 shares of Class A, non-voting, cumulative, convertible preferred stock with a par value of $10.00 in exchange for payment of $2,000,000 of its promissory note with TIA and CFS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Company, as summarized below, are in conformity with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Holding, CAS and Amertranz since February 7, 1996. The accompanying consolidated statements of operations and changes in retained earnings (deficit) include the accounts of the former air freight business of TIA (a wholly-owned subsidiary of Wrexham Aviation Corporation) and CFS, which was not a separate legal or historical reporting entity for the period January 1, 1996 through February 7, 1996. All significant intercompany accounts and transactions have been eliminated.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed under the straight-line method over estimated useful lives ranging from 3 to 8 years. Assets under capital leases are depreciated over the shorter of the estimated useful life of the asset or the lease term. The Company utilizes a half-year convention for assets in the year of acquisition and disposal.
Goodwill
Goodwill represents the excess of cost over the net assets acquired and is amortized on a straight-line basis over 25 years. Management periodically assesses whether there has been an impairment in the carrying value of the excess of cost over the net assets acquired, by comparing current and projected annual undiscounted cash flows with the related annual amortization. In the event there is an impairment of goodwill, management would reduce the carrying value to an amount equal to the projected discounted cash flow of the underlying assets.
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Stock Options
The Company grants stock options to certain officers and related parties. Compensation expense is recognized based upon the aggregate difference between the fair market value of the Company's stock at date of grant and the option price. Compensation expense is recognized equally over the vesting period.
Proforma Data
The unaudited proforma balance sheet gives effect to the IPO discussed in Note 1 as if it had closed on June 30, 1996.
Revenue Recognition
Revenue from freight forwarding is recognized upon delivery of goods and direct expenses associated with the cost of transportation are accrued concurrently. Monthly provision is made for doubtful receivables, discounts, returns and allowances.
Cash and Cash Equivalents
Cash at June 30, 1996 includes $297,000 of overnight repurchase agreements.
Per Share Data
Earnings per share is computed using the weighted average number of common shares outstanding and, where applicable, common equivalent shares issuable upon exercise of stock options redeemable under the treasury stock method.
3. PROPERTY AND EQUIPMENT, NET
Property and Equipment consists of the following:
Furniture and fixtures $ 303,502 Computer equipment 421,946 Computer software 219,701 Leasehold improvements 63,658 Logos and trademarks 22,349 Vehicle 8,499 -------------- 1,039,655 Less: Accumulated depreciation and amortization 210,213 -------------- $ 829,442 ==============
4. ACQUISITION
Holding acquired all of the issued and outstanding stock of Amertranz and the former stockholders of Amertranz received 870,254 shares (which consist of the investment in Amertranz Worldwide of 518,056 shares, assigned notes of 280,888 shares and 71,310 shares associated with the Interim Financing) of Holding's common stock and options to purchase 224,399 shares of Holding's common stock valued at $4,415,000 or approximately $4.25 per share and option. The Amertranz transaction has been accounted for as a purchase and resulted in goodwill of approximately $12.1 million which represents the excess of the cost over the fair value of the assets acquired.
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. DEBT
As of June 30, 1996, long-term and short-term debt consisted of the following:
Promissory note to TIA and CFS (a) $ 10,000,000 Revolving loan to TIA and CFS (b) 3,954,989 February Bridge notes (c) 2,775,000 May bridge notes (d) 1,200,000 Asset-based financing (e) 1,641,347 Notes payable to TIA (f) 800,000 Interim financing (g) 350,000 --------------
Total debt 20,721,336 Less: Current portion (12,721,336) -------------- Long-term debt $ 8,000,000 ==============
(a) On February 7, 1996, as part of the Agreement, Holding issued to TIA and CFS a $10,000,000 promissory note which bears interest at the rate of 8.0% per annum. The note is payable in five consecutive monthly payments of principal and interest in the amount of $80,000 each, commencing March 1, 1996, and thereafter monthly payments of principal and interest in the amount of $166,667 each until the note is paid in full. On July 3, 1996, Holding repaid $2,000,000 of this debt from the proceeds of the IPO and converted $2,000,000 of the note into Class A, non-voting, cumulative, convertible preferred stock.
(b) As part of the Agreement, TIA and CFS have agreed to lend to CAS on a revolving loan basis, an amount up to the net cash collections of TIA and CFS's accounts receivable as of February 7, 1996 and additional amounts at the discretion of TIA and CFS, up to an aggregate maximum of $4,000,000 outstanding at any time, pursuant to the terms of a Revolving Credit Promissory Note. Only funds advanced at the discretion of TIA and CFS bear interest, at the greater of (i) 1% per month or (ii) at a rate of 4% over prime. The note is due July 6, 1996. The note is secured by all of the assets of CAS and is guaranteed by Holding and Amertranz. As of June 30, 1996, $3,954,989 was outstanding under this facility.
(c) On February 7, 1996, Holding consummated a private placement with a group of investors whereby Holding borrowed $2,775,000 and issued promissory notes. The notes are due at the earlier of (i) the consummation of the IPO by Holding or (ii) February 7, 1998 or (iii) the sale or merger of Holding. The investors also received 416,250 shares of common stock of Holding, as well as 832,500 warrants to purchase shares of common stock of Holding for five years at $5.00 per share. These warrants convert into warrants upon the completion of the IPO by Holding and will be exercisable at the IPO price. The notes accrue interest at 10% per annum until April 30, 1996 and thereafter at 15% per annum. The notes are secured by a junior lien on all of the assets of the Company. The Company has recorded debt issuance costs of approximately $2,143,000 in connection with such bridge financing and will amortize the amount over the life of the debt. Upon repayment of the debt, the related unamortized debt issuance cost would be expensed. The effective annual rate of interest on the notes after giving effect to the debt issuance cost of $2,143,000 is 200%. The fair value of the shares of common stock at the time of issuance was $4.25 per share. This debt was repaid on July 3, 1996 with the proceeds of the IPO.
(d) On May 10, 1996, Holding consummated a private placement with a group of investors whereby Holding borrowed $1,200,000 and issued promissory notes. The notes are due at the earlier of (i) the closing of the IPO by Holding or (ii) February 7, 1998 or (iii) the sale or merger of Holding. The investors also received 240,000 shares of common stock of Holding, as well as 480,000 warrants to purchase shares of common stock of Holding for five years at $5.00 per share. These warrants convert into IPO warrants upon the completion of the IPO by Holding and will be exercisable at the IPO price. The notes accrue interest at 15% per annum. The notes are secured by a lien on all of the assets of the Company. The Company has recorded debt issuance costs of approximately $1,020,000 in connection with such bridge financing and will amortize the amount over the life of the debt. Upon repayment of the debt, the related unamortized debt issuance cost would be expensed. The effective annual rate of interest on the notes after giving effect to the debt issuance cost of $1,020,000 is 525%. The fair
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
value of the shares of common stock at the time of issuance was $4.25 per share. This debt was repaid on July 3, 1996 with the proceeds of the IPO.
(e) Amertranz entered into a Purchase and Sale Agreement with a lender whereby it receives advances of up to 75% of the net amounts of eligible accounts receivable outstanding to a maximum amount of $3,125,000. The loan is subject to interest at a rate of 4% per annum over the prevailing prime rate (8.25% as of June 30, 1996). At June 30, 1996, the outstanding balance on the credit line was $1,641,347, which represented the full amount available thereunder. The lender has a security interest in all present and future accounts receivable, machinery and equipment and other assets of Amertranz and the loan is guaranteed by Holding.
(f) In October 1995, Amertranz obtained a $500,000 subordinated secured loan from TIA, which was increased to $800,000 in January 1996 ("TIA Loan"). The original TIA Loan bears interest at the rate of 12% per annum and is repayable in 12 equal, consecutive monthly payments of principal and interest commencing 30 days after the closing of the IPO.
(g) Between November 1995 and January 1996, Amertranz obtained financing of $350,000 ("Interim Financing") and issued $350,000 in aggregate principal amount of promissory notes. Repayment of the principal amount due under these notes, together with interest at the rate of 12% per annum is due upon the earlier of (i) the closing of the IPO by Holding or (ii) February 7, 1998 or (iii) the sale or merger of Holding. The holders of these notes also received shares of Amertranz common stock that were converted into 71,310 shares of Holding common stock. The Company has recorded a debt issuance cost of $150,000 in connection with the issuance of the stock and will amortize the amount over the life of the debt. Upon repayment of the debt, the related unamortized debt issuance cost would be expensed. The effective annual rate of interest on the notes after giving effect to the debt issuance cost of $150,000 is 98%. The fair value of the shares of common stock at the time of issuance was $2.22 per share. This debt was repaid on July 3, 1996 with the proceeds of the IPO.
Between June 1995 and November 1995, Amertranz borrowed $1,379,110 in aggregate principal amount from persons affiliated with Amertranz and other non-affiliated lenders and issued convertible notes therefor. All of these notes were assigned by the holders thereof to Holding as part of the Combination and are included in additional paid-in capital.
TIA and CFS have agreed that, upon consummation of the IPO, they will defer each payment on the TIA Loan and the Exchange Note to the extent the aggregate of the payments thereon then due exceeds 80% of the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the month in respect of which such aggregate payments are due. During any deferral period, interest will continue to accrue on these obligations in accordance with their respective terms. Such deferral will continue until the earlier of (i) the date after which the Company's EBITDA exceeds the sum of $600,000 for any consecutive two-month period, or (ii) November 1, 1996. Furthermore, TIA and CFS have agreed that, upon consummation of the IPO, they will defer collection of amounts due under the Revolver Note until the earlier of (i) refinancing of Amertranz's and CAS's accounts receivable working capital facilities, or (ii) December 31, 1996.
6. STOCKHOLDERS' EQUITY (DEFICIT)
Stock Options and Warrants
As of June 30, 1996, the Company had options outstanding to purchase a total of 523,399 shares of common stock at exercise prices ranging from $.16 to $6.00, of which 237,673 options are exercisable. No options were exercised as of June 30, 1996. 224,399 of these options replaced outstanding options of Amertranz and were included in the computation of the consideration received by the former Amertranz stockholders. The Company also had warrants outstanding to purchase 1,386,783 shares of common stock at an exercise price equal to the exercise price of the warrants issued in connection with the Company's February and May bridge financings.
In connection with the IPO, the Company issued 2,300,000 shares of common stock and 2,300,000 warrants. Each warrant entitles the holder thereof to purchase one share of common stock for $6.00 during the four-year period commencing one year from the date of this Prospectus. The Company may redeem the warrants at a price of $.01 per warrant at any time
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
after they become exercisable upon not less than 30 days' prior written notice if the last sale price of the common stock has been at least $10.00 for each of the 20 consecutive trading days ending on the third day prior to the date on which the notice of redemption is given.
Preferred Stock
As of June 30, 1996, the Company does not have any preferred stock authorized or issued. However, the Board of Directors is authorized without further action by the stockholders, to issue series of preferred stock. On July 3, 1996, the Company issued 200,000 shares of Class A, non-voting, cumulative, convertible preferred stock with a par value of $10.00 in exchange for a paydown of $2,000,000 on the $10,000,000 promissory note.
The Preferred Stock will pay cumulative cash dividends at an annual rate of $1.00 per share. The Company is prohibited from paying any dividends on common stock unless all required preferred dividends have been paid. Each share of Preferred Stock may be converted at the option of the holder into common stock at a conversion price of the lower of (i) the IPO price per share of common stock or (ii) 80% of the average of the closing price per share of common stock on the day prior to the conversion date. Preferred Stock holders are entitled to a liquidation preference of $10.00 per share plus all accrued and unpaid dividends.
7. COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments for capital leases and operating leases relating to equipment and rental premises are as follows:
YEAR ENDING CAPITAL LEASES OPERATING LEASES ----------- -------------- ----------------
1997 $24,053 $ 803,097 1998 13,234 537,365 1999 6,456 193,626 2000 -- 129,084 2001 -- -- ------- ----------
Total minimum lease payments 43,743 $1,663,172 ========== Less--Amount representing interest (4,394) ------- $39,349 =======
Employment Agreements
Amertranz has employment agreements with certain employees expiring at various times through July 2000. Such agreements provide for minimum salary levels and for incentive bonuses which are payable if specified management goals are attained. The aggregate commitment for future salaries at June 30, 1996, excluding bonuses, was approximately $1,534,000.
Litigation
Amertranz is a defendant in a lawsuit initiated by the trustee in bankruptcy of Aeronautics Express, Inc. ("AEI"), a company with whom Amertranz engaged in discussions concerning a prospective business combination during the early spring of 1994. The complaint was filed in the United States Bankruptcy Court for the Southern District of New York in December 1995, and alleges that Amertranz improperly obtained control over the assets of AEI, committed fraud in connection with the business discussion, breached an agreement not to solicit the business or customers of AEI, induced AEI to convey property to Amertranz for less than fair value and failed to pay AEI compensation for services rendered by AEI to Amertranz. The
AMERTRANZ WORLDWIDE HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
complaint seeks damages in excess of $11 million. The Company has reached an agreement with the trustee in bankruptcy to settle the litigation for $50,000. This settlement is conditioned upon the approval of the United States Bankruptcy Court.
8. INCOME TAXES
At February 7, 1996, the Company had a tax net operating loss carryforward of approximately $7,757,000, available within statutory limits, to offset future regular federal taxable income. In accordance with certain provisions of the Tax Reform Act of 1986, a change in ownership of a corporation of greater than 50 percentage points within a three-year period places an annual limitation on the corporation's ability to utilize its existing net operating loss carryforwards. Such a change in ownership was deemed to have occurred in connection with the Asset Exchange Agreement in which Amertranz became part of Holding, at which time the Company's net operating loss carryforwards amounted to approximately $7,757,000. The annual limitation of the utilization of such tax attributes over the fifteen year carryforward amounts to approximately $206,000. To the extent the annual limitation is not utilized, it may be carried forward for utilization in future years. This limitation could affect the Company's future provisions for or payment of federal income tax should the Company's operations produce increased amounts of taxable income in the future.
Deferred tax benefits at June 30, 1996, which are fully offset by a valuation allowance, primarily represent the estimated future tax effects of federal net operating losses aggregating approximately $3,548,022.
9. RELATED PARTY TRANSACTIONS
Under the terms of a cargo aircraft charter agreement with Tradewinds Airlines, Inc. ("Tradewinds Air"), a subsidiary of Tradewinds Acquisition Corporation, of which TIA owns approximately 30% of the outstanding common stock, CAS has exclusive rights until June 30, 1998 to the use of a leased L-1011 freighter aircraft. While CAS is guaranteed the use of the L-1011 aircraft as needed, it pays only for actual use of the aircraft at market rates.
CAS had sales to Amertranz of approximately $242,000, and related accounts receivable of approximately $213,000 as of and for the six month period ended June 30, 1996.
At June 30, 1996, Amertranz owes approximately $213,000 to TIA for air freight forwarding services.
10. SIGNIFICANT CUSTOMERS
During the six month period ended June 30,1996, no single customer accounted for sales of 10% or more of the Company's revenue.
INDEPENDENT AUDITORS' REPORT
The Board of Directors TIA, Inc.:
We have audited the accompanying balance sheets of Amertranz Worldwide Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) (note 1) as of December 31, 1994 and 1995 and the related statements of operations and changes in accumulated deficit and cash flows for each of the years in the three-year period ended December 31, 1995. These statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amertranz Worldwide Holding Corp. (formerly The Freight Forwarding Business of TIA and CFS) as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greensboro, North Carolina March 8, 1996, except with respect to the last paragraph in Note 2 for which the date is May 1, 1996
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
See accompanying notes to financial statements.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
See accompanying notes to the financial statements.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
See accompanying notes to the financial statements.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies
Company Background
In January 1996, Amertranz Worldwide Holding Corp. ('Holding') was incorporated in the state of Delaware. Effective February 7, 1996, Holding concluded an asset exchange agreement with TIA, Inc. ('TIA'), its 51% owned subsidiary, Caribbean Freight System, Inc. ('CFS'), Amertranz Worldwide, Inc. ('Amertranz') and the stockholders and convertible note holders of Amertranz. As part of this transaction, Holding received (i) all of the issued and outstanding stock of Amertranz, (ii) $1,379,110 in convertible notes of Amertranz, and (iii) the freight forwarding business of TIA and CFS. Holding then contributed the freight forwarding business of TIA and CFS to Caribbean Air Services, Inc. ('CAS') in return for all of the issued and outstanding shares of CAS. TIA and CFS received a $10,000,000 promissory note in addition to 2,100,000 shares of common stock in Holding, as discussed in Note 2.
Basis of Financial Statement Presentation
The accompanying balance sheets and statements of operations and changes in accumulated deficit and cash flows include the accounts of the former air freight business of TIA (a wholly owned subsidiary of Wrexham Aviation Corporation) and CFS, which have been combined for reporting purposes as The Freight Forwarding Business of TIA and CFS (the 'Business'), which is not a separate legal or historical reporting entity. The Business of TIA and CFS is treated as the predecessor since TIA and CFS represent the majority and controlling shareholders of Holding, accordingly the issuance of 2,100,000 shares of stock by Holding for the freight forwarding business of TIA and CFS has been accounted for as a recapitalization of the Business. Although the Business is not a separate legal entity, since the Business is treated as the predecessor the effect of the issuance of the 2,100,000 shares of common stock of Holding in February 1996 has been reflected in the financial statements as if it had occurred as of the beginning of the earliest year presented. Since the Business was combined in February 1996 with Holding the accompanying financial statements include the accounts of TIA and CFS related to their air freight businesses and exclude accounts related to the minority interest in CFS.
At December 31, 1995, CFS has a 51% ownership interest in Caribbean Air Services Dominicana, Inc. (CASD); however, the accompanying financial statements do not include the accounts of CASD since CASD was not combined with Holding.
All significant intrabusiness balances and transactions have been eliminated in the financial statements.
Description of Business
The Business operates an air freight forwarding business primarily serving the eastern half of the United States, Puerto Rico and the Dominican Republic.
Revenue Recognition
The Business is involved in brokering air cargo services for freight flown between the United States, Puerto Rico and the Dominican Republic. Revenues, and related direct costs, are recognized when the shipments of cargo are completed. Monthly provision is made for doubtful receivables, discounts, returns and allowances.
Cash and Cash Equivalents
Cash at December 31, 1995 includes $2,290,000 of overnight repurchase agreements.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(1) Significant Accounting Policies - (Continued)
Property and Equipment
Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets of five years for ground support equipment and 5 to 10 years for furniture, fixtures and leasehold improvements.
Income Taxes
The operations of the Business are included in the federal and state income tax returns of TIA and CFS. Income taxes allocated to the Business are based on the actual income taxes of TIA and CFS for the periods presented.
Deferred tax assets and liabilities are recognized under the asset and liability method for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Financial Instruments
The carrying amounts of accounts receivable, notes receivable, note payable to affiliate, accounts payable and accrued liabilities approximate fair value because of the short maturity of these financial instruments. The carrying amount of the note payable to the Parent approximates fair value because it bears interest at an adjustable rate.
Earnings per Share
Earnings per share information has not been presented since it would not be representative of future earnings per share information due to the combination of the Business with Holding and Amertranz on February 7, 1996 and the related changes in stockholders' equity which took place at that time.
Reclassification
Certain amounts in the 1993 and 1994 financial statements have been reclassified to conform with the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(2) Asset Exchange Agreement
In anticipation of a public offering of securities ("Offering"), in February 1996 TIA and CFS entered into an asset exchange agreement discussed in note 1 in which the air freight business of TIA and CFS was combined with Holding, which contributed the business to a wholly owned subsidiary.
The air freight business is defined by the agreement to include customer lists and related business and marketing records; CFS's rights under a freight handling agreement with CASD; the use of the names "Caribbean Air Services" and "Tradewinds International Airlines;" the operating leases for the Puerto Rico, Greensboro, North Carolina, and Hartford, Connecticut business facilities; furniture and fixtures of $86,830 as of December 31, 1995 and $83,525 as of February 7, 1996; and all assignable customer and sales representative contracts of TIA and CFS in connection with their air freight businesses. The air freight business does not include any other assets of TIA and CFS, including cash, accounts receivable, notes receivable, securities, equipment, aircraft, parts or tools, nor any liabilities of TIA or CFS.
In exchange for the transfer of the air freight operating assets described above, TIA and CFS received a promissory note of $10,000,000 and 2,100,000 shares of Holding (allocated to TIA and CFS as notes receivable of $8,000,000 and $2,000,000, respectively, and 1,680,000 and 420,000 shares, respectively). The promissory note bears interest at 8%, and is due from March 1, 1996 through July 1, 1996 in monthly payments of $80,000 and from August 1, 1996 in monthly payments of $166,667. In addition, Holding intends to apply $2,000,000 of the net proceeds from the proposed public offering of securities discussed in the first paragraph above against the promissory note.
Pursuant to the asset exchange agreement, TIA and CFS agreed to advance to the aforementioned subsidiary of Holding, on a revolving loan basis, the net collections of TIA's and CFS's accounts receivable as of February 7, 1996 and additional amounts in the discretion of TIA and CFS, up to an aggregate maximum of $4,000,000 outstanding at any time. Funds advanced under the revolving loan with respect to TIA's and CFS's accounts receivable do not bear interest and discretionary advances bear interest at the greater of 1% per month or the prime rate plus 4%. The revolving loan matures on July 6, 1996.
The promissory note and revolving loan are secured by a first priority lien on all of the issued and outstanding shares of the aforementioned subsidiary of Holding, a first priority lien on all of the assets of Holding and the subsidiary of Holding, and a second lien on the accounts receivable of another subsidiary of Holding.
TIA and CFS have agreed that upon consummation of the public offering of securities discussed above, they will defer repayment of the promissory note, revolving loan and notes receivable discussed in note 3 if, among other things, Holding does not meet certain financial thresholds or obtain additional financing. TIA and CFS have further agreed that except upon the occurrence of certain events they will not take any action to foreclose on their security interests in the assets of Holding or its subsidiaries for one year.
(3) Notes Receivable
In anticipation of entering into the asset exchange agreement discussed in note 2, TIA and CFS made advances to a subsidiary of Holding totaling $500,000 in 1995 and $300,000 subsequent to December 31, 1995. The notes are secured by a subordinated lien on all of the assets of a subsidiary of Holding, bear interest at a rate of 12%, and are repayable in 12 monthly payments of principal and interest commencing 30 days after the closing of the Offering. However, TIA and CFS have agreed that, upon consummation of the Offering, repayment of the notes will be deferred as discussed in note 2.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(4) Notes Payable
Substantially all of TIA's and CFS's activities in 1993, 1994 and 1995 are related to their air freight business and, accordingly, all of the historical interest expense related to the interest-bearing debt of TIA and CFS has been included in the accompanying financial statements.
Interest expense relates primarily to two notes payable as follows:
A note payable to Harborview Corporation Ltd. No. 1, a company affiliated through common ownership to TIA has a balance outstanding at December 31, 1994 and 1995 of $3,387,808 and $2,187,808, respectively, bears interest at a rate of 10%, is secured by a senior lien on all of the assets of TIA and is due on demand. Interest expense on this note amounted to approximately $327,000, $343,000 and $252,000 in 1993, 1994 and 1995, respectively.
A note payable to Wrexham Aviation Corporation, Parent of TIA has a balance outstanding at both December 31, 1994 and 1995 of $8,940,336, bears interest at prime plus 1% (9.5% at December 31, 1995), is secured by a second lien on all assets of TIA and is due on June 16, 1997. Interest expense on this note amounted to approximately $740,000, $783,000 and $903,000 in 1993, 1994 and 1995, respectively. Interest in the amount of approximately $11,000 and $202,000 is included in accrued liabilities at December 31, 1994 and 1995, respectively.
In addition to the above notes, a non-interest bearing note payable of $50,000 is outstanding at December 31, 1995 and is due in payments of $25,000 in 1996 and 1997.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes
The operations of the Business are included in the federal and state income tax returns of TIA and CFS. Income taxes allocated to the Business are based on the actual income taxes of TIA and CFS for the periods presented.
Income tax expense for 1993, 1994 and 1995 consists of:
----------------------------------------------- CURRENT DEFERRED TOTAL ------- -------- -----
Federal $ -- $ -- $ -- State -- -- -- ----------------------------------------------- $ -- $ -- $ -- ========= ========= ========
----------------------------------------------- CURRENT DEFERRED TOTAL ------- -------- -----
Federal $ 79,494 $ -- $ 79,494 State 28,707 -- 28,707 --------- --------- -------- $ 108,201 $ -- $108,201 ========= ========= ========
----------------------------------------------- CURRENT DEFERRED TOTAL ------- -------- -----
Federal $ -- $ -- $ -- State -- -- -- ----------------------------------------------- $ -- $ -- $ -- ========= ========= ========
Income tax expense for 1993, 1994 and 1995 differed from the "expected" amount for those years (computed by applying the federal corporate rate of 34% to income before income taxes) for the following reasons:
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(5) Income Taxes--(Continued)
The temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1995 are presented below:
The changes in the valuation allowance for 1993, 1994 and 1995 result from the utilization of net operating loss carryforwards allocated to the Business. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1995 will be recorded as an income tax benefit in the statement of operations.
At December 31, 1995, TIA had federal and state net operating loss carryforwards of approximately $9,227,000. The carryforwards expire in 2005 through 2008 for federal income tax purposes and 1996 through 1997 for state income tax purposes. Due to the statutory limitation on net operating loss carryforwards following an ownership change, the availability of approximately $2,456,000 at December 31, 1995 of these net operating loss carry forwards to reduce future taxable income is substantially limited.
The excess of alternative minimum tax over regular tax is a credit which can be carried forward to reduce regular tax liabilities in future years. At December 31, 1995, TIA and CFS have approximately $79,000 available for carryforward.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(6) Leases
The Business leases certain equipment under various noncancellable operating leases expiring at various dates through 1997. Future minimum lease payments are as follows:
1996 $43,332 1997 $20,865
Rent expense for cancelable and noncancellable operating leases for the years ended December 31, 1993, 1994 and 1995 was approximately $2,012,000, $675,000 and $330,000, respectively.
(7) Related Party Transactions
During the years ended December 31, 1993, 1994 and 1995, the Business incurred purchased transportation costs of approximately $541,000, $848,000 and $1,622,000, respectively, from companies partially owned by minority stockholders of CASD. Included in accounts payable at December 31, 1994 and 1995 was approximately $31,000 and $8,000, respectively, due to these companies.
During the year ended December 31, 1995, the Business had sales to a subsidiary of Holding that amounted to approximately $350,500 and at December 31, 1995 related accounts receivable of $150,500, recorded in the accompanying balance sheet.
Under the terms of a cargo aircraft charter agreement with Tradewinds Airlines, Inc. ('Tradewinds Air'), a subsidiary of Tradewinds Acquisition Corporation, of which TIA owns approximately 30% of the outstanding common stock, TIA has exclusive rights until June 30, 1998 to the use of a leased L-1011 freighter aircraft. While TIA is guaranteed the use of the L-1011 aircraft as needed, it pays only for actual use of the aircraft at market rates.
The investment in, and related activities of, Tradewinds Air are not reflected in the accompanying financial statements as they were not included in the Business combined with Holding, see Basis of Financial Statement Presentation in note 1 and Asset Exchange Agreement in note 2.
TIA currently holds the United States Department of Transportation licenses and certificates required for the operation of the L-1011 and is operating the L-1011 aircraft on behalf of Tradewinds Air under an interim operating agreement. Upon approval by the United States Department of Transportation of the transfer of the licenses and certificates, TIA intends to assign the aircraft lease to Tradewinds Air.
The leased L-1011, along with assignment of the aforementioned cargo aircraft charter agreement and interim operating agreement, was acquired in late November 1995 by Tradewinds Air from Florida West Airlines, Inc. (FWA) upon confirmation by the Bankruptcy Court of FWA's plan of reorganization. FWA had acquired the leased L-1011 from and entered into the aforementioned cargo aircraft charter agreement and interim operating agreement with TIA in March 1994. Prior to March 1994, TIA had operated the L-1011. Accordingly, the accompanying financial statements for the year ended December 31, 1993 and for the first two months of 1994 include the operations of the aircraft.
AMERTRANZ WORLDWIDE HOLDING CORP. (FORMERLY THE FREIGHT FORWARDING BUSINESS OF TIA AND CFS)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1993, 1994 and 1995
(7) Related Party Transactions (Continued)
Total transportation costs purchased from Tradewinds Air and FWA related to these agreements amounted to approximately $14,959,000 and $16,691,000 in 1994 and 1995, respectively. At December 31, 1994 and 1995, the Business owed $913,000 and $760,000, respectively, for such services which are included in accounts payable.
TIA provides accounting services to Tradewinds Air for $5,720 per month.
(8) Supplier and Credit Concentration
The Business charters the flight operations of an L-1011 from one supplier. Although there are a limited number of companies that charter or lease L-1011 aircraft, management believes that other suppliers could provide similar services on comparable terms. A change in suppliers, however, could cause a delay in the air cargo operations and a possible loss of sales, which would affect operating results adversely.
The air cargo industry is impacted by the general economy. Changes in the marketplace of this industry may significantly affect management's estimates and the Business's performance.
Most of the Business's customers are located primarily in the eastern half of the United States, Puerto Rico, and the Dominican Republic. No single customer accounted for more than 10% of the sales of the Business in 1993, 1994 and 1995. The Business estimates an allowance for doubtful accounts based on the credit worthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Business's estimate of its bad debts.
(9) Contingencies
TIA is responsible for the clean-up of contaminated soil associated with the removal of an underground storage tank in Greensboro, North Carolina. TIA removed the waste oil tank during 1994 and has performed a substantial portion of the remediation procedures on the site. TIA, along with Tradewinds Air, is responsible for any remaining soil clean-up required and the State of North Carolina has a trust fund available to reimburse companies for voluntary remediation expenses in excess of certain deductibles. Accordingly, management believes that any remaining remediation costs will not have a material effect on the financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Amertranz Worldwide Holding Corp.:
We have audited, in accordance with generally accepted auditing standards, the financial statements of Amertranz Worldwide Holding Corp. included in this annual report on Form 10-K and have issued our report thereon dated August 28, 1996. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. This schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Melville, New York August 28, 1996
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SCHEDULE II
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (in thousands)
S-2