UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ][X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
(FEE REQUIRED)
For the fiscal year ended December 31, 19961997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from ___________________________ to ________________________________
Commission file number 33-99716
AMERITRUCK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2619368
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization) Identification No.)
City Center Tower II, Suite 1101,
301 Commerce Street, Fort Worth, Texas 76102-5384
(Address of principal executive offices) (Zip Code)
(817) 332-6020
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 such filing
requirements for the past 90 days. [ X ][X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I. 1. Business 3
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II. 5. Market for Registrant's Common Equity and
Related Stockholder Matters 10
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1213
8. Financial Statements and Supplementary Data 2125
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 3847
PART III. 10. Directors and Executive Officers of the Registrant 3847
11. Executive Compensation 4050
12. Security Ownership of Certain Beneficial Owners and
Management 4555
13. Certain Relationships and Related Transactions 4656
PART IV. 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 4858
2
PART I.
ITEM 1. BUSINESS
OVERVIEW
AmeriTruck Distribution Corp. ("AmeriTruck" or the "Company") is one of
the
largest specializedrefrigerated trucking companiescompany in the United States. The Company'sIn addition to
general refrigerated trucking, AmeriTruck's services include time-sensitive
delivery (for example, mail, inventory for customers with just-in-time
programs), special handling (for example, medical lab supplies, furniture),
specific temperature control (for example, processed foods, laboratory
supplies), dedicated fleets and logistics services. AmeriTruck was formed in
August 1995 to effect the combination of six regional trucking lines in November
1995 (the "Founding Companies"): W&L Services Corp. ("W&L"), Thompson Bros.,
Inc. ("TBI"), J.C. Bangerter & Sons, Inc. ("Bangerter"), CMS Transportation
Services, Inc. and certain related companies, Scales Transport Corporation and a
related company ("Scales") and CBS Express, Inc. ("CBS").
In April 1996, CMS Transportation Services, Inc. changed its corporate name
to "AmeriTruck Refrigerated Transport, Inc." ("ART"), and the distribution
functions previously conducted under the corporate name "CMS Transportation
Services, Inc." were continued as a division of ART. In addition, in June 1996,
the business operations of CBS, a general freight carrier (which then operated
under the name "CBS Express, Inc."), were transferred to Scales. In December
1996, the distribution functions of the CMS Transportation division of ART were
transferred to CBS and its name was changed to "CMS Transportation Services,
Inc." ("CMS"). The CMS Transportation distribution business currently operated
by CMS is sometimes referred to below as the "CMS distribution business" and the
business operations previously operated under the name CBS Express, Inc. and
transferred to Scales are sometimes referred to as the "CBS Express business."
In February 1996, the Company, through CMS (which subsequently changed its
corporate name to AmeriTruck Refrigerated Transport, Inc.), purchased certain
assets of Freymiller Trucking Inc. ("the Freymiller Assets"), from the
bankruptcy estate of Freymiller Trucking Inc., a refrigerated carrier.
Additionally, in July 1996, AmeriTruck completed its purchase of KTL, Inc.
("KTL"), a carrier of refrigerated and non-refrigerated products operating
primarily in Florida, New Jersey and Indiana.
In May 1997, AmeriTruck purchased the capital stock of Monfort
Transportation Company ("Monfort") and Lynn Transportation Co., Inc. ("Lynn"),
both subsidiaries of ConAgra, Inc. ("ConAgra"). In June 1997, AmeriTruck also
purchased all the outstanding stock of Trans-Star, Inc. ("Tran-Star") which was
owned by Allways Services, Inc.
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company is currently organized into four operating groups to
better serve its customers. The AmeriTruck Refrigerated Carrier Group was
formed to offer regional and nationwide, truckload refrigerated service. This
new company combined the resources of ART, Bangerter, Tran-Star, Monfort, Lynn
and the refrigerated operations of TBI. The AmeriTruck Specialized Carrier
Group was formed to service customers with unique needs in transportation and
distribution. This group includes W&L, the largest interstate hauler of new
furniture in the U.S., CMS, serving the medical distribution industry, Scales,
offering regional just-in-time dry van service, and AmeriTruck Logistics
Services, Inc. ("ALS," formed in January 1997 to broker freight). The
AmeriTruck Regional LTL Group offers less-than-truckload, refrigerated and non-
refrigerated service. The lead carrier in this group is KTL, offering service
to and from the Florida market. The LTL operations of Lynn in Nevada and
Southern California were recently integrated into this Group. TBI now focuses
on mail transportation and regional specialized services and comprises the
AmeriTruck Mail Services Group. TBI operates under 17 contracts with the U.S.
Postal Service. Most of these contracts were initially awarded in the 1970's
and 1980's.
The Company's principal subsidiaries currently are W&L, TBI, Bangerter,
CMS, Scales, ART, KTL, ALS, Monfort, Lynn and KTLTran-Star (the "Operating
Companies"). Unless the context requires otherwise, references in this Annual
Report to "AmeriTruck" or the "Company" are to AmeriTruck Distribution Corp. and
its consolidated subsidiaries after giving effect to the acquisitions and
restructuring described above.
3
STRATEGY
The Company's strategy is to earn superior returns on invested capital by
being the leader in selected segments of specialized transportation and
logistics. The carriers acquired by AmeriTruck generally provide custom services
at higher than average pricing, which has historically enabled the small
carriers to earn superiorabove-average profits even though they havehad not achieved
economies of scale. BecauseAlthough more than 7065 percent of aggregate specialized
freight revenue in the U.S. is still generated by thousands of small carriers,
competitive pressure from deregulation and consolidation have only marginally effectedis expected to
adversely impact the profits of AmeriTruck'sthe industry's small carriers. However, AmeritruckAmeriTruck
believes that customers will eventually be able toincreasingly choose specialized carriers that offer
both the market both customized service historically associated with smaller, regional
carriers and pricing that reflects the advantages of economies of scale. It is
AmeriTruck's short-term objective to be the first company to provideleader in providing this "besttype of both worlds" optionservice in the
temperature control,refrigerated, new furniture and medical supplies specialized trucking segments.
Critical Mass Through Mergers and Coordination
The Company is managing a phased transformation of the acquired carriers
from eleven independent small companies to interdependence. This combination of
companies into four groups should enable AmeriTruck to continue to offer the
high quality service typical of specialized carriers while benefiting from the
freight networking efficiency and purchasing power of a large national carrier.
The Company believes that future acquisitions are vital steps toward achieving this objective in
temperature control. Through W&L and CMS, respectively, the Company believes
that it is well positioned in the new furniture and medical supplies segment.
The Company is actively pursuing acquisitions in the temperature controlled
segment that would establish AmeriTruck as the leader in that segment. By
managing the Company's operationscombination of these carriers creates a dense
freight network which, when managed on a decentralizedcombined basis, AmeriTruck intends
to preserve the entrepreneurial drive and customer and driver relationshipsshould further improve
equipment utilization rates over those levels which any of
the regional Operating Companies, while benefiting from the critical mass of a
larger, national company.
3
Specialized Service in Defensible Market Groups
By providing specialized services for customers with complex distribution
requirements, the Company reduces its exposure to the intense price competition
that is common in the general freight segment of the trucking industry.
Moreover, because often the Company's operations are integrated with its
customers' inventory and distribution systems, AmeriTruck's services often
cannot be easily or quickly replaced. For example, the Company's dedicated
services (i.e., dedicated, specialized equipment and employees) enable customers
to rely on AmeriTruck and eliminate or reduce their in-house distribution
operations and trucking fleets. In such cases, customers are often heavily
dependent on the Company. The Company also provides just-in-time distribution
services that enable customers to eliminate or minimize inventory. Timing
errors can force production shutdowns or otherwise be extremely costly for
customers with operations that depend on just-in-time deliveries, so service
reliability is critical.
Decentralized Operations Management
The Company manages its operations and marketing on a decentralized basis.
Management believes this strategy enables AmeriTruck to maintain the high-
quality service and close customer relationships that are more typical of
smaller carriers. Management also believes this approach is critical to
maintaining low driver turnover rates, which contribute to its ability to
provide high-quality service and to minimize costs.
Administrative/Purchasing Savings and Freight Network Coordination
The Company currently commands negotiating strength greater than the Operating
Companies have recognized independently in such areas as equipment and
parts, fuel, insurance and financing.could achieve on their own. Additionally, the Company is also
beginning to benefit from cross-marketingimproved purchasing
power of the combined entities should yield substantial cost savings in
purchasing insurance, equipment, maintenance items, fuel and backhaul opportunities among the
Operating Companies' respective geographic regions.other operating
cost components.
Significant Industry Consolidation Opportunity
The Company believes that
freight network coordination will enable itintends to improve equipment utilization,
decreasemake future acquisitions an integral part of
AmeriTruck's growth strategy. Because the frequency of brokered loads, and create a network that better
allows the Company to consistently haul higher-rate loads with a lower
percentage of empty miles and reduced downtime between loads.
Opportunistic Acquisitions
The Company will pursue opportunistic acquisitions to broaden its
geographic scope, to increase freight network density and to expand into the
specialized trucking segments. Through acquisitions, the Company can capture
additional market share and increase its driver base without adopting a growth
strategy based on widespread rate discounting and driver recruitment, which the
Company believes would be less successful. The trucking industry is extremely
fragmented, with over 40,000 carriers.the Company expects to have numerous acquisition opportunities to
broaden and increase the density of its freight network. By becoming the
dominant carrier in the specialized segments in which it operates, AmeriTruck
should improve its revenue per total mile even though the trend for the
industry, as a whole, for revenue per loaded mile (on an inflation adjusted
basis) may continue to decline. Moreover, an acquisition-driven strategy is
expected to enable the Company to gain market share without discounting rates
and is an efficient source of additional drivers. AmeriTruck will fund its
acquisition strategy through internal cash flow, bank borrowings, and by
accessing the equity market. The Company also believes that mostgrowth through
acquisitions will present significant opportunities to consolidate
administrative and overhead activities which should reduce these costs steadily
as a percentage of these
companies are undercapitalized, regional operators that lack both the balanced
freight networks required to maintain high utilization and the regional density
needed to fully satisfy customer equipment requirements. The Company believes
its large size relative to many other potential acquirers could afford it
greater access to acquisition financing sources such as banks and capital
markets.revenues.
MARKET GROUPS
The Company's market focus is in specialized freight services. W&L
specializes in outbound services to furniture manufacturers located in the North
Carolina and southern Virginia markets and to shippers of refrigerated products
for backhaul to North Carolina. TBI operates as a specialized, regional
truckload carrier for various shippers throughout the United States, primarily
for the United States Postal Service and dedicated logistics services for
packaged food processors. Bangerter operates as a specialized, regional
truckload carrier serving the grocery store and processed food industries in the
West. CMS provides dedicated transportation and logistics services to customers
with highly individualized freight requirements, primarily refrigerated fleet
services for customers in the hospital and medical laboratory industries.
Scales specializes in hauling insulation products and providing just-in-time
services for the retail, container and packaging industries. ART has been
operating with the Freymiller Assets to supplement the Company's existing
temperature-controlled operations. KTL specializes in the truckload
transportation of refrigerated commodities and less-than-truckload shipments
requiring expedited, timed-delivery services.
4
For each of the Operating Companies, the functions of marketing, customer service and fleet management are
managed on a decentralized basis with overall network design and coordination
provided by the Company.
Customer Service and Marketing
The Operating Companies haveCompany has approximately 140156 employees that work in sales and
marketing. At each of the Operating Companies, the President's primary
responsibility is marketingmanaging operations and maintaining close relationships with
major customers. In addition, each terminal manager functions as both a marketing
executive and an operations executive.
The customer service representatives spend most of their time on the phone
with customers discussing equipment requirements in various regions. In
addition, they coordinate with fleet managers to match available units and
customer demand. In many instances, both the customer service representative
and the driver have worked with the specific customer for several years, which
creates a strong relationship between the Operating Companyoperating company and the customer.
The Operating Companies will also cross-market the services offered by the other
Operating Companies, with the intent of creating substantial freight networking
advantages and improving the Operating Companies operating efficiencies for
AmeriTruck as a whole.
4
Fleet Management
The primary purpose of fleet management is to promote a productive
relationship between a carrier and its drivers and to optimize the service
performance and productivity of its tractor and trailer fleet. Each of the
Operating Company's fleet managers workswork with between 4025 and 8047 drivers and
tractors and is responsible for overseeing and improving driver turnover,retention,
driver productivity, tractor utilization, safety, fuel efficiency, service
reliability and performance and compliance with tractor preventive maintenance
requirements.
The Company believes that the relatively small size and personalized management
philosophy at each of the Operating Companies significantly improves the fleet
managers' ability to communicate with and motivate drivers.
The fleet manager's primary role is to communicate with drivers on the
road concerning work assignments, customer needs and driver needs. Fleet
managers also review performance reports for the fleet as a whole and each
driver and tractor within the fleet, reward good drivers, counsel
underperforming drivers and terminate chronically underperforming drivers.
The fleet managers forat each of the Operating Companies provide assistance
to drivers from other Operating Companies operating in their geographic region.
For example, a TBIan ART driver operating in North Carolina will be able to get help
from W&L. The Company believes that this will improveimproves overall operating efficiencies
and driver morale. In addition, through its management information systems the
Company intends to monitormonitors the relative performance of each fleet manager, with respect to
both his or her own drivers and with respect to drivers from other Operating
Companies.
Mobile Communications
In October 1996, AmeriTruck entered into an agreement with HighwayMaster
to purchase 2,000 mobile communication units, 8001,225 of which will bewere installed by
May,as
of December 31, 1997. HighwayMaster's mobile units have voice technology.
Drivers can make calls directly from their truck, without having to stop the truck, which saves
costs.improves productivity.
Besides voice, the intelligence in the HighwayMaster mobile unit coupled with
the intelligent network complex will allow the Company to provide better service
to its customers and better manage its fleet. TheWhen this technology is fully
implemented, the Company will be able to download routes and dispatches into the
mobile unit and the mobile unit will automatically tell the Company when the
truck is late or out of route. This technology will allow the Company to cut
communications expense, stop needless messaging that the computer has to process
and will let the Company deal with important loads so it can prevent service
failures.
In addition to these HighwayMaster mobile units, AmeriTruck has 680
Qualcomm units installed, primarily on tractors acquired with Tran-Star. The
AmeriTruck information system has been modified to support both HighwayMaster
and Qualcomm units. While the Company's overall goal is to move towards
HighwayMaster for mobile communications, the integration of both
technologies allows the Company to make the best use of its current installed
base of equipment and supports future acquisitions of either technology.
CUSTOMERS
For the year ended December 31, 1996,1997 the Company's largest customers were
Smith's Food & Drug, Curtin Matheson Scientific, now a part of Fisher
Scientific, and the U.S. Postal Service, which accountedcustomer was
ConAgra, Inc. (including all subsidiaries) accounting for approximately 7
percent, 6 percent and 58
percent of its combined revenues, respectively.revenues. No other customers accounted for more than 34
percent of the Company's combined revenues for 1996.
5
SEASONALITY1997.
Monfort and Lynn operated primarily as in-house carriers for the red
meat division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. The Company entered
into a Transportation Services Agreement with subsidiaries of ConAgra. The
ConAgra subsidiaries have agreed to tender freight from the Monfort, Inc.'s red
meat division, ConAgra Poultry Company's poultry and turkey divisions and Swift-
Ekrich, Inc.'s processed meats division in lanes and minimum annual volumes. The
term of this agreement is four years, with pricing fixed for the first two years
and adjusted prices in the third and fourth years. The Company is coordinating
Monfort and Lynn activities with the other Operating Companies in the
refrigerated group.
The Company's operations are subject to seasonal trends common to the
trucking industry. Results of operations are generally lower in the winter
months due to reduced shipments and higher operating costs.
RISK MANAGEMENT AND INSURANCE
The primary risk areas in the Company's businesses are bodily injury and
property damage, workers' compensation and cargo loss and damage. The Operating
CompaniesCompany
currently maintainmaintains insurance against these risks and areis subject to liability as
a self-insurer to the extent of the deductible under each policy. The Company
maintains
5
liability insurance for bodily injury and property damage of at least $25
million per incident, with a deductible for bodily injury and property damage of
$300,000 per incident. The current deductible for workers' compensation in
states where most of the Company's drivers are domiciled ranges from $250,000 to
$350,000 per claim. The Company is self-insured as to damage or loss to the
property and equipment they own or lease. In addition, the Company maintains
cargo loss and damage insurance of between $100,000 and $1 million per incident
with a deductible ranging from $5,000 to $15,000 per incident.
PERSONNEL AND SAFETY
At December 31, 19961997 the Company had approximately 2,2003,400 employees, of
whom 1,3662,563 were drivers. In addition, the Company contracted with 573662 owner
operators. As with most trucking operations, the Company experiences turnover of
its company-employed drivers and contract operators and, as a result, is
continuously seeking qualified individuals to handle the transportation of
shipments. Safety and dependability of all drivers are of great importance to
the Company's operations. Driver applicants are required to have a combination
of training and experience, and to pass a drug test. The Company's employees are
not represented by unions.
For the year ended December 31, 19961997 the Operating Companies combinedCompany reported 0.50.4 accidents
per million miles. An accident, as defined by the U.S. Department of
Transportation ("DOT"), involves death, personal injury with treatment sought
immediately, away from the accident, or a disabled vehicle requiring towing. The
industry average, as reported by the American Trucking Association, for DOT
reportable accidents in 19941995 (the most recent year for which such information is
publicly available) was 0.90.7 accidents per million miles. In addition to
following DOT regulations requiring random drug testing and post-accident drug
testing, the Operating CompaniesCompany rigorously enforce theirenforces its accident and incident reporting
and follow-up standards.
The Company employs safety specialists and maintains safety programs
designed to meet its specific needs. In addition, the Company employs
specialists to perform compliance checks and conduct safety tests throughout its
operations. The Company conducts a number of safety programs designed to promote
compliance with rules and regulations, and to reduce accidents and cargo claims.
These programs include an incentive pay program for accident and claim-free
driving, driver safety meetings, distribution of safety bulletins to drivers and
participation in national safety associations.
FUEL AVAILABILITY AND COST
Over half of the Company's fuel purchases occur at commercial fuel
stations with the remainder being obtained at Company facilities where fuel is
stored in bulk. The Company expectsbelieves that the volumes of fuel purchased by the
Operating Companies, in the aggregate, will createcreates substantially more negotiating
leverage with fuel vendors than the Operating Companies had individually prior
to their acquisition by AmeriTruck. Furthermore, the Company expects that fuel
efficiency will improve as older equipment is replaced with tractors with more
sophisticated engines. The Company believes that a significant portion of theany
increase in fuel costcosts or fuel taxes generally may be recoverable from its
customers in the form of higher rates, although a time lag usually occurs in
passing these costs along.
6
COMPETITION
The Company competes with many other truckload and less-than-truckload
carriers of various sizes, including divisions or subsidiaries of larger
companies, and to a lesser extent railroads, on the basis of price, service and
the ability to supply capacity to customers in a timely manner. The competition
has created downward pressure on the trucking industry's inflation adjusted
pricing structure. Several trucking companies with which AmeriTruck competes
have greater financial resources and more revenue equipment than does the
Company.
REGULATION
Interstate and intrastate motor carriage has been substantially
deregulated as a result of the enactment of the Motor Carrier Act of 1980, the
Trucking Industry Regulatory Reform Act of 1994, and the ICC Termination Act of
1995.
6
Carriers can now readily enter the trucking industry and rates and services are
largely free from regulatory controls. However, interstate for-hire carriers do
remain subject to certain regulatory controls imposed by the DOT. The trucking
industry remains subject to regulation by the states with respect to certain
safety and insurance requirements.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the handling, generation, emission, release,
discharge, treatment, storage and disposal of, certain materials, substances and
wastes. In order to comply with such regulations and to be consistent with the
Company's environmental policy, normal operating procedures include practices to
protect the environment. Amounts expended related to such practices are
contained in the normal day-to-day costs of the Operating Companies' business
operations.
The Company cannot predict with any certainty that it will not in the
future incur liability with respect to environmental compliance or liability
associated with the contamination of sites owned or operated by the Company and
its subsidiaries, sites formerly owned or operated by the Company and its
subsidiaries (including contamination caused by prior owners and operators of
such sites), or off-site disposal of hazardous material or waste that could have
a material adverse effect on the Company's consolidated financial condition,
operations or liquidity.
The Company's operations are also subject to laws and regulations governing
air emissions, including the 1990 amendments to the Clean Air Act. The Company
expects that it, together with the rest of the trucking industry, will in the
future become subject to stricter air emission standards, including requirements
that manufacturers produce cleaner-running tractors and that fleet operators
perform more rigorous inspection and maintenance procedures.
7
ITEM 2. PROPERTIES
FACILITIES
The Company's facilities consist principally of terminals and shops. Some
of these are full service terminals, which typically include administrative
facilities and customer service personnel and complete facilities to perform
both routine and heavy maintenance and to service all equipment based there.
Certain terminals have facilities in which freight is consolidated. Other
terminals are limited service terminals, which may include some customer service
personnel but do not have complete maintenance facilities. The Company also has
a number of drop yards, which are used primarily for the short-term storage of
trailers. The Company maintains its principal executive and administrative
offices in Fort Worth, Texas.
Set forth below is certain information relating to the terminals and
office facilities of the Operating Companies at December 31, 1996:1997:
Administrative
Operating Company Location Owned/Leased Acreage Terminal Maintenance Offices Trailer Yard
- ----------------- -------- ------------ ------- -------- ----------- -------------- ------------
W&L Conover, NC Leased 55 X X X X
Thomasville, NC Owned 3.1 X X
TBI Kansas City, KS Owned 4 X X X
Grand Island, NE Owned 4.3 X X X
Fargo, ND Owned 4.5 X X X
Sioux Falls, SD Owned 4 X X X X
Bangerter Phoenix, AZ Owned 9.5 X X X
Fontana, CA Leased 2.8 X
Layton, UT Owned 6.4 X X X X
CMS Yorba Linda, CA * * X
Denver, CO * * X
Homestead, FL Leased 1 X X
Homestead, FL * * X X
Jacksonville, FL * * X X
Orlando, FL * * X
Atlanta, GA Leased 1 X
Kennesaw,Suwanee, GA * * X
Ft. Wentworth, GA * * X
Peachtree City, GA Leased 1 X
Chicago, IL * * X
Evansville, InIN * * X X
Florence, KY * * X Jefferson, LA * * X
New Orleans, LA * * X X
Agawam, MA * * X
Wilmington, MA * *Leased 1 X
Jessup, MD * * X
Plymouth,Bear Lake, MI * * X X
Tupelo, MS Leased 2 X X
Morris Plains, NJ * * X
Eden, NY Leased 1 X
Delco, NC Leased 1 X
Broadview Hts., OH * * X
Delaware, OH * * X X
Charleston, SC Leased 1 X
Charleston, SC * * X X
Houston, TX * * X
Scales Mobile, AL Leased 4 X XScales** Tampa, FL Leased 2.5 X X X
Athens, GA Leased 3 X X
Gainesville, GA Leased 5 X X X Homer, GA Leased 2 X X
Tifton, GA Leased 5 X X X
Valdosta, GA Leased 3 X X X
Winston-Salem, NC Leased 4 X X
ART Liberal, KSFlorence, KY Leased 1 X Oklahoma City, OK Owned 1X X
Oklahoma City, OK Leased 6 X X X
KTL Largo, FL Leased 10 X X X X
Highland, IN Leased 2 X X
Cherry Hill, NJ Owned 5 X X
Lynn Oskaloosa, IA Leased 3 X X X X
Las Vegas, NV Leased 5 X X
West Sacramento, CA Leased 1 X X
Monfort Greely, CO Leased 40 X X X X
Denver, CO Leased 10 X
Tran-Star Waupaca, WI Owned 40.1 X X X X
Etters, PA Leased 5.9 X X X
Wyalusing, PA Leased 2 X X X
* Facility located on customer's property
** ALS occupies part of the Scales Gainesville, GA administrative office
8
REVENUE EQUIPMENT AND MAINTENANCE
The Company's equipment fleet, including independent contractor units, at
December 31, 19961997 was comprised of the following:
Line-haul tractors:
Tractors........................................ 1,797
Straight-line trucks............................ 30
Local tractors.................................... 112
-----
Total tractors.................................. 1,939
=====
Trailers:
Temperature-controlled.......................... 1,791
Dry van and other............................... 1,552
-----
Total trailers................................ 3,343Line-haul tractors:
Tractors.................................................. 2,659
Straight-line trucks...................................... 32
Local tractors............................................. 153
-----
Total tractors............................................ 2,844
=====
Trailers:
Temperature-controlled.................................... 3,278
Dry van and other......................................... 1,553
-----
Total trailers............................................ 4,831
=====
During 1997,1998, the Company intends to replace approximately 300350 existing
tractors with new tractors. As the Company replaces older equipment and tradeswith new
tractors and trailers, out of the fleet before they could become severe
maintenance problems, the Company believes that downtime as well as operating
and maintenance expenses should be reduced. The Company also believes that it
canhas begun to purchase
tires and parts on more favorable terms, thereby reducing maintenance costs.
Late model trucks and components in general are more reliable and have better
warranties. In addition, the Company believes that it
canalso has begun to negotiate better warranty
terms because of the greater negotiating strength of the combined Operating
Companies. Finally, the Company intends to purchase more tractors with standard
specifications for components such as engines, axles and brakes, thereby
reducing the complexity and cost of maintenance parts inventory.
The Operating Companies haveCompany has comprehensive preventive maintenance programs for theirits
tractors and trailers to minimize equipment downtime and prolong equipment life.
These programs"A" Services, which are performed at 15,000 mile intervals, include regular safety
checks when a tractor
returns to the terminal, regular preventive maintenance includingand chassis lubrication. "B" Services, which are performed at 30,000
mile intervals, include all "A" Services plus oil and filter changes, lubrication, cooling systemreplacement. "C"
Services, which are performed at 120,000 mile intervals, include all "A" and tire checks every 15,000 to 20,000
miles, and"B"
Services plus additional, more extensive maintenance procedures at 120,000 miles.as may be necessary.
Repairs and maintenance are performed regularly at the Company's 818 full-
service maintenance facilities and at outside shops. The Company has
approximately 150207 maintenance personnel. Less than one-third of the Company's
maintenance costs were incurred at outside shops during the year ended December
31, 1996.1997. The Company has begun to share certain maintenance facilities and
personnel among the Operating Companies. Combined with the advantages of a
newer fleet, the Company expects this will result in a decrease in the
percentage of maintenance costs incurred at outside shops, which are more
expensive than Company shops.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are a party to litigation incidental to
its business, primarily involving claims for personal injury or property damages
incurred in the transportation of freight. The Company is not aware of any
claims or threatened litigation that might have a material adverse effect on the
Company's consolidated financial position, operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996,1997, no matters were submitted to a vote of
security holders.
9
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is not publicly traded.
In conjunction with the 1997 acquisitions of Monfort, Lynn and Tran-Star,
the Company issued 3,000 shares of Series A Redeemable Preferred Stock and
727,272 shares of Common Stock with warrants to certain existing stockholders,
directors and executive officers of the Company. The Preferred Stock was issued
at a $1,000 per share for a total purchase price of $3.0 million. The Common
Stock, along with detached warrants for 1,500,000 shares of Common Stock, was
issued for $2.75 per share ($.01 par value) for a total purchase price of $2.0
million.
In connection with the acquisitionamendment to the FINOVA Credit Facility, the Company
issued $1 million in Subordinated Notes (the "1997 Notes") to certain existing
stockholders. The 1997 Notes bear interest at a rate of KTL, Inc. in14% per annum and mature
on June 1, 1998. In connection with the third quarter of
1996, as part of the purchase price1997 Notes, the Company issued to Ronald N. Damico
225,000 restrictedthe
purchasers of the 1997 Notes warrants to a number of shares of the Company's
Class A Common Stock, valuedcommon stock equal to the aggregate outstanding principal and interest on the
1997 Notes at $900,000.the time of exercise divided by 2 (the "1997 Warrants"). The
issuance of these shares was exempt under Section 4(2) of the Securities Act of
1933, as amended, as a transaction not involving any public offering.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for W&L and TBI on
a combined basis as the "Predecessor Company" for the entire 1996 and prior
periods. The results for Bangerter are included since August 1, 1995, the results
for the CMS distribution business and Scales (including the CBS Express
business) are included since November 1, 1995, and the results for ART, as it
relates to the Freymiller Assets, and KTL are included since February 5, 1996 and
July 1, 1996, respectively. The results for Monfort and Lynn are included since
June 1997 and for Tran-Star since July 1997.
10
The following data should be read in conjunction with Item 7 ---
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8 --- "Financial Statements and Supplementary Data."
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
1997* 1996* 1995* 1994*1994 1993
1992
---------- ---------- ---------- ---------- ------------------ -------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT CERTAIN OPERATING DATA)
INCOME STATEMENT DATA:
Revenues(1)..................................Revenues................................................ $291,552 $224,257 $102,846 $80,087 $72,783 $69,516
Operating expenses
Salaries, wages, and fringe benefits.....benefits................... 98,837 71,996 32,463 23,639 21,590
20,414
Purchased transportation cost.............cost.......................... 69,911 57,413 26,564 23,504 21,236
23,330
Depreciation and amortization(2)..........amortization(1)....................... 19,907 15,341 7,882 6,471 5,816
4,501
Claims and insurance......................insurance................................... 11,646 8,806 4,471 3,169 3,000
3,115
Subsidiary closing(1).....................Restructuring charge(2)................................ 7,184 -- -- -- --
2,024
Other operating expenses..................expenses............................... 79,952 55,882 21,181 14,656 14,168
14,383-------- -------- -------- ------- -------
-------
Total operating expenses...............expenses.............................. 287,437 209,438 92,561 71,439 65,810
67,767
Operating income(1)(2)......................................................... 4,115 14,819 10,285 8,648 6,973 1,749
Interest expense, net of interest income.....income................ (20,778) (16,242) (4,634) (3,233) (3,486)
(3,075)
Other, net...................................net.............................................. (611) (469) 26 16 64
44
-------- -------- --------------- ------- -------
Income (loss) before income taxes and
extraordinary items.....................items.................................... (17,274) (1,892) 5,677 5,431 3,551
(1,282)
Income tax expense...........................provision (benefit).......................... (6,618) 340 2,496 2,317 1,249
108
-------- -------- --------------- ------- -------
Income (loss) before extraordinary items.....items................ (10,656) (2,232) 3,181 3,114 2,302
(1,390)
Extraordinary items(3).......................items (3)................................. (243) (230) (23) -- --
---------- -------- -------- ------- -------
-------
Net income (loss)(1).........................$(10,899) $ (2,462) $ 3,158 $ 3,114 $ 2,302
$(1,390)(loss)(2).............................................. ======== ======== =============== ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....................equivalents............................... $ 21 $ 734 $ 15,286 $ 1,617 $ 1,629
$ 1,619
Total assets.................................assets............................................ 263,500 192,648 140,535 54,245 52,974
47,638
Long-term debt (including current portion)................. 226,230 169,326 118,335 29,449 33,936
31,320
Redeemable preferred stock(4)........................................... 3,091 -- -- 2,000 11,322
11,056
Total stockholders' equity (deficiency)(4)................. (12,335) (3,824) (1,817) 10,488 (2,409) (3,690)
* Comparisons between periods are affected by acquisitions - see Note 2 of
the Financial Statements.
1011
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
1992
---------- ---------- ---------- ---------- ------------------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT CERTAIN OPERATING DATA)
CERTAIN OTHER DATA:
EBITDA (1)(5)......................................................................... $ 24,022 $ 30,160 $18,167 $15,136 $12,853
$ 6,294
EBITDAR(6)............................................................................ 34,308 35,135 19,885 16,063 13,772
8,773
Depreciation and amortization(2)........amortization (1)....................... 19,907 15,341 7,882 6,471 5,816
4,501
Rents...................................Rents................................................... 10,286 4,975 1,718 927 919 2,479
Capital expenditures, net of cash proceeds from
dispositions.............dispositions........................................... (5,460) 10,893 11,879 1,619 194
(55)
Interest expense, net...................net................................... 20,778 16,242 4,634 3,233 3,486 3,075
Ratio of EBITDA to interest expense(5).................... 1.16x 1.86x 3.92x 4.68x 3.69x 2.05x
Ratio of earnings to fixed charges(7)... --................... ----- ----- 1.99x 2.04x 1.67x --
CERTAIN OPERATING DATA:
Operating ratio(8)......................ratio(2)...................................... 98.6% 93.4% 90.0% 89.2% 90.4%
92.5%
Total miles (in thousands)(9)......................................... 245,871 188,782 81,683 66,028 60,915
55,961
Revenue per total mile(10)..............mile(8)............................... $ 1.165 $ 1.180 $ 1.249 $ 1.213 $ 1.195 $ 1.186$1.249 $1.213 $1.195
Daily revenue per tractor(11)...........tractor(9)............................ 501 $ 542 $ 518 $ 567 $ 547
$ 493
At period end, number of
Line haul tractors(12)................tractors(10)................................. 2,691 1,827 1,126 556 520
528
Trailers..............................Trailers............................................... 4,831 3,343 2,344 1,084 979
901
Employees and owner operators
Drivers(13).........................operators..........................
Drivers(11)........................................... 2,400 1,366 938 349 337
314
Non-drivers.........................Non-drivers........................................... 1,000 838 584 287 249
231
Owner operators.....................operators....................................... 662 573 374 252 236 251
(dollars in thousands)
(1) During May 1992, CAS Transportation, Inc. ("CAS"), a subsidiary of W&L,
ceased operations. The closing of CAS cost W&L $924. These costs included
salaries and fringe benefits, operating and general supplies, operating
taxes, insurance and claims, property and equipment rents and other
miscellaneous expenses. In conjunction with the closing of CAS, W&L also
incurred a loss of $1,100 due to certain fixed asset transactions.
Excluding the CAS operations, the Company had revenues, operating income,
net income (loss) and EBITDA of $66,407, $5,015, $1,833 and $9,492 in 1992.
(2) During 1994, W&L changed its estimate of the useful lives and salvage
values of certain revenue equipment. This change had the effect of
decreasing depreciation and increasing operating income for the year ended
December 31, 1994 by $155. During 1995, TBI changed its estimate of the
useful lives and salvage values of certain revenue equipment. This change
had the effect of decreasing depreciation and increasing operating income
for the year ended December 31, 1995 by $360.
(2) During 1997, the Company recorded costs of $7,184 in connection with the
restructure of its refrigerated carrier group.
(3) The extraordinary items in 1997, 1996 and 1995 consistsconsist of an extraordinary
loss on early retirement of debt, net of taxes.
(4) During 1997, the Company issued 3,000 shares of Series A Redeemable
Preferred Stock in conjunction with the 1997 acquisitions. During 1995, all
remaining shares of TBI's outstanding redeemable preferred stock were
redeemed for approximately $2 million. During 1994, all shares of W&L's
outstanding redeemable preferred stock were converted into shares of W&L's
common stock. During 1995, all
remaining shares of TBI's outstanding redeemable preferred stock were
redeemed for approximately $2 million.
(5) EBITDA represents earnings (loss) before interest expense, net, income
taxes, depreciation and amortization. The Company believes EBITDA provides
useful information regarding the Company's ability to service its debt;
however, EBITDA does not represent cash flow from operations, as defined by
generally accepted accounting principles, and should not be considered as a
substitute for net income as an indicator of the Company's operating
performance or for cash flow as a measure of liquidity. For purposes of
calculating the ratio of EBITDA to interest, interest represents total
interest expense, net of interest income.
(6) EBITDAR represents earnings before interest expense, net, income taxes,
depreciation, amortization and rents.
(7) For purposes of the ratio of earnings to fixed charges, (i) earnings
include earnings before income taxes and fixed charges and (ii) fixed
charges consist of interest on all indebtedness, amortization of deferred
financing costs and that portion of rental expense (one-third) that the
Company believes to be representative of interest. The Company's earnings
were insufficient to cover fixed charges by $1,892$17,274 and $1,282$1,892 for the
years ended December 31, 19961997 and 19921996 respectively.
(8) Operating ratio represents the Company's combined operating expenses, less
those of CAS (see footnote (1) above), divided by the Company's combined
revenues less CAS revenues.
(9) Excludes CAS miles (see footnote (1) above).
(10) Freight revenues, (excluding CAS revenues), which excludes brokerage and other revenues, divided by
total miles (excluding CAS miles).
(11)miles.
(9) Daily revenue per tractor represents freight revenue divided by number of
working days and further divided by number of line haul tractors at period
end. Calculating daily revenue per tractor based on the average number of
line haul tractors during each monthly period would produce more accurate
daily revenue per tractor information. However, this information was not
available for all Operating Companies. CAS revenues and line haul tractors
have been excluded (See footnote (1) above). In June 1995 W&L purchased 35 line
haul tractors that were not fully placed in service until the middle of the
third quarter; therefore, for comparability purposes these tractors were
included in the daily revenue per tractor calculations on a pro rata basis
by number of days outstanding in 1995. Results for Bangerter, the CMS
distribution business, Scales (including the CBS Express business), ART, as
it relates to the Freymiller Assets, KTL, Monfort, Lynn and KTLTran-Star were
also included on a pro rata basis by number of days outstanding in 1995,
1996 and 1996,1997, respectively.
(12)(10) The number of line haul tractors includes owned, leased and independent
contractor units.
(13)(11) Represents line haul drivers only. Local drivers of 163, 138, 69, 55, 53, and
5853 have been excluded from this count for the years ended December 31,
1997, 1996, 1995, 1994 1993 and 1992,1993, respectively, which is consistent with the
presentation of line haul tractors.
1112
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results for the year ended December 31, 1995 for the Company include W&L
and TBI results on a combined basis as the "Predecessor Company" for the entire
1995 period. The results for Bangerter since August 1, 1995 and the results for
the CMS distribution business and Scales (including the CBS Express business)
are included since November 1, 1995. Results for the year ended December 31,
1996 include the results of W&L, TBI, Bangerter, the CMS distribution business
and Scales (including the CBS Express business) for the entire 1996 period and
of ART, as it relates to the Freymiller Assets, and KTL since February 5, 1996 and KTL
since July 1, 1996, respectively. Bangerter, CMS, Scales, ARTThe results for Monfort and KTL are
collectively referred to below as the "Acquired Companies."Lynn have been
included since June 1997 and for Tran-Star since July 1997.
The following analysis should be read in conjunction with the consolidated
financial statements included in Item 8 - "Financial Statements and
Supplementary Data."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Net Loss
For the year ended December 31,1997, the Company had a net loss of $10.9
million compared with a net loss of $2.5 million for 1996. Results for 1997 were
negatively impacted primarily by a charge of $7.2 million to restructure the
Company's refrigerated carrier group and an increase in interest costs. In
addition, the acquisitions of Monfort, Lynn and Tran-Star, combined with start-
up issues related to the Con Agra Services Agreement, had a negative impact on
profitability. The net loss in both 1997 and 1996 includes extraordinary items,
loss on early retirement of debt, of $243,000 and $230,000, respectively, net of
taxes. These losses related to the write off of deferred financing costs in 1997
with respect to the Company's prior senior credit facility with NationsBank and
to early retirements related to the use of proceeds from the Company's
Subordinated Notes offering in 1995, which were used in part to retire debt in
1996.
Revenues
Revenues for 1997 were $291.6 million, compared with revenues of $224.3
million for 1996. The $67.3 million increase is due to 1997 revenues of
approximately $69 million from the Tran-Star, Monfort and Lynn acquisitions, and
$15.4 million for the first six months of 1997 from the KTL acquisition. This
increase was partially offset by a decline in volumes at ART.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1997 to 1996.
VARIANCE
INCREASE
1997 1996 (DECREASE)
---- ---- ----------
Salaries, wages and fringe benefits 33.9% 32.1% 1.8%
Purchased transportation 24.0 25.6 (1.6)
Fuel and fuel taxes 12.4 12.1 0.3
Operating supplies and expenses 6.6 6.2 0.4
Depreciation and amortization of capital leases 6.2 6.3 (0.1)
Claims and insurance 4.0 3.9 0.1
Operating taxes and licenses 2.4 2.2 0.2
General supplies and expenses 5.3 4.3 1.0
Building and office equipment rents 0.7 0.7 -
Amortization of intangibles 0.6 0.5 0.1
Gain on disposal of property and equipment - (0.5) 0.5
Restructuring charge 2.5 - 2.5
---- ---- ----
Operating Ratio 98.6% 93.4% 5.2%
==== ==== ====
13
Salaries, wages and fringe benefits for the year ended December 31, 1997
increased 1.8 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which occurred because company
drivers were used more extensively and owner operators were used less
extensively than in the prior year. Company driver costs are included in
salaries, wages and fringe benefits while owner operator costs are included in
purchased transportation. The increase is also due to an increase in salaries at
the corporate location in preparation for centralization of most administrative
functions. The acquisition of Tran-Star, which has primarily a company-driver
work force, also contributed to the increase.
Purchased transportation costs decreased 1.6 percentage points for 1997 as
a percent of revenue when compared with 1996. The decrease is due primarily to
the acquisitions of KTL in the third quarter of 1996 and Tran-Star at the end of
the second quarter of 1997, which have primarily company-driver work forces.
This decrease in percentage of revenue was partially offset by a higher
percentage of equipment held under operating leases which resulted in increased
equipment rents.
Fuel and fuel taxes for 1997 increased 0.3 percentage points as a percent
of revenue when compared with 1996 due to the acquisitions of KTL in the third
quarter of 1996 and Tran-Star at the end of the second quarter of 1997, which
have primarily company-driver work forces. The increase was also due to lower
miles per gallon as a result of severe weather in the first quarter of 1997. The
impact from these increase were partially offset by lower fuel prices during
1997.
Operating supplies and expenses increased 0.4 percentage points as a
percent of revenue when compared with 1996. This increase is primarily due to
the acquisition of Tran-Star, which had an older fleet of tractors requiring
more routine maintenance. These tractors are currently being retired and
replaced by new tractors. In addition, trailer coordination, in the absence of
a common computer system, was less effective than expected and resulted in
higher trailer costs. As of December 31, 1997, all of the refrigerated group
had been transitioned to a common computer system.
General supplies and expenses increased 1.0 percentage points during 1997
as a percent of revenue due to increased driver recruitment and training costs,
primarily attributable to an unproductive recruiting policy at Trans-Star which
has been changed. The increase was also attributable to increased professional
and consulting fees resulting from increased driver recruitment and advertising
and added costs for system and mobile communications, which the Company
anticipates should be partially offset in the future by improved operating
efficiencies, although no assurances can be made in this regard.
In connection with AmeriTruck's plans to organize into four operating
groups and to eliminate the duplicate facility and employee costs related to the
recently acquired entities, the Company announced a plan in the second quarter
of 1997 to restructure its refrigerated carrier group. The Company recorded $7.2
million in restructuring costs, which included $2.3 million for employee
termination costs, $4.2 million for duplicate facility costs, including the
impairment of certain long-lived assets, and $650,000 of other costs. See Notes
to Consolidated Financial Statements-Note 3. Restructuring Charge.
Interest expense increased $4.3 million for the year ended December 31,
1997 over the same period in 1996. Interest on the revolving lines of credit,
which were used to fund acquisitions, were the primary contributors to this
increase. See "Liquidity and Capital Resources."
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Net Income (Loss)
For the year ended December 31,1996,31, 1996, the Company had a net loss of $2.5
million compared with net income of $3.2 million for 1995. The additional
operating income from the Acquired Companiesacquired companies in 1996 was offset by additional
interest costs. The net loss in 1996 includes an extraordinary item, loss on
early retirement of debt, of $230,000, net of taxes of $154,000. These early
retirements related to the use of a portion of the proceeds from the Company's
offering in 1995 of its 12 1/4 %4% Senior Subordinated Notes due 2005 (the
"Subordinated Notes").
During the year ended December 31, 1996, operating profit margins were
negatively impacted by escalating fuel costs, the assimilation of significant
assets from the Freymiller bankruptcy estate, the merger of the operations of
CBS into Scales, and the cost of developing a corporate staff. The Company
has
implemented a fuel surcharge to its customers to help
14
combat this surge in fuel costs. The merger of the operations of CBS into Scales
caused the Company to lose some qualified drivers which in turn resulted in
decreased equipment utilization. In addition, one subsidiary lost drivers as a
result of eliminating driver expense allowances and changing their pay
structure. The Company hasalso intensified its efforts in the driver recruitment
and training areas and has begun to correct this problem.
Revenues
In 1996, the Company had revenues of $224.3 million compared with $102.8
million in 1995, an improvement of 118 percent. This increase reflects $116.6
million of additional revenues from the Acquired Companiesacquired companies when compared with
1995. The Predecessor Company had increased revenues of $4.9 million primarily
attributable to increased volume during 1996.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1996 to 1995.
VARIANCE
INCREASE
1996 1995 (DECREASE)
---- ---- ----------
Salaries, wages and fringe benefits 32.1% 31.6% 0.5%
Purchased transportation 25.6 25.8 (0.2)
Operating supplies and expenses 18.3 14.4 3.9
Depreciation and amortization of capital leases 6.3 7.2 (0.9)
Claims and insurance 3.9 4.3 (0.4)
Operating taxes and licenses 2.2 3.0 (0.8)
General supplies and expenses 5.0 3.6 1.4VARIANCE
INCREASE
1996 1995 (DECREASE)
---- ---- ----------
Salaries, wages and fringe benefits 32.1% 31.6% 0.5%
Purchased transportation 25.6 25.8 (0.2)
Fuel and fuel taxes 12.1 12.0 0.1
Operating supplies and expenses 6.2 2.4 3.8
Depreciation and amortization of capital leases 6.3 7.2 (0.9)
Claims and insurance 3.9 4.3 (0.4)
Operating taxes and licenses 2.2 3.0 (0.8)
General supplies and expenses 4.3 3.0 1.3
Building and office equipment rents 0.7 0.6 0.1
Amortization of intangibles 0.5 0.5 -
Gain on disposal of property and equipment (0.5) (0.4) (0.1)
---- ---- ----
Operating Ratio 93.4% 90.0% 3.4%
==== ==== ====
12
Salaries, wages and fringe benefits for the year ended December 31, 1996
increased $39.5 million, or 1220.5 percentage points as a percent due to the addition of $37.9 million in
salaries, wages and fringe benefits attributable to the Acquired Companiesrevenue when compared with 1995.
In addition, theThis increase is attributable to corporate
salaries, some of which should generate future cost savings for the Company as a
whole due to more competitive prices obtained in such areas as equipment and
parts, fuel, insurance and financing. The slight increase in salaries, wages and
fringe benefits as a percentage of revenue is attributable primarily to the Acquired Companies,acquired companies, because only
19 percent of their average combined driver base consisted of owner operators as
of December 31, 1996, whose costs are reflected in purchased transportation. In
contrast, 43 percent of the Predecessor Company's driver base consisted of owner
operators. The Predecessor Company also had increases in wages and salaries for
drivers and terminal personnel due to the increased mileage during 1996 and pay
increases. The increase is also attributable to corporate salaries.
Purchased transportation costs were up $30.8 million infor 1996 but decreased slightly on0.2 percentage points as
a percentagepercent of revenue basis. The Acquired Companies added $28.4
million to these costswhen compared with 1995, but their1995. The acquired companies driver
base, which consistsconsisted of just 19 percent owner operators, helped to lower
purchased transportation costs as a percentage of revenue. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases by the Acquired Companiesacquired companies which resulted in
increased equipment rents. The Predecessor Company showed an increase of $2.4
million in purchased transportation costs in 1996 due to expanded freight
opportunities and its continued use of owner operator drivers.
Operating supplies and expenses for the Company were $26.2 million higherincreased 3.8 percentage points as a
percent of revenue for the year ended December 31, 1996. Of thisThis increase $24.0 million is
attributable to the Acquired Companies when compared with 1995. The Predecessor
Company also added $2.2 million to this increase primarily due to increased fuel
costs. The 3.9 percentage point increase in operating supplies as a percent of
revenue iswas
mainly attributable to the Acquired Companies,acquired companies, whose driver base consistsconsisted of an
average of 81 percent of Company drivers as of December 31, 1996, contributing
to higher fuel and maintenance costs for Company owned equipment.
The Company's fuel costs would have been lower by approximately $1.8 million had
the average fuel price for the second, third and fourth quarters of 1996
remained consistent with the first quarter of 1996. A portion of this increase
was recovered in revenue as fuel surcharges to customers.
Depreciation and amortization of capital leases were up $6.8 million, but
decreased 0.9 percentage
points as a percentagepercent of revenue in 1996 when compared with 1995 due to the
acquisition of used assets from Freymiller as well as a higher percentage of the
Acquired Companies'acquired companies' equipment being held under operating leases. During 1995,
the Company changed its estimate of the useful lives and salvage values of
certain revenue equipment. This change had the effect of increasing operating
income for the year ended December 31, 1995, by approximately $360,000.
15
Claims and insurance expenses were up $4.3 million for 1996 compared with
1995, which is due primarily to costs attributable to the Acquired Companies.acquired companies.
However, these costs decreased on a percentage of revenue basis.
General supplies and expenses increased by $7.5 million for 1996 increased 1.3 percentage points as a
percent of revenue when compared with 1995. The general suppliesThis increase is primarily
attributable to commissions paid to company agents and expenses of the Acquired Companies accounted
for the majority of this increase as the Predecessor Company had only a slightan increase in this category. The largest components of these expenses of the
Acquired Companies were communications and utilities, building and office
equipment rents, agent commissions and office expenses.costs for
professional services.
Interest expense increased $11.7 million for the year ended December 31,
1996 over 1995. Interest on the Subordinated Notes, which were issued in
November 1995 in conjunction with the 1995 acquisitions, and the NationsBank and
the Volvo credit facilities, which were used to fund the acquisition of the
Freymiller Assets and KTL, were the primary factors for this change. See
discussion of the NationsBank and Volvo credit facilities in the Liquidity"Liquidity and Capital Resources section.Resources".
The change in the effective tax rate for the year ended December 31, 1996
compared with 1995 is primarily due to the driver's expense allowances paid by
ART and KTL, a portion of which are nondeductible expenses.
13
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Net Income
ForCONTINGENCIES
Under the year ended December 31, 1995,requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and certain other laws, the Company had net income of $3.2
million compared with net income of $3.1 million for 1994. The additional
revenue and operating income in 1995 from the Acquired Companies was
substantially offset by additional interest costs incurred on the Subordinated
Notes.
Revenues
In 1995, the Company had revenues of $102.8 million compared with $80.1
million in 1994, an improvement of 28.4 percent. This increase reflects $17.5
million of revenues from the Acquired Companies. The Predecessor Company had
increases of 11.1 percent in total miles and 4.6 percent in revenues per total
mile. Expanded freight opportunities at W&L added $5.5 million to revenues,
primarily a result of the purchase of Dietz Motor Lines, Inc. in May 1995.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1995 to 1994.
VARIANCE
INCREASE
1995 1994 (DECREASE)
---- ---- ----------
Salaries, wages and fringe benefits 31.6% 29.5% 2.1%
Purchased transportation 25.8 29.4 (3.6)
Operating supplies and expenses 14.4 12.5 1.9
Depreciation and amortization of capital leases 7.2 7.3 (0.1)
Claims and insurance 4.3 4.0 0.3
Operating taxes and licenses 3.0 3.0 -
General supplies and expenses 3.6 3.1 0.5
Amortization of intangibles 0.5 0.8 (0.3)
Gain on disposal of property and equipment (0.4) (0.4) -
---- ---- ----
Operating Ratio 90.0% 89.2% 0.8%
==== ==== ====
Salaries, wages and fringe benefitsis
potentially liable for the year ended December 31, 1995
increased $8.8 million or 37.3 percent compared with 1994 due tocost of clean-up of various contaminated sites
identified by the addition of
$6.7 million in salaries, wagesU.S. Environmental Protection Agency ("EPA") and fringe benefits attributable to the Acquired
Companies. The 2.1 percentage point increase in salaries, wages and fringe
benefits as a percentage of revenues is attributable primarily to the Acquired
Companies because only 11 percent of their average combined driver base
consisted of owner operators, whose costs are reflected in purchased
transportation. In contrast, at December 31, 1995, 43 percent of the
Predecessor Company driver base consisted of owner operators. Of the remaining
difference, $1.9 million in additional salaries and wages were incurred by W&L.
This was attributable to an increase in drivers for 1995 due to expanded freight
opportunities.
Purchased transportation costs were up $3.1 million, but decreased on a
percentage of revenue basis by 3.6 percentage points. The Acquired Companies
added $2.1 million to these costs, but their driver base, which consists of just
11 percent owner operators, helped to lower purchased transportation costs on a
percentage of revenue basis. W&L showed an increase of $1.3 million in
purchased transportation costs due to expanded freight opportunities and its
continued use of owner operator drivers. TBI partially offset these increases
with a small decline in its purchased transportation costs.
Operating supplies and expenses for the Company were $4.7 million higher
for the year ended December 31, 1995 over 1994. Of this increase, $3.9 million
is attributable to the Acquired Companies. TBI also added $610,000 to this
increase due to increased maintenance and fuel costs. The 1.9 percentage point
increase as a percentage of revenues is mainly attributable to the Acquired
Companies, whose driver base consists of 89 percent of Company employees which
contributes to more Company owned equipment and higher maintenance and fuel
costs.
14
Interest expense increased $1.6 million for the year ended December 31,
1995 over the same period in 1994. Interest on the Subordinated Notes issued in
November 1995 is the primary factor for this change.
CONTINGENCIESother
agencies. The Company cannot predict with any certainty that it will not in the
future incur liability with respect to environmental compliance or liability
associated with the contamination of sites owned or operated by the Company and
its subsidiaries, sites formerly owned or operated by the Company and its
subsidiaries (including contamination caused by prior owners and operators of
such sites), or off-site disposal of hazardous material or waste that could have
a material adverse effect on the Company's consolidated financial condition,
operations or liquidity.
The Company and its subsidiariesthe Operating Companies are a party to litigation
incidental to its business, primarily involving claims for personal injury or
property damages incurred in the transportation of freight. The Company is not
aware of any claims or threatened litigation that might have a material adverse
effect on the Company's consolidated financial position, operations or
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the yearyears ended December 31, 1997
and 1996 was $7.3 million and $519,000, respectively, compared with net cash
provided by operating activities of $12.1 million in 19951995. The increase in cash
used from operations in 1997 of $6.8 million was primarily attributable to an
increase in net loss, the resulting impact of deferred income taxes and $12.4 millioncash
used for restructuring in 1994.1997. The decrease of $12.6 million in 1996 was
primarily attributable to a $11.3 million increase in accounts and notes
receivable, during 1996, of which $7.0 million resulted from the purchase of the Freymiller
Assets, and a decrease in net income of $5.6 million. These decreases were
partially offset by an increase in depreciation and amortization of capital
leases of $6.8 million.
During the third and fourth quarters of 1997, the Company and ConAgra have
been coordinating efforts to bring the Transportation Services Agreement to the
contractually committed volumes and prices. However, these volumes have not yet
been attained. Management believes that the most complex issues surrounding a
business relationship of this magnitude, in excess of $50 million per year in
total revenue, will be addressed by the end of the first quarter of 1998. This
process, in addition to the ongoing reorganization of the refrigerated group,
has caused the Company to fall short of its original cash flow plan for the
second half of 1997. During the fourth quarter, the Company and ConAgra agreed
to extend the term of the Transportation Services Agreement for an additional
six months to December 2001 and to identify final traffic lanes and pricing to
be subject to the Transportation Services Agreement. As part of the amendments,
the Company agreed it would not receive any take-or-pay revenues for 1997.
The increaseCompany's current business plan indicates that it will need additional
financing to pay down the temporary extension of credit by FINOVA and carryout
its growth strategy. In order to raise additional financing, the Company has
signed a non-binding letter of intent with an investor group to sell TBI, an
AmeriTruck subsidiary primarily involved in depreciationmail contract carriage. This letter
of intent is subject to a number of conditions, including due diligence and
amortizationapproval by the
16
AmeriTruck Board of capital leasesDirectors. In a separate transaction, the Company has signed
an agreement to negotiate exclusively with two major financial institutions with
respect to the proposed sale of $1.6 million in 1995 when compared with 1994 was offset by a
decrease in other, net operating activities which resulted from the release of
$1.6$20 million of restrictednewly created preferred stock.
Successful completion of these two transactions would provide AmeriTruck with in
excess of $30 million of new capital before any related transaction costs.
However, no assurances can be made that the parties will reach definitive
agreements or that these transactions will be consummated. In the event that
these transactions do not occur the Company may be required to change its
current strategy by selling equipment and reducing operating levels. Management
believes that borrowings available under the credit facilities, additional
equity and asset sales should be sufficient to cover anticipated future cash
needs. See "Forward Looking Statements and Risk Factors--Financing Plans."
Redeemable Preferred and Common Stock
In May 1997, the Company issued 3,000 shares of Series A Redeemable
Preferred Stock and 727,272 shares of Common Stock with warrants to certain
existing stockholders, directors and executive officers of the Company. The
issuance was made in 1994 held as collateral for a long-term debt
agreement at TBI.
NationsBankconjunction with the 1997 acquisitions and gross proceeds
totaled $5 million. See Notes to Consolidated Financial Statements-Note 12.
Redeemable Preferred and Common Stock.
FINOVA Credit Facility
In February 1996,May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "NationsBank"FINOVA Credit
Facility") with NationsBank of Texas, N.A.FINOVA Capital Corporation ("NationsBank"FINOVA") pursuant to which NationsBankFINOVA
has providedagreed to provide a $30$60 million credit facility to the Company. BorrowingsThe initial
borrowings under the FINOVA Credit Facility were used to refinance the Company's
prior credit facility with NationsBank of Texas, N.A. Additional borrowings
under the FINOVA Credit Facility can be used for acquisitions, operating capital, capital
expenditures, letters of credit, working capital and general corporate purposes.
Pursuant to the NationsBankFINOVA Credit Facility, as
amended, NationsBankFINOVA has providedagreed to provide a $30$60
million revolving credit facility, with a $7$10 million sublimit for the issuance
of letters of credit, maturing on February 1, 1998,May 5, 2000 (subject to additional one year
renewal periods at which time the revolving credit facility will convert into a term loan maturing
on February 1, 2003. This facilitydiscretion of FINOVA). The FINOVA Credit Facility is also
subject to a borrowing base consisting of eligible receivables and eligible
revenue equipment.
Currently,As of December 31, 1997, the Company's borrowing base exceeds $30supported borrowings
of approximately $63.7 million. BorrowingsRevolving credit loans under the NationsBankFINOVA Credit
Facility bear interest at a per annum rate equal to either NationsBank's basethe prime rate plus a
margin equal to 0.75 percent or the rate of interest offered by NationsBank in the London
interbank eurodollar market plus an additionala margin ranging from 1.5 percentequal to 2.0 percent based on the Senior Funded Debt Ratio of the Company.2.75 percent. The Company also pays a
letter of credit issuancemonthly unused facility fee and a quarterly unused
facility fee. Borrowingsmonthly collateral monitoring fee in
connection with the FINOVA Credit Facility. Revolving credit loans under the
NationsBankFINOVA Credit Facility were $23.5$56.3 million at December 31, 19961997 and were
primarily used for refinancing borrowings under the purchaseCompany's prior facility
with NationsBank of Texas, N.A. and to fund the Freymiller Assets and the KTL acquisition. Available borrowings1997 acquisitions. There were
$2.4
million at December 31, 1996 as there were $4.1also $4.6 million in letters of credit outstanding.outstanding at December 31, 1997, leaving
$2.8 million available for borrowings.
In November 1997 the Company amended the FINOVA Credit Facility to increase
both the total amount of the FINOVA Credit Facility to $64 million and the
borrowing base availability thereunder (the "Temporary Overadvances"), in each
case for a period not to exceed 120 days. The amendment to the FINOVA Credit
Facility provides for the payment of a $180,000 fee in connection with the
Temporary Overadvances as well as an additional $180,000 fee in the event that
the Temporary Overadvances are not terminated within 60 days. The Temporary
Overadvances bore interest at 11% per annum for the first 60 days, and
thereafter, until the Temporary Overadvances are terminated all outstanding
borrowings under the FINOVA Credit Facility will bear interest at 1% over the
rate otherwise applicable to such advances. In connection with this amendment to
the FINOVA Credit Facility, the Company also issued $1 million in Subordinated
Notes (the "1997 Notes") to certain existing stockholders. The 1997 Notes bear
interest at a rate of 14% per annum and originally matured on April 1, 1998. The
1997 Notes may be converted in connection with a private equity placement
providing gross proceeds to the Company of at least $10 million (the "Qualified
Private Placement") on the same terms as those offered to other investors in the
Qualified Private Placement. In connection with the 1997 Notes, the Company
issued to the purchasers of the 1997 Notes warrants to a number of shares of the
Company's common stock equal to the aggregate outstanding principal and interest
on the 1997 Notes at the time of exercise divided by 2 (the "1997 Warrants").
The 1997 Warrants become exerciseable in the event a Qualified Private Placement
does not occur prior to April 1, 1998, and the exercise price would be paid by
surrender of the applicable investor's 1997 Note. The Company has also agreed
that, in the event a Qualified Private Placement has not occurred by March 31,
1998, the Company will pay an affiliate of BancBoston Ventures Inc., a
stockholder of the Company, a management fee in the annual amount of $100,000.
The Company used the availability from the Temporary Overadvances and the
proceeds from the 1997 Notes to pay interest due in November 1997 on the
Subordinated Notes and for general corporate purposes.
In March 1998, the Company further amended the FINOVA Credit Facility to extend
the period during which the Temporary Overadvances are available to the Company
through May 15, 1998 (or, if earlier, the date of any Qualified Private
17
Placement or the date of any sale of the stock or substantially all of the
assets of TBI yielding gross cash proceeds of at least $10 million) and to
increase the total amount of the FINOVA Credit Facility to $68.5 million solely
during the period during which the Temporary Overadvances may be drawn. The
March 1998 amendment provides for the payment of an additional $280,000 fee to
FINOVA. The Company does not expect a Qualified Private Placement to occur by
April 1, 1998. However, the maturity of the 1997 Notes has been extended to
June 1, 1998.
The Company's obligations under the NationsBankFINOVA Credit Facility are
collateralized by substantially all personal propertyof the unencumbered assets of the Company
and its subsidiaries and are guaranteed in full by each of the Operating
Companies. For purposes of the Indenture, suchthe borrowings under the NationsBankFINOVA Credit
Facility constitute Senior Indebtedness of the Company and Guarantor Senior
Indebtedness of the Operating Companies.
The NationsBankFINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and negativefinancial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Senior
FundedCurrent Ratio, Net Worth, Debt Service Coverage Ratio and Fixed Charge CoverageOperating
Ratio. AtCertain of these covenants were not met at December 31, 1996, the
Company was not in compliance with the Senior Funded Debt Ratio covenant or the
Fixed Charge Coverage Ratio covenant.
The Company has received a waiver of such noncompliance from NationsBank
expiring on April 30, 1997 (the "NationsBank Waiver"). During this period the
Company has agreed that it may not make additional borrowings at Eurodollar
rates.
The Company has received a financing commitment (the "Financing
Commitment") pursuant to which the lender (the "New Lender") has committed,
subject to the terms and conditions of the Financing Commitment, to provide a
$30 million credit facility (the "New Credit Facility"). Borrowings under the
New Credit Facility could be used to refinance in full indebtedness under the
NationsBank Credit Facility, to provide working capital and for letters of
credit and general corporate purposes. Pursuant to the New Credit Facility, the
New Lender would provide a $30 million revolving credit facility. Borrowings
under the New Credit Facility would be securedwere
unconditionally waived by substantially all unencumbered
personal property of the Company and its subsidiaries, and, for purposes of the
Indenture, would constitute Senior Indebtedness of the Company and would
constitute Guarantor Senior Indebtedness of the Operating Companies.
Under the terms of the Financing Commitment, the New Credit Facility would
contain a number of affirmative and negative covenants, including a limitation
on the incurrence of indebtedness and a requirement that the Company maintain
specified debt coverage ratios. The New Credit Facility is subject to
satisfaction of the terms and conditions set forth in the Financing Commitment.
See "Forward Looking Statements and Risk Factors--Substantial Leverage,
Liquidity, Capital Resources and New Credit Facility."
15
FINOVA.
Volvo Credit Facilities
In February 1996, the Company and its subsidiariesthe Operating Companies entered into a
Loan and Security Agreement, a Financing Integration Agreement and related
documents (collectively, the "Volvo Credit Facilities") with Volvo Truck Finance
North America, Inc. ("Volvo") pursuant to which Volvo has committed, subject to
the terms and conditions of the Volvo Credit Facilities, to provide (i) a $10
million line of credit facility (the "Volvo Line of Credit") to the Company and
the Operating Companies, and (ii) up to $28 million in purchase money or lease
financing (the "Equipment Financing Facility") in connection with the Operating
Companies' acquisition of new tractors and trailers manufactured by Volvo GM
Heavy Truck Corporation. Borrowings under the Volvo Line of Credit are secured
by certain specified tractors and trailers of the Company and the Operating
Companies (which must have a value equal to at least 1.75 times the outstanding
amount of borrowings under the Volvo Line of Credit) and are guaranteed in full
by each of the Operating Companies. As of December 31, 1996,1997, the Operating
Companies have pledged collateral which provides for a $9.5$9.4 million line of
credit. Borrowings under the Volvo Line of Credit bear interest at the prime
rate. The Volvo Line of Credit contains customary representations and warranties
and events of default and requires compliance with a number of affirmative and
negative covenants, including a profitability requirement and a coverage ratio.
Certain of these covenants were not met at December 31, 1997 and were
unconditionally waived by Volvo.
The Equipment Financing Facility is beingwas provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured by
Volvo GM Heavy Truck Corporation between March 1, 1996 and June 30, 1997.Corporation. The borrowings or leases under the Equipment Financing
Facility are collateralized by the specific trucks being financed and are
guaranteed in full by each of the Operating Companies. Borrowings under this
facility bear interest at the prime rate. Financing for an additional 150 new
trucks for approximately $11.3 million was committed during 1997, all of which
will be obtained through operating leases.
At December 31, 1996,1997, borrowings outstanding under the Volvo Line of Credit
were $9.4 million with available borrowings of $100,000.million. The outstanding debt balance under the Equipment Financing
Facility was $4.2$2.8 million at December 31, 1996;1997; however, availablethe remaining financing
under this facility is less than $7 million
as financing was also obtained through operating leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture, the
borrowings under the Volvo Credit Facilities constitute Senior Indebtedness of
the Company and Guarantor Senior Indebtedness of the Operating Companies.
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with
Transamerica Business Credit Corporation ("TBCC") to provide the Company and its
subsidiaries with an arrangement to lease up to 300 new 1998 model tractors (the
"TBCC
18
Lease"). The Operating Companies began taking deliveryline under the TBCC Lease will not exceed $22.8 million based upon
a per vehicle cost of $76,000, subject to an unused line fee of one percent if
the Company leases all 300 of the Volvonew trucks in early
May 1996, with total deliveries for 1996 of 259 trucks. Another 75 trucks which
were scheduled for delivery bybut does not use the entire line.
The lease term is 48 months and is subject to a terminal rental adjustment
clause at the end of 1996,the term. The Company will treat this lease as an
operating lease for accounting purposes. Terms of the arrangement were not delivered until January
and Februaryset
forth in a Master Lease Agreement dated as of August 14, 1997. The remaining VolvoAs of December
31, 1997, the Company had leased 133 trucks are also scheduled for delivery
during 1997.under this agreement.
Subordinated Notes
In November 1995, AmeriTruck completed a private placement of $100 million
of 12 1/4% Senior Subordinated Notes due 2005 (the "Series A Notes"). The Series
A Notes were exchanged for publicly registered 12 1/4% Senior Subordinated Notes
due 2005, Series B (the "Subordinated Notes") in February 1996. The Subordinated
Notes mature on November 15, 2005, and are unsecured subordinated obligations of
the Company. These notes bear interest at the rate of 12.25 percent per annum
from November 15, 1995, payable semiannually on May 15 and November 15 of each
year, commencing on May 15, 1996. The Subordinated Notes are subject to optional
redemption on the terms set forth in the Indenture. As of December 31, 1996, the
Company had applied the net proceeds of the Series A Notes primarily to finance
the 1995 acquisitions and prepay debt and capitalized leases.
Capital Expenditures and Resources
TheFor the year ended December 31, 1997, the Company had proceeds from
property and equipment dispositions in excess of capital expenditures of $6.8
million, excluding the 1997 acquisitions of Monfort, Lynn and Tran-Star,
compared with capital expenditures, net of cash proceeds from dispositions, of
$10.9 million in 1996, and $11.9 million in 1995, and $1.6 million
in 1994, excluding the 1995 and 1996
acquisitions and the purchase of the Freymiller Assets. These amounts also do
not include capital expenditures financed through capital leases and other debt
which amounted to approximately $300,000 in 1997 and $13.1 million in 1996 and
19951995. During 1996 and $7.7 million in 1994. The decrease in capital
expenditures compared with 1995 was due to a $5.5 million increase in proceeds
from sale of property and equipment as well as financing1997, the majority of the new
Volvo trucks acquired during 1996 through operating leases. Capital expenditures
for 1996, including equipment financed through operating leases, were primarily
for the purchase of approximately 280Company purchased new tractors and 465 new trailers in orderto
replace older equipment. The Company's intentions are to maintain
16
an average
fleet age of approximately 2 years for line-haul tractors and 45 years for line-
haul trailers. Approximately 90 percentThe majority of these new tractors and trailers replaced
older equipment. Capital expenditures for 1995 increased when compared with 1994the 1996 purchases were financed through debt;
where as the 1997 acquisitions were primarily due to approximately $6 million at the Acquired Companies to purchase
equipment previously held underfinanced through operating leases as well as approximately $6
million for the modernization of W&L's fleet to reduce the average age of owned
equipment.leases.
During 1997,1998, the Company plans to purchase approximately 450350 new trucks, including the remaining Volvo trucks. Approximately 300 of these new tractors
willto
replace existing tractors. These equipment purchases and commitments will likely
be financed using a combination of sources including, but not limited to, cash
from operations, leases, debt issuances and other miscellaneous sources. Each
financing decision will be based upon the most appropriate alternative
available.
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-Star,
Inc. ("Tran-Star") which was owned by Allways Services, Inc. The purchase price
of $2.6 million included $1.6 million in cash and a $1 million note payable.
Tran-Star is a carrier of refrigerated and non-refrigerated products.
Headquartered in Waupaca, Wisconsin, Tran-Star operates primarily in between the
upper midwestern U.S. and the northeast and southeast, with terminals in Etters
and Wyalusing, Pennsylvania. The Company is currently coordinating Tran-Star's
activities with those of the refrigerated group.
In May 1997, AmeriTruck purchased the capital stock of Monfort
Transportation Company ("Monfort") and Lynn Transportation Co., Inc. ("Lynn"),
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash.
Monfort and Lynn operated primarily as in-house carriers for the red meat
division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. The Company entered
into a Transportation Services Agreement with subsidiaries of ConAgra. The
ConAgra subsidiaries have agreed to tender freight from Monfort, Inc.'s red meat
division, ConAgra Poultry Company's poultry and turkey divisions and Swift-
Ekrich, Inc.'s processed meats division in designated lanes and minimum annual
volumes. The term of this agreement is four years, with pricing fixed for the
first two years and adjusted prices in the third and fourth years. The Company
is coordinating Monfort and Lynn activities with the other Operating Companies
in the refrigerated group.
19
The Tran-Star, Monfort and Lynn acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition. The total purchase price including cash, note
payable, miscellaneous acquisition costs and liabilities assumed was $42.4
million for Tran-Star and $35.8 million for Monfort and Lynn. The excess of
the purchase price over fair values of the net assets acquired has been recorded
as goodwill.
During the third quarter of 1996, AmeriTruck purchased all of the
outstanding stock of KTL, Inc. ("KTL") of Largo, Florida from Ronald N. Damico for a purchase price of $8.1 million in
cash and 225,000 shares of Class A common stock of AmeriTruck valued at
$900,000. As part of the transaction, Mr.
Damico and KTL entered into an employment agreement, under which Mr. Damico
became employed as KTL's President and Chief Executive Officer. The term of the
employment agreement expires on November 15, 1998. In addition, KTL has agreed
to lease from Mr. Damico and his spouse certain real estate at Clearwater,
Florida on a month-to-month basis. Further, KTL has agreed to lease the real
estate at Largo, Florida used by KTL as its corporate headquarters from a
company owned by Mr. Damico for an 18-month term, at which time KTL has agreed
to purchase the property for $2.4 million less the total amount of
environmental-related costs incurred subsequent to August 16, 1996. KTL is a trucking company founded in 1983 which specializes in the
truckload transportation of refrigerated commodities and less-than-truckload
shipments requiring expedited, timed-delivery services. At the time of purchase,
KTL operated approximately 140 tractors and 300 trailers and employed
approximately 300 persons, of whom 240 were drivers and many of whom operated as
two-driver teams.
The KTL acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The total purchase price including cash, common stock,
miscellaneous acquisition costs and liabilities assumed was $21.9 million. The
excess of the purchase price over the fair values of the net assets acquired has
been recorded as goodwill.
In February 1996, the Company, through CMS Transportation Services, Inc.,
purchased certain assets of Freymiller Trucking Inc. ("Freymiller") in order to
supplement its existing temperature-controlled trucking business. Freymiller
had been the subject of a Chapter 11 bankruptcy proceeding in Oklahoma. CMS
purchased certain specific automobiles, computer hardware and software,
furniture and fixtures, rights to the trade name "Freymiller", existing spare
parts, tires and fuel, rights under certain leases, certain leasehold
improvements and shop equipment and installment sales contracts relating to
tractors and trailers sold by Freymiller out of the ordinary course of business
(with all of the foregoing referred to as the "Freymiller Assets"). The Company
also negotiated with Freymiller's lenders and lessors to purchase approximately
185 tractors and 309 trailers, previously operated by Freymiller, for
approximately $14 million. An additional 80 trailers were leased for a seven-
year period. In exchange for the Freymiller Assets, the Company paid
approximately $2.7 million in cash at closing and assumed approximately $2
million in existing equipment financing. In addition, the Company assumed a
lease for Freymiller's maintenance facility in Oklahoma City and certain routine
executory business contracts. Except as provided above, the Company did not
assume any obligations or liabilities of Freymiller.
In connection with these transactions, the Company purchased real property in
Oklahoma City, Oklahoma from Freymiller's Chairman of the Board, President and
Chief Executive Officer for approximately $1.5 million in cash.
In April 1996, CMS Transportation Services, Inc. changed its corporate name
to "AmeriTruck Refrigerated Transport, Inc." ("ART"), and the distribution
functions previously conducted under the corporate name "CMS Transportation
Services, Inc." were continued as a division of ART. In addition, in June 1996,
the business operations of CBS, a general freight carrier (which then operated
under the name "CBS Express, Inc."), were transferred to Scales. In December
1996, the distribution functions of the CMS Transportation division of ART were
transferred to CBS and its name was changed to "CMS Transportation Services,
Inc." ("CMS").
17
In May 1995, W&L acquired Dietz Motor Lines, Inc. for $2.0 million in cash,
which includes payment for non-compete agreements of $400,000 as well as an
amount for certain eligible accounts receivable. This acquisition has been
accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition. The results of
operations of the acquired company are included in the financial statements from
the date of acquisition.
Opportunistic Acquisitions
The Company will pursue opportunistic acquisitions to broaden its geographic
scope, to increase freight network density and to expand into other specialized
trucking segments. Through acquisitions, the Company believes it can capture
additional market share and increase its driver base without adopting a growth
strategy based on widespread rate discounting and driver recruitment, which the
Company believes would be less successful. The Company believes its large size
relative to many other potential acquirers could afford it greater access to
acquisition financing sources such as banks and capital markets. AmeriTruck has
entered into a revolving credit facility withfacilities, the Volvo Truck Finance
North America, Inc.Line of Credit and has received the
Financing Commitment for the New Credit
Facility. See "NationsBank Credit Facility". The Volvo facility and, if
obtained, the NewFINOVA Credit Facility, will givewhich has given AmeriTruck the ability to pursue
acquisitions that the Company could not otherwise fund through cash provided by
operations. However, the proposed size and terms of the New Credit Facility
could impair the ability of the Company to complete the proposed Tran-Star, Inc.
("Tran-Star"), acquisition discussed below and future acquisitions, and the
Company is actively seeking to increase the size of the New Credit Facility or
obtain a larger revolving credit facility from another financing source. In addition to revolving credit facilities, the Company may finance
its acquisitions through equity issuances, seller
20
financing and other debt financings. The Company has signed a Letter of Intent to acquire the capital stock of
Tran-Star, which is owned by Allways Services, Inc. Tran-Star is a carrier of
refrigerated and non-refrigerated products. If this acquisition is completed,
the Company intends to coordinate Tran-Star's activities with those of the other
Operating Companies. Tran-Star, headquartered in Waupaca, Wisconsin, operates
primarily in between the upper midwestern U.S. and the northeast and southeast,
with terminals at Etters and Scranton, Pennsylvania.
This acquisition isHowever, any acquisitions will be subject
to a number of conditions, includingapproval by FINOVA and meeting the availability of financing andtests for debt incurrence under the
completion of definitive documentation, and no
assurances can be made thatIndenture for the Company will complete the proposed acquisition.Subordinated Notes.
The Company is a holding company with no operations of its own. The
Company's ability to make required interest payments on the Subordinated Notes
depends on its ability to receive funds from the Operating Companies. The
Company, at its discretion, controls the receipt of dividends or other payments
from the Operating Companies.
OTHER MATTERS
Evaluation of the Company's primary accounting and operational systems for the
Year 2000 problem has been initiated. During 1997, the Company began
consolidating the accounting and operational processing of several operating
companies onto a centralized set of applications and hardware located at
Electronic Data Systems Corporation ("EDS"). An internal study is currently
under way to determine the full scope and related costs of the Year 2000 problem
with respect to other systems the Company maintains to ensure that the Company's
systems continue to meet its internal needs and those of its customers. As a
part of the internal study, the Company will also address evaluation of key
vendors and customers to determine the impact, if any, on the Company's
business. The internal study and the resulting work requirements of the study
are expected to be completed by the end of 1998, although there can be no
assurance that all steps will be completed in a timely manner until the full
scope of the Year 2000 problem is evaluated. The Company currently does not
believe that the Year 2000 problem will have a material impact on the Company's
financial condition or results of operations, although the ultimate impact could
be material depending on the results of the aforementioned internal study.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings or press
releases, or officers of the Company make public oral statements with respect to
the Company, that may be considered forward-looking within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements in this Form 10-K include
statements concerning future cost savings, projected levels of capital
expenditures and the timing of deliveries of new trucks and trailers, the
Company's financing and equity plans, the Company's ability to meet its future
cash needs from borrowings under its credit facilities and from cash generated
from operations and asset dispositions, the Company's Transportation Services
Agreement with subsidiaries of ConAgra, driver recruitment and training and the
Company's pursuit of opportunistic acquisitions. These forward-looking
statements are based on a number of risks and uncertainties, many of which are
beyond the Company's control. The Company believes that the following important
factors, among others, could cause the Company's actual results for its 19971998
fiscal year and beyond to differ materially from those expressed in any forward-lookingforward-
looking statements made by, on behalf of, or with respect to, the Company: the
Company's ability to obtain additional equity financing or raise additional cash
through asset sales, the adverse impact of inflation and rising fuel costs; the
Company's substantial leverage and liquidityits effect on the Company's ability to pay
principal and capital resources; limited
combined operating history; cyclicalityinterest on the Subordinated Notes and the Company's ability to
incur additional financing or equity to fund its operations, to pursue other
business opportunities and to withstand any adverse economic factors; future
acquisitions;and industry
conditions; the risk that the Company will not be able to integrate the
Operating Companies' businesses on an economic basis or that any anticipated
economies of scale or other cost savings will be realized; the ability of the
Company to identify suitable acquisition candidates, complete acquisitions or
successfully integrate any acquired businesses; competition; availabilitythe ability of the
Company to attract and retain qualified drivers; regulation; claims exposure;
and the Company's dependence on
key management personnel. Each of these risk factors is discussed in more
detail immediately hereafter.
INFLATION AND FUEL COSTSFinancing Plans
In order to raise additional financing, the Company has signed a non-binding
letter of intent to sell TBI, an AmeriTruck subsidiary primarily involved in
mail contract carriage. This letter of intent is subject to a number of
conditions, including due diligence and approval by the AmeriTruck Board of
Directors. In a separate transaction, the Company has signed an agreement to
negotiate exclusively with two major financial institutions with respect to the
proposed sale of $20,000,000 of new preferred stock. Successful completion of
these two transactions would provide AmeriTruck with $30,000,000 of new capital
before any related transaction costs. However, no assurances can be made that
the parties will reach definitive agreements or that these transactions will be
consummated. Failure by the Company to raise significant new equity financing
or raise significant funds from asset sales would have a material adverse effect
on the Company and its
21
ability to service its outstanding indebtedness, including the Subordinated
Notes. Among other effects, the Company would be required to change its current
growth strategy and adopt a strategy involving the sale of operating equipment
and reduction of operating levels.
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings.
Extended periods of escalating costs or fuel price increases without
compensating freight rate increases would adversely affect the Company's results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Year Ended December 31, 1996 Compared with the Year
Ended December 31, 1995 - Expenses."
The industry as a whole has seen dramatic increases in fuel prices.
According to a Department of Energy survey, reported by the
American Trucking Association, the average price of diesel fuel peaked duringfor 1997 was
$1.20 compared with $1.24 for 1996. The Company's fuel prices are slightly
below the month of October
at 18.1 cents above the December 31, 1995 price. Accordingnational average due to the survey, the
average priceCompany's ability to buy fuel at volume
discounts. See "Management's Discussion and Analysis of diesel fuel for the fourth quarterFinancial Condition and
Results of 1996 was approximately
15.4 cents above the first quarter average price. The Company has seen its fuel
prices increase at a rate consistent with the national average.
18
SUBSTANTIAL LEVERAGE, LIQUIDITY, CAPITAL RESOURCES AND NEW CREDIT FACILITYOperations - Expenses."
Substantial Leverage, Liquidity, Capital Resources and New Credit Facility
As a result of the 1995, 1996 and 1997 acquisitions and the offering of the
Subordinated Notes, the Company has substantial indebtedness in relation to its
total capitalization. This substantial indebtedness poses substantial risks to
holders of the Subordinated Notes, including the possibility that the Company
might not generate sufficient cash flow to pay the principal and interest on the
Subordinated Notes. Such indebtedness may also adversely affect the Company's
ability to finance its future operations and capital needs, may limit its
ability to pursue other business opportunities and may make its results of
operations more susceptible to adverse economic and industry conditions. In
addition, the Company will need to continue to purchase additional revenue
equipment, and, if the Company is unable to enter into operating or capital
leases or obtain borrowed funds in the future, it may have to limit its growth
or operate its revenue equipment for longer periods. If the Company is unable
to generate sufficient cash flow from operations in the future to service its
debt and make necessary capital expenditures, the Company may be required to
refinance all or a portion of its existing debt, including the Subordinated
Notes, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any such sale of
assets or additional financing could be achieved.
Obtaining the New Credit Facility is subject to satisfaction of the terms
and conditions set forth in the Financing Commitment. While management believes
that the Company will obtain the New Credit Facility, in the event the New
Credit Facility is not in place by April 30, 1997, the NationsBank Waiver will
expire and the Company will be in default under the NationsBank Credit Facility.
LIMITED COMBINED OPERATING HISTORYLimited Combined Operating History
The Company was founded in August 1995 and conducted no operations prior to
consummation of the 1995 acquisitions. Prior to the 1995, 1996 and 1997
acquisitions, the Founding Companiesacquired companies operated independently and there can be no
assurance that the Company will be able to successfully integrate these
businesses on an economic basis or that any anticipated economies of scale or
other cost savings will be realized. While the Company's senior management is
highly experienced in the trucking industry and senior management includes the
chief executive officers of the Operating Companies, the Company's management
group has been assembled only recently and there can be no assurance that the
management group will be able to oversee the combined entity and effectively
implement the Company's operating or growth strategies.
During 1997, the assimilation of significant assets of Monfort, Lynn and
Tran-Star negatively impacted the Company. Combined with start-up issues related
to the ConAgra Transportation Services Agreement, the Company did not meet its
original 1997 goals for profitability and cash flow.
During 1996, the assimilation of significant assets from the Freymiller
bankruptcy estate, the merger of the operations of CBS into Scales, and the cost
of developing a corporate staff negatively impacted the Company. The merger of
CBS into Scales caused the Company to lose some qualified drivers which in turn
resulted in decreased equipment utilization. In addition, one subsidiary lost
drivers as a result of eliminating driver expense allowances and changing their
pay structure. The Company is focusing on efforts to correct the negative
impact from the assimilation of the Freymiller Assets, the 1997 acquisitions and
the ConAgra Services Agreement and has intensified its efforts in the driver
recruitment and training areas, which has begun to correct that
problem.these problems.
However, no assurances can be made that thisthese areas will not continue to have a
negative impact in the future.
CYCLICALITY AND OTHER ECONOMIC FACTORS22
Cyclicality and Other Economic Factors
Recessionary business cycles or downturns in customers' business cycles
could have a material adverse effect on the operating results of the Company.
Although management believes that because of the nature of its customer base,
the Company is less sensitive to cyclical pressures than many other large
trucking firms, a significant portion of the Company's customers are in cyclical
industries, such as furniture manufacturing. Fuel prices, fuel taxes, tolls,
insurance costs, interest rates, license and registration fees and fluctuations
in the resale value of revenue equipment are economic factors over which the
Company has little or no control. Significant increases or rapid fluctuations
in fuel prices or fuel taxes, interest rates or increases in license and
registration fees, tolls or insurance costs, to the extent not offset by
increases in freight rates, would reduce the Company's profitability. In
addition, freight shipments, operating cost and earnings are also adversely
affected by inclement weather conditions. Fluctuations in the resale value of
tractors and trailers are also important factors that the Company cannot
control. A decline in the resale value of the Company's tractors and trailers
could cause the Company to retain some of its equipment longer than desired,
resulting in increased operating expenses for fuel, maintenance and repairs, or
to realize losses on sale.
FUTURE ACQUISITIONSFuture Acquisitions
The Company believes that future acquisitions, particularly in the
temperature control segment of the trucking industry, are a key part of its
objective of offering customers both customized service and pricing that
reflects the advantages of economies of scale. No assurances can be made that
the Company will be able to find suitable acquisition candidates, raise any
required financing or complete future acquisitions or, if completed, that any
such acquisitions will help the Company achieve its objectives.
COMPETITIONCompetition
The trucking industry is highly competitive. The Operating Companies
compete with many other truck carriers of varying sizes and, to a lesser extent,
with railroads. This competition has created downward pressure on the trucking
industry's pricing structure. Some of the Company's larger competitors in the
refrigerated business include Prime, FFE 19
Transportation Service and KLLM Inc.
Merchants Home Delivery Service is one of the largest competitors in the
furniture business. A number of trucking companies with which the Operating
Companies compete have greater financial resources or own more revenue equipment
than does the Company.
AVAILABILITY OF DRIVERSAvailability of Drivers
The difficulty in attracting qualified drivers (including owner-operators)
is a wide-spread problem in the trucking industry and is an important factor in
the Company's ability to provide a high level of service to its customers and to
effectively utilize the Company's equipment. Problems with driver retention had
a negative impact on the Company's performance in 1996.1996 and 1997. Competition
for drivers is intense and, in part because their driver standards are high, the
Operating Companies have sometimes experienced difficulty attracting and
retaining qualified drivers. Although in the past the Operating Companies have
experienced lower turnover rates than the trucking industry as a whole, there
can be no assurance that the Company's business will not be affected by a
shortage of qualified drivers in the future.
REGULATIONRegulation
Interstate and Intrastate motor carriage has been substantially deregulated
as a result of the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, and the ICC Termination Act of 1995.
Carriers can now readily enter the trucking industry and rates and services are
largely free of regulatory controls. However, interstate for-hire carriers do
remain subject to certain regulatory controls imposed by DOT. In addition, the
Operating Companies' operations are subject to various environmental laws and
regulations, including laws and regulations dealing with underground fuel
storage tanks and ownership of property than may contain hazardous substances
and laws which subject the Company to stricter air emission standards
regulation, including requirements that manufacturers produce cleaner-running
tractors and that fleet operators perform more rigorous inspection and
maintenance procedures.
CLAIMS EXPOSURE23
Claims Exposure
The primary risk areas in the Company's businesses are bodily injury and
property damage, workers' compensation and cargo loss and damage. The Operating
Companies currently maintain insurance against these risks and are subject to
liability as a self-insurer to the extent of the deductible under each policy.
The Company maintains liability insurance for bodily injury and property damage
of at least $25 million per incident, with a deductible for bodily injury and
property damage of $300,000 per incident. The current deductible for workers'
compensation in states where most of the Company's drivers are domiciled ranges
from $250,000 to $350,000 per claim. The Company is self-insured as to damage
or loss to the property and equipment they own or lease. In addition, the
Company maintains cargo loss and damage insurance of between $100,000 and $1
million per incident with a deductible ranging from $5,000 to $15,000 per
incident. To the extent that the Company or any of the Operating Companies were
to experience a material increase in the frequency or severity of accidents or
workers' compensation claims, or unfavorable developments on existing claims,
the Company might have to further collateralize its self-insurance amounts and
the Company's operating results, financial position and liquidity could be
materially adversely affected. In addition, significant increases in insurance
costs, to the extent not offset by increases in freight rates, would reduce the
Company's future profitability.
DEPENDENCE ON KEY PERSONNELDependence on Key Personnel
The success of the Company is dependent upon its senior management team, as
well as its ability to attract and retain qualified management personnel. There
is competition for qualified personnel in the trucking industry. There is no
assurance that the Company will be able to retain its existing senior management
or to attract additional qualified management personnel. The Company does not
maintain key man life insurance on any of its senior management team but the
Company has entered into employment agreements with each member of its senior
management team.
2024
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997* 1996* 1995*
1994*
--------- --------- -------------------- ------------ ------------
Operating revenue $291,552 $224,257 $102,846
$80,087
-------- -------- ---------------
Operating expenses:
Salaries, wages and fringe benefits 98,837 71,996 32,463
23,639
Purchased transportation 69,911 57,413 26,564
23,504Fuel and fuel taxes 36,103 27,071 12,341
Operating supplies and expenses 40,946 14,786 10,03819,397 13,875 2,445
Depreciation and amortization of capital leases 18,120 14,211 7,407 5,815
capital leases
Claims and insurance 11,646 8,806 4,471 3,169
Operating taxes and licenses 6,907 4,988 3,145 2,436
General supplies and expenses 11,215 3,675 2,46515,385 9,598 3,089
Building and office equipment rents 2,117 1,617 586
Amortization of intangibles 1,787 1,130 475
656
GainLoss (gain) on disposal of property and equipment 43 (1,267) (425)
(283)Restructuring charge 7,184 - -
-------- -------- ---------------
Total operating expenses 287,437 209,438 92,561
71,439
-------- -------- ---------------
Operating income 4,115 14,819 10,285
8,648
Interest expense 21,015 16,677 4,993
3,422Amortization of financing fees 653 484 37
Other income, (expense), net (34) 385 205(279) (450) (422)
-------- -------- ---------------
Income (loss) before income taxes and extraordinary items (17,274) (1,892) 5,677
5,431
Income tax expenseprovision (benefit) (6,618) 340 2,496
2,317
-------- -------- ---------------
Income (loss) before extraordinary items (10,656) (2,232) 3,181 3,114
Extraordinary items, loss on early retirement of debt,
net of taxes of $120, $154 and $16, respectively (243) (230) (23)
-
-------- -------- ---------------
Net income (loss) $(10,899) $ (2,462) $ 3,158
$ 3,114
======== ======== ===============
*Comparisons* Comparisons between periods are affected by acquisitions --- see Note 2.
See accompanying notes to consolidated financial statements.
2125
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
DECEMBER 31,
--------------------
1996 1995----------------------
1997* 1996*
--------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 73421 $ 15,286734
Accounts and notes receivable, net 49,017 29,001 12,269
Prepaid expenses 14,782 7,735 4,057
Repair parts and supplies 2,123 1,092 844
Deferred income taxes 3,717 1,467 960
Other current assets 1,497 1,388 941
-------- --------
Total current assets 71,157 41,417 34,357
Property and equipment, net 117,774 103,801 67,191
Goodwill, net 59,971 39,399 32,705
Notes receivable 975 -
Other assets 7,056 6,28214,598 8,031
-------- --------
Total assets $263,500 $192,648 $140,535
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 11,98822,534 $ 10,56611,988
Accounts payable and accrued expenses 31,735 13,557 12,071
Claims and insurance accruals 3,496 1,684 1,852
Other current liabilities 986 593 499
-------- --------
Total current liabilities 58,751 27,822 24,988
Long-term debt 203,696 157,338 107,769
Deferred income taxes 4,410 8,571 7,773
Other liabilities 5,887 2,741 1,822
-------- --------
Total liabilities 272,744 196,472 142,352
-------- --------
Commitments and contingencies (Note 10)11)
Redeemable preferred stock 3,091 -
Stockholders' equity (deficiency):
Common stock; $.01 par value, 3,5034,230 shares and 3,2783,503 shares
issued and outstanding, respectively 42 35 33
Additional paid-in capital 2,800 898 -
Loans to stockholders (1,401) (1,880) (1,435)
Accumulated deficit (13,776) (2,877) (415)
-------- --------
Total stockholders' equity
(deficiency)deficiency (12,335) (3,824) (1,817)
-------- --------
Total liabilities and stockholders' equity
(deficiency)deficiency $263,500 $192,648 $140,535
======== ========
* Comparisons between periods are affected by acquisitions-see Note 2.
See accompanying notes to consolidated financial statements.
2226
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 19941997* 1996* 1995*
--------- --------- ---------
OPERATING ACTIVITIESACTIVITIES:
Net income (loss) $(10,899) $ (2,462) $ 3,158 $ 3,114
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization of capital leases 18,120 14,211 7,407 5,815
Amortization of intangibles 1,787 1,130 475
656
GainLoss (gain) on disposal of property and equipment 43 (1,267) (425)
(283)
Provision (benefit) for deferred income taxes (6,411) 291 1,074 933
Provision for doubtful accounts 233 234 224 114
Extraordinary items, loss on early retirement of debt, net of taxes 243 230 23
Restructuring charge 7,184 - -
Restructuring costs paid (2,859) - -
Other, net (3,126) (125) 897 2,517
Changes in current assets and liabilities, net of effects from acquisitions:
Accounts and notes receivable, net (9,469) (11,620) (325)
(2,237)
Prepaid expenses (4,136) (1,438) (1,199) 4
Repair parts and supplies (517) (9) 22 (147)
Other current assets 424 (234) 1,652 857
Accounts payable and accrued expenses 4,195 (541) (791) 144
Claims and insurance accruals (2,411) 1,064 406 433
Other current liabilities 268 17 (527) 500
-------- -------- --------
Net cash provided by (used in) operating activities (7,331) (519) 12,071 12,420
-------- -------- --------
INVESTING ACTIVITIESACTIVITIES:
Purchase of Freymiller Assets, net of liabilities assumed - (18,821) - -
Payments for acquisitions, net of cash acquired (17,613) (9,342) (18,258) -
Purchase of property and equipment (6,737) (19,948) (15,399) (2,632)
Proceeds from sale of property and equipment 12,197 9,055 3,520
1,013
Other, net 705 1,007 (557) (91)
-------- -------- --------
Net cash used in investing activities (11,448) (38,049) (30,694) (1,710)
-------- -------- --------
FINANCING ACTIVITIESACTIVITIES:
Revolving line of credit, net 30,252 32,881 - -
Proceeds from issuance of long-term debt 1,000 17,236 103,427 9,954
Repayment of long-term debt (21,189) (25,075) (49,011) (19,461)
Distribution to controlling stockholders - - (17,361)
Proceeds from issuance of redeemable preferred stock 3,000 - -
Proceeds from issuance of common stock 2,000 - -
Redemption of preferred stock - - (2,000)
(1,000)Checks in excess of cash balances 4,109 - -
Other, net (1,106) (1,026) (2,763) (215)
-------- -------- --------
Net cash provided by (used in)
financing activities 18,066 24,016 32,292 (10,722)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (713) (14,552) 13,669 (12)
Cash and cash equivalents, beginning of period 734 15,286 1,617 1,629
-------- -------- --------
Cash and cash equivalents, end of period $ 21 $ 734 $ 15,286 $ 1,617
======== ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 20,466 $ 16,592 $ 4,315 $ 3,000
Income taxes (net of refunds) (257) 135 2,812 1,247
Property and equipment financed through capital lease obligations and other debt
457 13,107 13,063
7,726Noncash consideration for acquisitions 1,000 - -
*Comparisons between periods are affected by acquisitons-see Note 2.
See accompanying notes to consolidated financial statements.
2327
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars and shares in thousands)
COMMON ADDITIONAL TOTAL STOCK-
SHARES COMMON PAID-IN LOAN TO ACCUMULATED HOLDERS' EQUITY
OUTSTANDING STOCK CAPITAL STOCKHOLDERS DEFICIT (DEFICIENCY)
----------- -------- ---------------- ------- ------------ ----------- ---------------------- ----------
Balance, December 31, 1993 11 $ 361 $ 9531994 29 $ - (3,723) $ (2,409)
Dividends on preferred
stock11,963 $ - - - - (376) (376)
Conversion of no par value
common stock to $.01 par
value common stock - (361) 361 - - -
Issuance of 490 shares of
preferred stock
as dividends - - - - (490) (490)
Conversion of 8,812 shares
of preferred stock into
common stock 9 - 8,812 - - 8,812
Issuance of common stock 9 - 161 - - 161
Contributed capital - - 1,676 - - 1,676
Net income (loss) - - - - 3,114 3,114
----- ----- ------- ------- ------- --------
Balance, December 31, 1994 29 - 11,963 -$ (1,475) $ 10,488
Dividends on preferred stock - - - - (187) (187)
Loans to stockholders - - - (283) - (283)
Issuance of common stock 2 - 1,152 (1,152) - -
Distribution to controlling stockholders - - (15,583) - (1,778) (17,361)
Issuance of common stock to controlling
stockholders 2,173 22 (22) - - -
Issuance of common stock for acquired
companies and minority stockholders 1,074 11 2,490 - (133) 2,368
Net income (loss) - - - - 3,158 3,158
----- -------- -------- ------- ------- --------------- --------
Balance, December 31, 1995 3,278 33 - (1,435) (415) (1,817)
Loans to stockholders - - - (445) - (445)
Issuance of common stock for acquired
company 225 2 898 - - 900
Net income (loss)loss - - - - (2,462) (2,462)
----- -------- -------- ------- ------- --------------- --------
Balance, December 31, 1996 3,503 35 898 (1,880) (2,877) (3,824)
Loans to stockholders - - - 479 - 479
Issuance of common stock 727 7 1,993 - - 2,000
Redeemable preferred stock dividend - - (91) - - (91)
Net loss - - - - (10,899) (10,899)
----- --- -------- ------- -------- --------
Balance, December 31, 1997 4,230 $42 $ 35 $ 898 $(1,880) $(2,877) $ (3,824)2,800 $(1,401) $(13,776) $(12,335)
===== ======== ======== ======= ======= =============== ========
See accompanying notes to consolidated financial statements.
2428
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AmeriTruck Distribution Corp. and its wholly-owned subsidiaries generally
operate in specialized areas of the transportation services industry
including time-sensitive delivery, special handling, unconventional pick-up
and delivery times, in-house logistic services, dedicated fleets and
temperature control.
Principles of Consolidation
The combined financial statements include the accounts of AmeriTruck
Distribution Corp. and its wholly-owned subsidiaries ("AmeriTruck" or the
"Company"). AmeriTruck was formed in August 1995 to effect the combination
of six regional trucking lines in November 1995: W&L Services Corp.
("W&L"), Thompson Bros., Inc. ("TBI"), J.C. Bangerter & Sons, Inc.
("Bangerter"), CMS Transportation Services, Inc. and certain related
companies, Scales Transport Corporation and a related company ("Scales")
and CBS Express, Inc. ("CBS"). Prior to these acquisitions, W&L and TBI had
certain common stockholders who controlled approximately 87 percent of the
common equity of W&L and TBI on a combined basis (the "Controlling
Stockholders"). In addition, the Controlling Stockholders controlled
approximately 67 percent of the outstanding common stock of AmeriTruck
after the consummation of these acquisitions. Therefore, the Controlling
Stockholders on a combined basis have been treated as the acquirer for
purposes of accounting for these acquisitions. With respect to the
acquisitions of W&L and TBI, their acquisitions are accounted for as a
purchase by the Controlling Stockholders of the stock of the remaining
stockholders of W&L and TBI (the "Minority Stockholders"), who owned
approximately 13 percent of W&L and TBI on a combined basis.
In April 1996, CMS Transportation Services, Inc. changed its corporate name
to "AmeriTruck Refrigerated Transport, Inc." ("ART"), and the distribution
functions previously conducted under the corporate name "CMS Transportation
Services, Inc." were continued as a division of ART. In addition, in June
1996, the business operations of CBS, a general freight carrier (which then
operated under the name "CBS Express, Inc."), were transferred to Scales.
In December 1996, the distribution functions of the CMS Transportation
division of ART were transferred to CBS and its name was changed to "CMS
Transportation Services, Inc." ("CMS"). The CMS Transportation distribution
business currently operated by CMS is sometimes referred to below as the
"CMS distribution business" and the business operations previously operated
under the name CBS Express, Inc. and transferred to Scales are sometimes
referred to as the "CBS Express business."
The accompanying AmeriTruck consolidated statements of operations and cash
flows for the years ended December 31, 1997, 1996 1995 and 19941995 reflect W&L and
TBI combined historical results and cash flows for such periods, Bangerter
results and cash flows since August 1, 1995, the results of the CMS
distribution business and Scales (including the CBS Express business) since
November 1, 1995, the results of ART as it relates to the purchase of assets
from Freymiller Trucking, Inc. ("the Freymiller Assets"), since February 5,
1996, and the results of KTL, Inc. ("KTL") since July 1, 1996. The results for
Monfort Transportation Company ("Monfort") and Lynn Transportation Co.,
Inc. ("Lynn") have been included since June 1997 and for Tran-Star, Inc.
("Tran-Star") since July 1997. The accompanying AmeriTruck consolidated
balance sheet at December 31, 19951996 includes W&L, TBI, Bangerter, the CMS
distribution business, and Scales (including the CBS Express business) assets, and liabilities as adjusted by
purchase accounting. In addition, the consolidated balance sheet at
December 31, 1996 includes KTL
assets and liabilities as adjusted by purchase accounting and the
Freymiller Assets. TheIn addition, the consolidated balance sheet at December
31, 1997 includes Monfort, Lynn and Tran-Star assets and liabilities as
adjusted by purchase accounting.
As of December 31, 1997, the Company's principal subsidiaries currently are
W&L, TBI, Bangerter, CMS, Scales, ART, KTL, AmeriTruck Logistics Services,
Inc. ("ALS", formed in January 1997 to broker freight), Monfort, Lynn and
KTLTran-Star (the "Operating Companies"). All significant intercompany
accounts and transactions have been eliminated. Effective January 1998 the
Company effected a merger of ART, JCB, Monfort, Lynn and Tran-Star with ART
as the surviving corporation.
Separate financial statements of the Company's subsidiaries are not
included because (a) all of the Company's direct and indirect subsidiaries
have guaranteed the Company's obligations under the Indenture, dated as of
November 15, 1995 (the "Indenture"), among the Company, such subsidiaries
(in such capacity, the "Guarantors"), and The Bank of
29
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New York, as Trustee, (b) the Guarantors have fully and unconditionally
guaranteed the 12 1/4% Senior Subordinated Notes due 2005 ("Subordinated
Notes") issued under the Indenture on a joint and several basis, (c) the
Company is a
25
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS holding company with no independent assets or operations other
than its investments in the Guarantors and (d) the separate financial
statements and other disclosures concerning the Guarantors are not
presented because management has determined that they would not be
material.
The preparation of financial statements in accordance 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 periods presented.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in demand deposits and
short-term investments with original maturities of 90 days or less. Cash
equivalents are stated at cost, which approximates market value.
Prepaid Expenses
Prepaid expenses primarily consist of tires in service.service and prepaid rent
related to operating leases. The cost of new and replacement tires is
capitalized and included in prepaid expenses when placed in service, and
then amortized on a straight-line basis over their estimated useful lives.
Estimated useful lives range from 10 to 24 months. The prepaid rent is
amortized over the life of the lease.
Repair Parts and Supplies
Repair parts and supplies consists of fuel, tires until placed in service,
tubes, replacement parts and supplies and are valued at the lower of
average cost or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of 3 to 10 years
for revenue and service equipment, 10 to 30 years for structures, 4 to 10
years for leasehold improvements, and 2 to 10 years for furniture and
office equipment. Major additions and betterments are capitalized, while
maintenance and repairs that do not improve or extend the life of the asset
are charged to expense as incurred. Gains and losses on dispositions are
included in operating income.
Goodwill and Other Intangibles
Goodwill represents the excess of the acquisition costs over the fair value
of net identifiable assets of businesses acquired and is amortized on a
straight-line basis over 40 years. Accumulated amortization of goodwill at
December 31, 1997 and 1996 was $3,452,000 and 1995 was $2,129,000, and $1,333,000, respectively.
Other intangibles, which primarily consist of financing and other costs
associated with business acquisitions, are included in other assets and are
amortized over the life of the financing agreement.agreements.
The realizability of goodwill and other intangibles is evaluated
periodically as events or circumstances indicate a possible inability to
recover their carrying amount. Such evaluation is based on various
analyses, including cash flow and profitability projections that
incorporate, as applicable, the impact on existing company operations.
The
analyses necessarily involve significant management judgment to evaluate
the capacity of an acquired operation to perform within projections.
Management believes that no significant impairment of goodwill and other
intangible assets has occurred.
2630
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Claims and Insurance Accruals
Claims accruals represent reserves for estimated costs to repair and
replace damaged goods resulting from cargo claims. Insurance accruals
reflect the estimated cost of claims for bodily injury and property damage,
workers' compensation and employee health care not covered by insurance.
These liabilities for self-insurance are accrued based on claims incurred
and on estimates of both unasserted and unsettled claims which are assessed
based on management's evaluation of the nature and severity of individual
claims and on the Company's past claims experience.
Revenue Recognition
Freight revenues are recognized upon the delivery of freight.
Reclassifications
Certain prior year information has been reclassified to conform to the
current year presentation.
2. ACQUISITIONS
As discussed in Note 1,In June 1997, AmeriTruck was formed in August 1995 to effect the
combination of six regional trucking lines in November 1995: W&L, TBI,
Bangerter, CMS Transportation Services, Inc., Scales and CBS Express, Inc.
AmeriTruck acquiredpurchased all of the outstanding common stock of these companies,
except Bangerter, in exchange for sharesTran-Star,
which was owned by Allways Services, Inc. The purchase price of AmeriTruck's common stock and
the payment of $35.0$2.6
million included $1.6 million in cash and a $1 million note payable.
Tran-Star is a carrier of which $17.4 millionrefrigerated and non-refrigerated products.
Headquartered in Waupaca, Wisconsin, Tran-Star operates primarily between
the upper midwestern U.S. and the northeast and southeast, with terminals
in Etters and Wyalusing, Pennsylvania. The Company is reflected as
a dividend to the Controlling Stockholders for accounting purposes. Allcurrently
coordinating Tran-Star's activities with those of the outstanding commonother carriers within
the refrigerated group. See Notes to Consolidated Financial Statements-Note
3. Restructuring Charge.
In May 1997, AmeriTruck purchased the capital stock of Bangerter was acquired for a cashMonfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $1.0 million.$15
million was paid in cash.
Monfort and Lynn operated primarily as in-house carriers for the red-meat
division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. The acquisitions of Bangerter, CMSCompany
entered into a Transportation Services Agreement with subsidiaries of
ConAgra. The ConAgra subsidiaries have agreed to tender freight from
Monfort, Inc., Scales's red-meat division, ConAgra Poultry Company's poultry and
CBS Express,turkey divisions and Swift-Ekrich, Inc.'s processed meats division in
designated lanes and minimum annual volumes. The term of this agreement is
four years, with pricing fixed for the first two years and adjusted prices
in the third and fourth years. The Company is currently coordinating
Monfort and Lynn activities with those of the refrigerated group. See Notes
to Consolidated Financial Statements-Note 3. Restructuring Charge.
31
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Tran-Star, Monfort and Lynn acquisitions were accounted for byusing the
purchase method.method of accounting. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The total purchase price
including cash, note payable, miscellaneous acquisition costs and
liabilities assumed was $42.4 million for Tran-Star and $35.8 million for
Monfort and Lynn. The excess of the purchase price over the fair values of the
net assets acquired has been recorded as goodwill. The Tran-Star net purchase
price was allocatedassets
acquired were as follows (in thousands):
Property and equipment, net $ 13,951
Goodwill(1) 26,106
Other assets 7,955
Long-term debt (18,341)
Other liabilities (10,687)
--------
Purchase price, net of cash acquired $ 18,984Accounts receivable, net $ 6,653
Property and equipment, net 25,315
Goodwill 7,454
Other assets 2,981
Long-term debt (28,916)
Other liabilities (10,520)
--------
Net assets acquired $ 2,967
========
(1) Includes $2,033 relatedThe Monfort and Lynn net assets acquired were as follows (in thousands):
Accounts receivable, net $ 3,805
Property and equipment, net 15,138
Goodwill 12,736
Other assets 4,087
Long-term debt (14,201)
Other liabilities (5,919)
--------
Net assets acquired $ 15,646
========
The following unaudited pro forma operating results of the Company for the
twelve months ended December 31, 1997 and 1996, reflect the Monfort, Lynn
and Tran-Star acquisitions as if they had occurred on January 1, 1996.
Twelve Months Ended
December 30,
------------------------
1997 1996
-------- --------
(In thousands)
Operating revenue $370,728 $408,003
Operating income (after
restructuring charge of
$7.2 million in 1997) 5,823 25,921
Income (loss) before
extraordinary items (12,127) 1,168
Net income (loss) (12,370) 937
These pro forma results have been prepared for comparative purposes only
and include pro forma adjustments for conformed depreciation lives and
salvage values and certain other adjustments including adjustment of the
effective tax rate to the expected rate of AmeriTruck. They are not
necessarily indicative of the results of operations that might have
occurred had the acquisitions actually taken place on January 1, 1996 or of
future results of operations of the consolidated entities.
Pro forma operating income during 1997 decreased partially as a result of
the restructuring charge of $7.2 million taken during the second quarter of
1997 in connection with these acquisitions and the reorganization of the
acquired refrigerated carrier group.
32
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management believes that the freight networks of the refrigerated carriers,
independently operated, did not have the critical mass necessary to compete
efficiently in the changed refrigerated markets. To address this issue, the
Company is integrating these operations into one network. The traffic lanes
awarded by ConAgra subsidiaries in the Transportation Services Agreement,
representing approximately $27 million of additional annual revenue in
excess of the purchase price overamount provided to Monfort and Lynn by ConAgra historically,
were selected because of their contribution to an efficient nationwide
refrigerated freight network. Furthermore, ConAgra, which represents more
than 50 percent of Monfort's revenue, is contractually committed to restore
business volume and rates paid Monfort to the fair valuesapproximate levels that
existed during the first half of 1996.
During the third and fourth quarters of 1997, the Company and ConAgra have
been coordinating efforts to bring the Transportation Services Agreement to
the contractually committed volumes and prices. However, these volumes have
not yet been attained. Management believes that the most complex issues
surrounding a business relationship of this magnitude, in excess of $50
million per year in total revenue, will be addressed by the end of the
net assets acquired fromfirst quarter of 1998. This process, in addition to the minority
stockholders.ongoing
reorganization of the refrigerated group, has caused the Company to fall
short of its original cash flow plan for the second half of 1997. During
the fourth quarter, the Company and ConAgra agreed to extend the term of
the Transportation Services Agreement for an additional six months to
December 2001 and to identify final traffic lanes and pricing to be subject
to the Transportation Services Agreement. As part of the amendments, the
Company agreed it would not receive any take-or-pay revenues for 1997.
In addition, Tran-Star's operating income declined by $2.5 million as it
experienced deteriorating operating results. Included in operating expenses
for the first half of 1997 were merger related expenses of approximately
$700,000 and increased maintenance expense of approximately $500,000
related to deferral of its normal tractor replacement cycle. The Company
has been taking delivery of tractors to replace half of Tran-Star's fleet.
During the third quarter of 1996, AmeriTruck purchased all of the
outstanding stock of KTL of Largo, Florida, from Ronald N. Damico for a purchase price of $8.1 million in cash and
225,000 shares of Class A common stock of AmeriTruck valued at $900,000. As part of the transaction, Mr.
Damico and KTL entered into an employment agreement under which Mr. Damico
became employed as KTL's President and Chief Executive Officer. The term of
the employment agreement expires on November 15, 1998. In addition, KTL has
agreed to lease from Mr. Damico and his spouse certain real estate at
Clearwater, Florida on a month-to-month basis. Further, KTL has agreed to
lease the real estate at Largo, Florida used by KTL as its corporate
headquarters from a company owned by Mr. Damico for an 18-month term, at
which time KTL has agreed to purchase the property for $2.4 million less
the total amount of environmental-related costs incurred subsequent to
August 16, 1996.
KTL is a trucking company founded in 1983 which specializes in the
truckload transportation of refrigerated commodities and less-than-
truckload shipments requiring expedited, timed-delivery services. At the
time of purchase,
27
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KTL operated approximately 140 tractors and 300 trailers and employed
approximately 300 persons, of whom 240 were drivers and many of whom
operated as two-driver teams. The KTL
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. The total purchase price including cash, common stock,
miscellaneous acquisition costs and liabilities assumed was $21.9 million.
The excess of the purchase price over the fair values of the net assets
acquired has been recorded as goodwill. The net assets acquired were
as follows (in thousands):
Cash $ 107
Property and equipment, net 12,141
Goodwill 6,167
Other assets 3,445
Long-term debt (10,786)
Other liabilities (1,684)
--------
Net assets acquired $ 9,390
========
The accompanying consolidated financial statements include assets,
liabilities and financial results of Bangerter since August 1, 1995, of the
CMS distribution business, and Scales (including the CBS Express business)
since November 1, 1995 and of KTL since July 1, 1996. The following pro
forma operating results of the Company for the twelve months ended December
31, 1996 and 1995, reflect these acquisitions as if they had occurred on
January 1, 1995.
Twelve Months Ended
December 31,
--------------------
1996 1995
---------- --------
(in thousands)
Operating revenue $237,559 $173,721
Operating income 17,067 18,478
Income (loss) before extraordinary items (1,594) 2,775
Net income (loss) (1,824) 2,752
These pro forma results have been prepared for comparative purposes only
and include pro forma adjustments for conformed depreciation lives and
salvage values and certain other adjustments, including adjustment of the
effective tax rate to the expected rate of AmeriTruck. They are not
necessarily indicative of the results of operations that might have
occurred had the acquisitions actually taken place on January 1, 1995, or
of future results of operations of the consolidated entities. The pro forma
results for the twelve months ended December 31, 1996 include the purchase
of the Freymiller Assets since February 1996. These assets have not yet
generated operating margins comparable to the other AmeriTruck
subsidiaries. The acquisition of the Freymiller Assets did not require pro
forma financial statements and thus the comparative results for the twelve
months ended December 31, 1995 do not reflect the pro forma effect of such
assets.
In February 1996, the Company, through CMS Transportation Services, Inc.,
purchased certain assets of Freymiller Trucking Inc. ("Freymiller") in
order to supplement its existing temperature-controlled trucking business.
Freymiller had been the subject of a Chapter 11 bankruptcy proceeding in
Oklahoma. CMS purchased certain specific automobiles, computer hardware and
software, furniture and fixtures, rights to the trade name "Freymiller",
existing spare parts, tires and fuel, rights under certain leases, certain
leasehold improvements and shop equipment and installment sales contracts
relating to tractors and trailers sold by Freymiller out of the ordinary
course of business (with all of the foregoing referred to as the
"Freymiller Assets"). The Company also negotiated with Freymiller's lenders
and lessors 28
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to purchase approximately 185 tractors and approximately 309 trailers,
previously operated by Freymiller, for approximately $14 million. An
additional 80 trailers were leased for a seven-year period. In exchange for
the Freymiller Assets, the Company paid approximately $2.7 million in cash
at closing and assumed approximately $2 million in existing equipment
financing. In addition, the Company assumed a lease for Freymiller's
maintenance facility in Oklahoma City and certain routine executory
business contracts. Except as provided above, the Company did not assume
any obligations or liabilities of Freymiller.
In connection with these transactions, the Company purchased real property
in Oklahoma City, Oklahoma from Freymiller's Chairman of the Board,
President and Chief Executive Officer for approximately $1.5 million in
cash.
As discussed in Note 1, AmeriTruck was formed in August 1995 to effect the
combination of six regional trucking lines in November 1995: W&L, TBI,
Bangerter, CMS Transportation Services, Inc., Scales and CBS Express, Inc.
AmeriTruck acquired all of the outstanding common stock of these companies,
except Bangerter, in exchange for
33
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of AmeriTruck's common stock and the payment of $35.0 million in
cash of which $17.4 million is reflected as a dividend to the Controlling
Stockholders for accounting purposes. All of the outstanding common stock
of Bangerter was acquired for a cash purchase price of $1.0 million. The
acquisitions of Bangerter, CMS Transportation Services, Inc., Scales and
CBS Express, Inc. were accounted for by the purchase method. The excess of
the purchase price over the fair values of the net assets acquired has been
recorded as goodwill.
The cash portion of the 1995 acquisitions was funded with a portion of the
proceeds from the private placement of the Subordinated Notes in November
1995. The Subordinated Notes were exchanged for publicly registered
Subordinated Notes in February 1996. The Subordinated Notes were issued
pursuant to the Indenture. The initial offering of the Subordinated Notes
in November 1995 is sometimes referred to as the "Initial Offering".Offering." The
Company funded the cash payments for the purchase of the Freymiller Assets
and the KTL acquisition primarily from borrowings under the NationsBank and
Volvo credit facilities. See footnote "8. Long-term Debt and Related
Agreements."
In addition, in May 1995, W&L acquired Dietz Motor Lines, Inc., for $2.0
million in cash, which includes payment for non-competenon-complete agreements of
$400,000 as well as an amount for certain eligible accounts receivable.
This acquisition has been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed based on their estimated fair values
at the date of acquisition. The results of operations of the acquired
company are included in the financial statementstatements from the date of
acquisition.
3. RESTRUCTURING CHARGE
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company is currently organized into four operating groups
to better serve its customers. The AmeriTruck Refrigerated Carrier Group
was formed to offer regional and nationwide, truckload refrigerated
service. This new company combined the resources of ART, Bangerter, Tran-
Star, Monfort, Lynn and the refrigerated operations of TBI. The AmeriTruck
Specialized Carrier Group was formed to service customers with unique needs
in transportation and distribution. This group includes W&L, the largest
interstate hauler of new furniture in the U.S., CMS, serving the medical
distribution industry, Scales, offering regional just-in-time dry van
service, and AmeriTruck Logistics Services, Inc. ("ALS," formed in January
1997 to broker freight). The AmeriTruck Regional LTL Group offers less-
than-truckload, refrigerated and non-refrigerated service. The lead carrier
in this group is KTL, offering service to and from the Florida market. The
LTL operations of Lynn Transportation in Nevada and Southern California
were recently integrated into the Group. TBI now focuses on mail
transportation and regional specialized services and comprises the
AmeriTruck Mail Services Group. TBI operates under 17 contracts with the
U.S. Postal Service. Most of these contracts were initially awarded in the
1970's and 1980's.
In connection with the above reorganization and to eliminate the duplicate
facility and employee costs related to the recently acquired entities, the
Company announced a plan in the second quarter of 1997 to restructure its
refrigerated carrier group. The Company recorded $7.2 million in
restructuring costs, which included $2.3 million for employee termination
costs, $4.2 million for duplicate facility costs, including the impairment
of certain long-lived assets, and $650,000 of other costs. In addition, the
Company transferred $6.7 million of property and equipment to assets held
for sale. As of December 31, 1997, the Company has liabilities of $433,000
related to the restructuring charge.
34
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER INCOME, NET
Other income (expense) consists of the following for the years ended December 31 (in
thousands):
1996 1995 1994
------- ------- ------
Interest income $ 435 $ 359 $ 189
Amortization of financing fees (484) (38) -
Miscellaneous, net 15 64 16
----- ------ ------
$ (34) $ 385 $ 205
===== ====== ======
4.1997 1996 1995
---- ---- ----
Interest income $237 $435 $359
Miscellaneous, net 42 15 63
---- ---- ----
$279 $450 $422
==== ==== ====
5. INCOME TAXES
Income tax expense excluding the extraordinary items, was as follows for
the years ended December 31 (in thousands):
1996 1995 1994
----- ------ ------
Current:
Federal $ - $1,301 $1,188
State 49 121 196
----- ------ ------
49 1,422 1,384
----- ------ ------
Deferred:
Federal 305 706 788
State (14) 368 145
----- ------ ------
291 1,074 933
----- ------ ------
Total $ 340 $2,496 $2,317
=====1997 1996 1995
---- ---- ----
Current:
Federal $ (207) $ - $1,301
State - 49 121
------- ---- ------
(207) 49 1,422
------- ---- ------
Deferred:
Federal (6,010) 305 706
State (401) (14) 368
------- ---- ------
(6,411) 291 1,074
------- ---- ------
Total $(6,618) $340 $2,496
======= ==== ====== ======
29
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the federal statutory income tax rate to the effective
income tax rate, excluding the extraordinary items, was as follows for the
years ended December 31:
1996 1995 1994
------- ------ ------
Federal statutory income tax rate
(benefit) (34.0)% 34.0% 34.0%
State income taxes, net of federal
tax benefit 1.7 5.6 5.1
Nondeductible expenses 61.5 5.0 3.2
Change in valuation allowance - - (1.9)
Nondeductible interest - - 1.9
Nontaxable income (11.4) - -
Other, net 0.2 (0.6) 0.4
----- ---- ----
Effective tax rate 18.0% 44.0% 42.7%
===== ====1997 1996 1995
---- ---- ----
Federal statutory income tax rate (benefit) (34.0)% (34.0)% 34.0%
State income taxes, net of federal tax benefit (2.4) 1.7 5.6
Nondeductible expenses 4.9 61.5 5.0
Nontaxable income - (11.4) -
Other, net (6.8) 0.2 (0.6)
----- ------ ----
Effective tax rate (38.3)% 18.0% 44.0%
===== ====== ====
35
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of deferred tax assets and liabilities at December 31 were
as follows (in thousands):
1996 1995
--------- --------
Deferred tax liabilities:
Depreciation and amortization $(13,249) $(8,316)
Prepaid items and other (821) (791)
-------- -------
Total deferred tax liabilities (14,070) (9,107)
-------- -------
Deferred tax assets:
Accrued expenses and reserves 1,786 1,350
Net operating losses and tax credits 5,180 944
-------- -------
Total deferred tax assets 6,966 2,294
-------- -------
Net deferred tax liability $ (7,104) $(6,813)1997 1996
---- ----
Deferred tax liabilities:
Depreciation and amortization $(17,458) $(13,249)
Prepaid items and other (1,057) (821)
-------- --------
Total deferred tax liabilities (18,515) (14,070)
-------- --------
Deferred tax assets:
Accrued expenses and reserves 4,214 1,786
Net operating losses and tax credits 13,608 5,180
-------- --------
Total deferred tax assets 17,822 6,966
-------- --------
Net deferred tax liability $ (693) $ (7,104)
======== ========
Current deferred income tax asset 3,717 $ 1,467
Noncurrent deferred income tax liability (4,410) (8,571)
-------- --------
Net deferred tax liability $ (693) $ (7,104)
======== ======== =======
Current deferred income tax asset $ 1,467 $ 960
Noncurrent deferred income tax liability (8,571) (7,773)
-------- -------
Net deferred tax liability $ (7,104) $(6,813)
======== =======
The Company has available at December 31, 1996,1997, an alternative minimum tax
(AMT) credit carryforward of $259,000$380,000 to offset future regular tax
liabilities. The AMT credit carryforward has no expiration date. The
benefit of the tax credits is recognized in continuing operations for
accounting purposes. The Company also has available federal net operating
losses of approximately $11.7$34.9 million. The federal net operating loss
carryover will expire between 2011 and 2012.2013.
The Company has available at December 31, 1996,1997, unused Bangerter
preacquisition operating loss carryforwards of approximately $1.2$1.1 million
which expire between 2006 and 2011. These preacquisition carryforwards may
be used only to offset future taxable income, if any, of Bangerter and may
not be used to offset future taxable income of any other member of the
group with which the Company files a consolidated return. The amount of
preacquisition tax loss carryforwards available to offset future taxable
income will be subject to limitation, due to the ownership change, under
Internal Revenue Code Section 382. The Company will be required to pay tax
in any year in which Bangerter's taxable income exceeds the ownership
change limitation, notwithstanding the existence of tax loss carryforwards.
The amount of the preacquisition carryforwards which may be applied in any
one year is limited by the Internal Revenue Code to the lesser of
Bangerter's taxable income or approximately $84,000.
30
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.$70,000.
6. ACCOUNTS RECEIVABLE
AmeriTruck maintains an allowance for doubtful accounts based upon the
expected collectibility of all accounts receivable. Allowances for doubtful
accounts of $560,000$1,295,000 and $406,000$560,000 were recorded at December 31, 19961997 and
1995,1996, respectively. Driver advances and employee receivables of $1,575,000$1,785,000
and $203,000$1,575,000 were included in accounts receivable at December 31, 1997
and 1996, and
1995, respectively.
6.36
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PROPERTY AND EQUIPMENT
Property and equipment at December 31 was as follows (in thousands):
1996 1995
-------- --------
1997 1996
---- ----
Revenue equipment $140,774 $119,076 $ 80,764
Structures 5,745 5,537 3,359
Service equipment and other 1,894 1,721 1,348
Office furniture and equipment 5,769 3,672 913
Land 1,102 1,007 816
Leasehold improvements 832 857 568
-------- --------
Total property and equipment 156,116 131,870 87,768
Accumulated depreciation and amortization (38,342) (28,069) (20,577)
-------- --------
Net property and equipment $117,774 $103,801 $ 67,191
======== ========
Property and equipment includes gross assets acquired under capital leases
of $5,560,000$16,351,000 and $12,139,000$5,560,000 at December 31, 19961997 and 1995,1996, respectively.
Related amounts included in accumulated depreciation and amortization were
$2,214,000$2,653,000 and $3,972,000$2,214,000 at December 31, 19961997 and 1995.1996.
During 1995, the Company changed its estimate of the useful lives and
salvage values of certain revenue equipment. This change had the effect of
increasing operating income by approximately $360,000 for the year ended
December 31, 1995. These changes in estimates were made to more accurately
reflect future service lives and salvage values of the equipment.
7.8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at
December 31 (in thousands):
1996 1995
------- -------
1997 1996
---- ----
Accounts Payable - trade $16,767 $ 5,840 $ 5,387
Payroll and owner operator pay 5,687 2,630 2,044
Accrued interest 2,023 1,786 1,821
Taxes other than income taxes 1,733 954 603
Other 5,525 2,347 2,216
------- -------
Total $31,735 $13,557 $12,071
======= =======
3137
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8.9. LONG-TERM DEBT AND RELATED AGREEMENTS
Long-term debt consists of the following at December 31 (in thousands):
1996 1995
-------- --------
Senior Subordinated Notes due 2005
with an interest rate of 12.25% (net
of unamortized discount of $1,247 and
$1,387 respectively) $ 98,753 $ 98,613
Obligations collateralized by
equipment maturing through 2001 with
interest rates ranging from 7.25% to
11.51% 34,539 9,405
Capital lease obligations
collateralized by equipment maturing
through 2000 with interest rates
ranging from 4.63% to 11.50% 2,473 8,654
Accounts receivable financing
agreement with an interest rate of
prime plus 2.5% (11.0% as of December
31, 1995) - 829
Obligation collateralized by real
property maturing 2000 with an
interest rate of 10.0% - 645
Obligations maturing through 2005 with
interest rates ranging from 6.0% to
11.21% 680 189
Borrowings outstanding on the
NationsBank revolving line of credit,
average weighted interest rate of
7.43% (variable) 23,517 -
Borrowings outstanding on the Volvo
revolving line of credit, average
weighted interest rate of 8.25%1997 1996
---- ----
Senior Subordinated Notes due 2005 with
an interest rate of 12.25% (net of
unamortized discount of $1,106 and
$1,247 respectively) $ 98,894 $ 98,753
Obligations collateralized by equipment
maturing through 2002 with interest
rates ranging from 7.25% to 11.51% 43,688 34,539
Capital lease obligations collateralized
by equipment maturing through 2004 with
interest rates ranging from 5.86% to 11.33% 14,286 2,473
Obligation collateralized by real property
maturing 2000 with interest rates ranging
from 8.0% to 10.0% 1,537 -
Obligations maturing through 2005 with
interest rates ranging from 10.0% to 14.0% 2,180 680
Borrowings outstanding on the FINOVA
revolving line of credit, average weighted
interest rate of 8.49% (variable) 56,281 -
Borrowings outstanding on the NationsBank
revolving line of credit, average weighted
interest rate of 7.43% (variable) - 23,517
Borrowings outstanding on the Volvo revolving
line of credit, average weighted interest
rate of 8.44% and 8.25% respectively
(variable) 9,364 9,364 -
-------- --------
226,230 169,326 118,335
Less current portion 22,534 11,988 10,566
-------- --------
Total long-term portion of debt $203,696 $157,338 $107,769
======== ========
Aggregate long-term debt (including current portion), maturing during the
next five years and thereafter is as follows (in thousands):
1997 $ 11,988
1998 7,541
1999 14,668
2000 7,988
2001 4,785
Thereafter 122,356
--------
$169,3261998 $ 22,534
1999 25,513
2000 74,942
2001 6,332
2002 46
Thereafter 96,863
--------
$226,230
========
Subordinated Notes
In November 1995, AmeriTruck completed a private placement of $100 million
of 12 1/4% Senior Subordinated Notes due 2005 (the "Series A Notes"). The
Series A Notes were exchanged for publicly registered 12 1/4% Senior
Subordinated Notes due 2005, Series B (the "Subordinated Notes") in
February 1996.
The Subordinated Notes mature on November 15, 2005 and are unsecured
subordinated obligations of the Company. These notes bear interest at the
rate of 12.25 percent per annum from November 15, 1995, payable
semiannually on May 15 and November 15 of each year, commencing on May 15,
1996. The Subordinated Notes are subject to optional redemption on the
terms set forth in the Indenture. As of December 31, 1996, the Company had
applied the net proceeds of the Series A Notes primarily to finance the
1995 acquisitions (See footnote "2. Acquisitions") and prepay debt and
capitalized leases. The early retirement of debt resulted in an
extraordinary loss for December 31, 1996 of $230,000, net of taxes of
$154,000.
3238
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NationsBankFINOVA Credit Facility
In February 1996,May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "NationsBank"FINOVA Credit
Facility") with NationsBank of Texas, N.A.FINOVA Capital Corporation ("NationsBank"FINOVA") pursuant to which
NationsBankFINOVA has providedagreed to provide a $30$60 million credit facility to the Company.
BorrowingsThe initial borrowings under the FINOVA Credit Facility were used to
refinance the Company's prior credit facility with NationsBank of Texas,
N.A. Additional borrowings under the FINOVA Credit Facility can be used for
acquisitions, operating capital, capital expenditures, letters of credit, working capital and
general corporate purposes. Pursuant to the NationsBankFINOVA Credit Facility, as amended, NationsBankFINOVA
has providedagreed to provide a $30$60 million revolving credit facility, with a $7$10
million sublimit for the issuance of letters of credit, maturing on February 1, 1998,May 5,
2000 (subject to additional one year renewal periods at which time the revolving credit facility will
convert into a term loan maturing on February 1, 2003. This facilitydiscretion of
FINOVA). The FINOVA Credit Facility is also subject to a borrowing base
consisting of eligible receivables and eligible revenue equipment.
Currently,As of December 31, 1997, the Company's borrowing base exceeds
$30supported borrowings
of approximately $63.7 million. BorrowingsRevolving credit loans under the NationsBankFINOVA
Credit Facility bear interest at a per annum rate equal to either NationsBank's basethe prime
rate plus a margin equal to 0.75 percent or the rate of interest offered by NationsBank in
the London interbank eurodollar market plus an
additionala margin ranging from 1.5 percentequal to 2.0 percent based on the
Senior Funded Debt Ratio of the Company.2.75 percent. The
Company also pays a letter of
credit issuancemonthly unused facility fee and a quarterly unused facility fee. Borrowingsmonthly collateral
monitoring fee in connection with the FINOVA Credit Facility. Revolving
credit loans under the NationsBankFINOVA Credit Facility were $23.5$56.3 million at
December 31, 19961997 and were primarily used for refinancing borrowings under
the purchaseCompany's prior facility with NationsBank of Freymiller AssetsTexas, N.A. and to fund
the KTL
acquisition. Available borrowings1997 acquisitions. There were $2.4 million at December 31, 1996 as
there were $4.1also $4.6 million in letters of credit
outstanding.outstanding at December 31, 1997, leaving $2.8 million available for
borrowings.
In November 1997 the Company amended the FINOVA Credit Facility to increase
both the total amount of the FINOVA Credit Facility to $64 million and the
borrowing base availability thereunder (the "Temporary Overadvances"), in
each case for a period not to exceed 120 days. The amendment to the FINOVA
Credit Facility provides for the payment of a $180,000 fee in connection
with the Temporary Overadvances as well as an additional $180,000 fee in
the event that the Temporary Overadvances are not terminated within 60
days. The Temporary Overadvances bore interest at 11% per annum for the
first 60 days, and thereafter, until the Temporary Overadvances are
terminated all outstanding borrowings under the FINOVA Credit Facility will
bear interest at 1% over the rate otherwise applicable to such advances. In
connection with this amendment to the FINOVA Credit Facility, the Company
also issued $1 million in Subordinated Notes (the "1997 Notes") to certain
existing stockholders. The 1997 Notes bear interest at a rate of 14% per
annum and originally matured on April 1, 1998. The 1997 Notes may be
converted in connection with a private equity placement providing gross
proceeds to the Company of at least $10 million (the "Qualified Private
Placement") on the same terms as those offered to other investors in the
Qualified Private Placement. In connection with the 1997 Notes, the Company
issued to the purchasers of the 1997 Notes warrants to a number of shares
of the Company's common stock equal to the aggregate outstanding principal
and interest on the 1997 Notes at the time of exercise divided by 2 (the
"1997 Warrants"). The 1997 Warrants become exerciseable in the event a
Qualified Private Placement does not occur prior to April 1, 1998, and the
exercise price would be paid by surrender of the applicable investor's 1997
Note. The Company has also agreed that, in the event a Qualified Private
Placement has not occurred by March 31, 1998, the Company will pay an
affiliate of BancBoston Ventures Inc., a stockholder of the Company, a
management fee in the annual amount of $100,000. The Company used the
availability from the Temporary Overadvances and the proceeds from the 1997
Notes to pay interest due in November 1997 on the Subordinated Notes and
for general corporate purposes.
In March 1998, the Company further amended the FINOVA Credit Facility to
extend the period during which the Temporary Overadvances are available to
the Company through May 15, 1998 (or, if earlier, the date of any Qualified
Private Placement or the date of any sale of the stock or substantially all
of the assets of TBI, yielding gross cash proceeds of at least $10 million)
and to increase the total amount of the FINOVA Credit Facility to $68.5
million solely during the period during which the Temporary Overadvances
may be drawn. The March 1998 amendment provides for the payment of an
additional $280,000 fee to FINOVA. The Company does not expect a Qualified
Private Placement to occur by April 1, 1998. However, the maturity of the
1997 Notes has been extended to June 1, 1998.
The Company's obligations under the NationsBankFINOVA Credit Facility are
collateralized by substantially all personal propertyof the unencumbered assets of the
Company and its subsidiaries and are guaranteed in full by each of the
Operating Companies. For purposes of the Indenture, suchthe borrowings under
the NationsBankFINOVA Credit Facility constitute Senior Indebtedness of the Company
and Guarantor Senior Indebtedness of the Operating Companies.
The NationsBankFINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and negativefinancial covenants, including a limitation on
the incurrence of indebtedness and a requirement that the Company maintain
a specified Senior FundedCurrent Ratio, Net Worth, Debt Service
39
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Coverage Ratio and Fixed Charge CoverageOperating Ratio. AtCertain of these covenants were not met
at December 31, 1996, the Company was not in compliance with the Senior Funded
Debt Ratio covenant or the Fixed Charge Coverage Ratio covenant.1997 and were unconditionally waived by FINOVA. The Company has received a waiver of such noncompliance from NationsBank
expiring on April 30, 1997 (the "NationsBank Waiver"). During this period
the Company has agreed that it may not make additional borrowings at
Eurodollar rates.
The Company has received a financing commitment (the "Financing
Commitment") pursuant to which the lender (the "New Lender") has committed,
subject to the terms and conditions of the Financing Commitment, to provide
a $30 million credit facility (the "New Credit Facility"). Borrowings under
the NewFINOVA
Credit Facility could be used to refinance in full indebtedness
under the NationsBank Credit Facility, to provide working capital andalso contains a subjective acceleration clause for letters of credit and general corporate purposes. Pursuant to the New
Credit Facility, the New Lender would provide a $30 million revolving
credit facility. Borrowings under the New Credit Facility would be secured
by substantially all unencumbered personal property of the Company and its
subsidiaries, and, for purposes of the Indenture, would constitute Senior
Indebtedness of the Company and would constitute Guarantor Senior
Indebtedness of the Operating Companies.
Under the terms of the Financing Commitment, the New Credit Facility would
contain a number of affirmative and negative covenants, including a
limitation on the incurrence of indebtedness and a requirement that the
Company maintain specified debt coverage ratios. The New Credit Facility is
subject to satisfaction of the terms and conditions set forth in the
Financing Commitment.material
adverse change. Management believes there has been no such material adverse
changes.
Volvo Credit Facilities
In February 1996, the Company and its subsidiariesthe Operating Companies entered into a
Loan and Security Agreement, a Financing Integration Agreement and related
documents (collectively, the "Volvo Credit Facilities") with Volvo Truck
Finance North America, Inc. ("Volvo") pursuant to which Volvo has
committed, subject to the terms and conditions of the Volvo Credit
Facilities, to provide (i) a $10 million line of credit facility (the
"Volvo Line of Credit") to the Company and the Operating Companies, and
(ii) up to $28 million in purchase money or lease financing (the "Equipment
Financing Facility") in connection with the Operating Companies'
acquisition of new tractors and trailers manufactured by Volvo GM Heavy
Truck Corporation. Borrowings under the Volvo Line of Credit are secured by
certain specified tractors and trailers of the Company and the Operating
Companies (which must have a value equal to at least 1.75 times the
outstanding amount of borrowings under the Volvo Line of Credit) and are
guaranteed in full by each of the Operating Companies. As of December 31,
1996,1997, the Operating Companies have pledged collateral which provides for a
$9.5$9.4 million line of credit. Borrowings under the Volvo Line of Credit bear
interest at the prime rate. The Volvo Line of Credit contains customary
representations and warranties and events of default and requires
compliance with a number of affirmative and negative covenants, including a
profitability requirement and a coverage ratio. Certain of these covenants
were not met at December 31, 1997 and were unconditionally waived by Volvo.
The Equipment Financing Facility is beingwas provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured
by Volvo GM Heavy Truck Corporation between March 1, 1996 and
June 30, 1997.Corporation. The borrowings under the Equipment
Financing Facility are collateralized by the specific trucks being financed
and are guaranteed in full by each of the Operating Companies. Borrowings
under this facility bear interest at the prime rate. 33
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFinancing for an
additional 150 new trucks for approximately $11.3 million was committed
during 1997, all of which will be obtained through operating leases.
At December 31, 1996,1997, borrowings outstanding under the Volvo Line of Credit
were $9.4 million with available borrowings of $100,000.$9.4. The outstanding debt balance under the Equipment Financing
Facility was $4.2$2.8 million at December 31, 1996;1997; however, availablethe remaining
financing under this facility is less
than $7 million as financing was also obtained through operating leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture,
the borrowings under the Volvo Credit Facilities constitute Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies.
9.NationsBank Credit Facility
In February 1996, the Company and its subsidiaries entered into a Loan
Agreement and related documents (collectively, the "NationsBank Credit
Facility") with NationsBank of Texas, N.A. ("NationsBank") pursuant to
which NationsBank provided a $30 million credit facility to the Company.
Borrowings under the NationsBank Credit Facility were used for
acquisitions, operating capital, capital expenditures, letters of credit
and general corporate purposes. The Company's obligations under the
NationsBank Credit Facility were collateralized by substantially all
personal property of the Company and its subsidiaries and are guaranteed in
full by each of the Operating Companies. For purposes of the Indenture,
such borrowings under the NationsBank Credit Facility constitute Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies. In May 1997, this facility was replaced by borrowings
from the FINOVA Credit Facility.
40
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities reflected in the consolidated
financial statements approximates fair value due to the short-term maturity
of these instruments.
The fair value of the Company's long-term debt of $227,305,000 and
$170,609,000 at December 31, 1997, and 1996, as compared with the carrying value of $169,326,000,respectively was calculated by
discounting future cash flows using an estimated fair market value interest
rate. The interest rate used for the Senior Subordinated Notes was the December 31, 1996 quoted
market price.price at the respective year-end. The rate for all other debt was
estimated based on the Company's current borrowing rates obtained by the Companyfor similar types
of borrowing arrangements at the end of 1996.
10.1997.
11. COMMITMENTS AND CONTINGENCIES
Self-Insurance
The Company is primarily self-insured for all collision damages to revenue
equipment. In addition, the Company is self-insured for liability coverage
up to its deductible amounts, which vary among the Operating Companies.
Furthermore, the Operating Companies act as self-insurers for workers'
compensation in several states in which the deductible is as high as
$350,000.
Leases
The Company leases various equipment and buildings under capital and
noncancelable operating leases with an initial term in excess of one year.
As of December 31, 1996,1997, future minimum rental payments required under
these capital and operating leases are summarized as follows (in
thousands):
Capital Operating
Leases Leases
--------------- ---------
1997 $2,0791998 $ 5,483
1998 312 3,5168,489 $ 9,544
1999 113 3,0792,770 8,587
2000 113 2,7672,435 8,262
2001 - 532,130 5,068
2002 174 1,239
Thereafter - -
------114 609
------- -------
Total 2,617 $14,898
------16,112 $33,309
=======
Less amount representing interest (144)
------(1,826)
-------
Present value of minimum lease
payments $2,473
======$14,286
=======
34
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense for operating leases was $10,286,000, $4,975,000 $1,718,000 and
$927,000$1,718,000 for the years ended December 31, 1997, 1996 1995 and 1994.1995. The
Company received sublease income during 1997 of approximately $700,000.
Future minimum sublease rentals under noncancelable subleases will
approximate $1,500,000 for 1998 and $500,000 for 1999.
The Company also leases revenue equipment from owner operators and leasing
companies under various short-term cancelable operating leases. Rental
payments are based on per mile charges or on a percent of revenue generated
through the use of the equipment.
Letters of Credit
As of December 31, 19961997 and 1995,1996, respectively, the Company had various
outstanding letters of credit totaling $4,066,000$4,592,000 and $1,829,000.$4,066,000. These
letters of credit were mainly issued to insurance companies in conjunction
with coverage obtained.
41
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental Matters
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and certain other laws, the Company
is potentially liable for the cost of clean-up of various contaminated
sites identified by the U.S. Environmental Protection Agency ("EPA") and
other agencies. The Company cannot predict with any certainty that it will
not in the future incur liability with respect to environmental compliance
or liability associated with the contamination of sites owned or operated
by the Company and its subsidiaries, sites formerly owned or operated by
the Company and its subsidiaries (including contamination caused by prior
owners and operators of such sites), or off-site disposal of hazardous
material or waste that could have a material adverse effect on the
Company's consolidated financial condition, operations or liquidity.
Other
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
11. CAPITAL12. REDEEMABLE PREFERRED AND COMMON STOCK
AmeriTruck is authorized to issue 4,875,00020,000 shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), 12,000,000 shares of Class A
Common Stock, $.01 par value, 4,875,00012,000,000 shares of Class B Common Stock,
$.01 par value and 1,775,000 shares of Class C Common Stock, $.01 par
value. AmeriTruckPreferred Stock may be issued at the discretion of the Board of
Directors of the Company with such designations, rights and preferences as
the Board of Directors may in its discretion determine. Upon issuance, the
Preferred Stock may include, among other things, extraordinary dividend,
redemption, conversion, voting or other rights which may adversely effect
the holders of the Common Stock. At December 31, 1997 the Company had 2,108,0003,000
shares of Series A Redeemable Preferred Stock (described below), 2,835,461
shares of Class A Common Stock and 1,395,0001,394,814 shares of Class C Common Stock
issued and outstanding at December 31, 1996.outstanding. The holders of Class A Common Stock have one vote per share.
The holders of Class B Common Stock do not have any right to vote except as
may be provided pursuant to the Delaware General Corporation Law. The
holders of Class C Common Stock have one vote per share and normally vote
together with the holders of the Class A Common Stock as a single class. In
addition, the holders of Class C Common Stock have additional voting rights
under certain circumstances.
In November 1995,conjunction with the Company's Board1997 acquisitions of DirectorsMonfort, Lynn and Tran-Star,
the Company issued 3,000 shares of Series A Redeemable Preferred Stock and
727,272 shares of Common Stock with warrants to certain existing
stockholders, approved the Company's 1995 Stock Option Plan (the "1995 Plan"), which
provides for the grant of incentive stock optionsdirectors and nonstatutory stock
options to employees, and for the grant of nonstatutory stock options to
consultants,executive officers of the Company and its subsidiary corporations. In most cases,
these stock options vest ratably overCompany. The
Preferred Stock was issued at a two year period from$1,000 per share for a total purchase price
of $3.0 million. Dividends on each share of the Preferred Stock accrue
cumulatively on a daily basis at a rate of 5 percent per annum on the
liquidation value thereof, provided that the rate will increase to 10% per
annum upon the earlier of the date of grant.
In addition, these options expire 10 years from datea Disposition Event (as defined) and
November 15, 1998. The dividends are payable in kind on the last day of
grant or three
months from an employee's termination date.each fiscal quarter. The Company will redeem all of the Series A maximumPreferred
Stock outstanding on December 31, 2005 at a liquidation value of 927,887$1,000 per
share. The Common Stock, along with detached warrants for 1,500,000 shares
of Class A Common Stock, $.01 par value, ("Common Stock") are currently
reservedwas issued for issuance under the 1995 Plan. Approximately 116,000 shares
were available for future grant at December 31, 1996. The option price$2.75 per share may not be less than the fair market value of a share on the date the
option is granted, and the maximum term of an option may not exceed 10
years.
35
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the 1995 Plan was as follows:
Exercise price
Number of Options per option
------------------ --------------
Outstanding at January 1, 1995 - -
Granted 203,650 $4.00
--------
Outstanding at December 31, 1995 203,650 $4.00
Granted 745,000 $4.00
Expired and forfeited (136,842) $4.00
--------
Outstanding at December 31, 1996 811,808 $4.00
========
The stock option plan has been accounted($.01 par value) for in accordance with Accounting
Principles Board Opinion 25. The application of Statement of Financial
Accounting Standards No. 123 would not result in a significant difference
from reported net income. As of December 31, 1996, a
total of 811,808
options were outstanding with a weighted average exercisepurchase price of $4.00$2.0 million. The detached warrants can be
exercised any time prior to May 23, 2007 at $2.00 per option and a weighted average remaining contracted term of
approximately 9-1/2 years.share.
In consideration for its advisory services in connection with the 1995
acquisitions, upon consummation of the 1995 acquisitions the Company issued
a warrant to BancBoston Ventures, Inc. exercisable after February 15, 1996
but prior to February 15, 2003 for 375,000 shares of common stockCommon Stock at an
exercise price of $4.00 per share (approximate fair value at date of
issuance).
One director of the Company and a former company President have issued
separate promissory notes to TBI and W&L, in the original principal amount
of $1.2 million in connection with the purchase of capital stock of TBI and
W&L.
42
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This stock was subsequently converted into shares of the Company's common
stock in connection with the 1995 acquisitions. Each of the promissory
notes is secured by these shares and is payable in one installment which is
due on October 10, 2005. Each of the promissory notes bear interest at the
rate of 6.77 percent per annum, such interest being payable at maturity.
12.13. STOCK OPTION PLAN
In November 1995, the Company's Board of Directors and stockholders
approved the Company's 1995 Stock Option Plan (the "1995 Plan"), which
provides for the grant of incentive stock options and nonstatutory stock
options to employees, and for the grant of nonstatutory stock options to
consultants, of the Company and its subsidiary corporations. In May 1997
the 1995 Plan was amended to increase the maximum number of shares. These
stock options vest either ratably over a two year period or a four year
period from date of grant. In addition, these options expire 10 years from
date of grant or three months from an employee's termination date. A
maximum of 3,271,881 shares of Class A Common Stock, $.01 par value,
("Common Stock") are currently reserved for issuance under the 1995 Plan,
as amended. Approximately 858,879 shares were available for future grant at
December 31, 1997. The exercise price per share may not be less than the
fair market value of a share on the date the option is granted, and the
maximum term of an option may not exceed 10 years.
The Company applies Accounting Principles Board ("APB") Opinion 25 and
related Interpretations in accounting for the 1995 Plan. In accordance with
APB 25, the Company has not recognized any compensation cost for the stock
options granted in 1997, 1996 and 1995. In 1995, the FASB issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
which, if fully adopted by the Company, would change the methods the
Company applies in recognizing the cost of the 1995 Plan. Adoption of the
cost recognition provisions of SFAS 123 is optional and the Company has
decided not to elect these provisions of SFAS 123. Had the Company adopted
the cost recognition provision of SFAS 123, the Company's pro forma net
loss for 1997 and 1996 would have been $9,992 and $2,758, respectively and
the net income for 1995 would have been $3,146.
The fair value of each stock option granted is estimated on the date of
grant using the "minimum value" option-pricing model with the following
weighted-average assumptions:
1997 1996 1995
---- ---- ----
Expected term 5 5 5
Expected volatility 0.00% 0.00% 0.00%
Expected dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 6.49% 6.10% 5.70%
43
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock options as of December 31,
1997 and the changes during the three-year period ended on that date is
presented below:
1997 1996 1995
--------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Prices Options Prices Options Prices
------- -------- ------- -------- ------- --------
Outstanding at
beginning of year 811,808 $4.00 203,650 $4.00 - $ -
Granted 1,829,000 4.10 745,000 4.00 203,650 4.00
Forfeited 300,750 4.00 136,842 4.00 - -
Expired 29,750 4.00 - - - -
--------- ----- ------- ----- ------- -----
Outstanding at end
of year 2,310,308 $4.08 811,808 $4.00 203,650 $4.00
========= ===== ======= ===== ======= =====
Exercisable at end
of year 742,858 $4.05 100,903 $4.00 -
Weighted-average
FV of options
granted during the
year $1.08 $1.02 $0.97
The options outstanding and exercisable as of December 31, 1997 are
summarized below:
Options Weighted Average Options
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices At 12/31/97 Contr. Life Exercise Price At 12/31/97 Exercise Price
$3.10 to $8.00 2,296,308 9.02 $ 4.00 740,058 $ 4.00
$10.00 to $14.00 6,000 9.39 12.00 1,200 12.00
$16.00 to $22.00 8,000 9.39 19.00 1,600 19.00
---------------- --------- ---- ------ ----- ------
$3.10 to $22.00 2,310,308 9.02 $ 4.08 742,858 $ 4.05
14. EMPLOYEE BENEFITS
Certain of AmeriTruck's Operating Companies sponsorsponsored defined contribution
401(k) retirement savings, pension or profit sharing plans. TBI's profit
sharing plan covers nondriver employees. TBI also has defined contribution
pension plans covering mail and nonmail drivers, which provide for hourly
contributions for the first 40 hours of driving per week for nonmail
drivers and hourly contributions for the first 40 hours of driving per mail
route per week for mail drivers. CMS' retirement plan, Bangerter's profit
sharing plan and W&L's retirement savings plan covercovered substantially all
eligible employees meeting certain age and service requirements. The CBS
profit sharing plan was terminated on June 30, 1996. Contributions to W&L's
retirement savings plan, CMS' retirement plan and TBI's and Bangerter's
profit sharing plans arewere at the discretion of the Board of Directors. For
the employee benefit plans mentioned above, the Company's expense was
$586,000, $926,000, $903,000 and $911,000$903,000 for the years ended December 31, 1997,
1996 1995
and 1994,1995, respectively.
During the second quarter of 1997, the employee benefit plans will bewere merged
into the AmeriTruck Distribution Corp. retirement plan. This new plan
is designed to covercovers all employees of AmeriTruck Distribution Corp. and its wholly-owned
subsidiaries who meet certain eligibility requirements, with the exception
of TBI's mail contract drivers. This profit sharing plan has a 401(k)
feature with a discretionary company match.
13. SUBSEQUENT EVENT44
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Liquidity and Capital Resources
The Company has signed a Letternon-binding letter of Intentintent with an investor
group to acquire the capital stocksell TBI, an AmeriTruck subsidiary primarily involved in mail
contract carriage. This letter of Tran-Star, Inc. ("Tran-Star"), which is owned by Allways Services, Inc.
Tran-Star is a carrier of refrigerated and non-refrigerated products. If
this acquisition is completed, the Company intends to coordinate Tran-
Star's activities with those of the other Operating Companies. Tran-Star,
headquartered in Waupaca, Wisconsin, operates primarily in between the
upper midwestern U.S. and the northeast and southeast, with terminals at
Etters and Scranton, Pennsylvania.
This acquisitionintent is subject to a number of
conditions, including due diligence and approval by the availabilityAmeriTruck Board of
financing andDirectors. In a separate transaction, the Company has signed an agreement
to negotiate exclusively with two major financial institutions with respect
to the proposed sale of $20 million of newly created preferred stock.
Successful completion of definitive documentation,
andthese two transactions would provide AmeriTruck
with in excess of $30 million of new capital before any related transaction
costs. However, no assurances can be made that the parties will reach
definitive agreements or that these transactions will be consummated.
In connection with the Subordinated Notes described in Note 9, the
Company has a mandatory $6.1 million interest payment due on May 15, 1998.
In light of the Company's current projected earnings and cash flow,
management believes the Company has the financial resources to maintain its
current level of operations and make the May 15 payment. As such the
accompanying consolidated financial statements have been prepared assuming
the Company will completecontinue as a going concern. However cash generated from
operations alone will not be sufficient to pay the proposed
acquisition.
36$6.1 million on May 15,
1998, without proceeds from the sale of assets or sale of capital as
described above, or an extension of the Temporary Overadvance as
described in Note 9.
Management believes that through a combination of the alternatives
discussed above, the Company will have adequate financial resources to
maintain operations and fund the May 15, 1998 payment.
45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
AmeriTruck Distribution Corp.
We have audited the consolidated balance sheets of AmeriTruck Distribution Corp.
as of December 31, 19961997 and 1995,1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the twothree years then ended. We
have also auditedin the
combined statements of operations, stockholders' equity,
and cash flows of W&L Services Corp. and Subsidiaries and Thompson Bros., Inc.
(the predecessor company) for the yearperiod ended December 31, 1994.1997. 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 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 consolidated and combined financial statements referred to above present
fairly, in all material respects, the financial position of AmeriTruck
Distribution Corp. atas of December 31, 19961997 and 1995,1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 19961997 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
March 31, 1997
371998
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
---------------------------
NAME AGE TERM OF OFFICE
---- --- --------------
Michael L. Lawrence (2) 5253 Until Resigns or is Removed
Richard A. Beauchamp 5657 Until Resigns or is Removed
Kenneth H. Evans, Jr. (1) 4445 Until Resigns or is Removed
William E. Greenwood(1)(2) 5859 Until Resigns or is Removed
Michael J. Langevin (1) 5051 Until Resigns or is Removed
J. Michael May 5253 Until Resigns or is Removed
William P. Scales 5556 Until Resigns or is Removed
(1) Member of Audit Committee
(2) Member of Compensation Committee
Messrs. Lawrence and Greenwood have been directors since the
Company's inception on August 9, 1995. Messrs. Beauchamp,
Evans and Scales have been directors since November 15,
1995. Messrs. Langevin and May have been directors since
January 31, 1996, and hold office as the designees of
BancBoston Ventures, Inc. ("BBV").
Pursuant to a Stockholder Agreement (the "Stockholder
Agreement") entered into at the time the 1995 acquisitions
were consummated, the stockholders of the Company agreed that
it will have a Board of Directors comprised of nine members.
The stockholders have agreed to vote for the following persons
as Directors: (i) two individuals designated by BBV, so long
as BBV shall hold at least 10 percent of the outstanding
shares, and thereafter one individual designated by BBV, so
long as it holds any shares; (ii) initially Michael Lawrence,
so long as he is the Chairman, President and Chief Executive
Officer of the Company, and thereafter an individual
designated by the nominating committee referred to below:below;
(iii) initially, Messrs. Beauchamp and Scales and two former
executives of the Operating Companies, so long as each is an
executive officer of the Company or the Chairman, President
and Chief Executive Officer of any of the Operating Companies,
and thereafter individuals designated by the nominating
committee referred to below:below; (iv) initially William E.
Greenwood, and thereafter a person designated by the
nominating committee referred to below:below; and (v) initially
Kenneth H. Evans, Jr., and thereafter a person designated by
the nominating committee referred to below. One of the
directors designated by BBV and the Chairman and Chief
Executive Officer of the Company shall constitute a nominating
committee with the power to designate any replacement for the
Directors referred to in (ii) through (v) above.
Notwithstanding the foregoing, if a Control Event (as defined
in the Charter) has occurred and is continuing, the Board of
Directors shall be elected as provided below under "Charter
Provisions" and each Stockholder will agree to vote all shares
held by it in favor of any matters recommended for approval by
the stockholders of the Company by the Board of Directors
until such time as the Control Period (as defined in the
Charter) has terminated.
Charter Provisions
In connection with the 1995 acquisitions, the Company amended itsThe Company's Certificate of Incorporation, to add theas amended,
contains provisions described below (as
so amended, the "Charter").below.
47
. Classes of Stock. The Charter provides for three classes of Common
Stock: 4,875,000 shares of Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"); 4,875,000 shares of Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"), and
1,775,000 shares of Class C Common Stock par value $.01 per share (the
"Class C Common Stock").
The holders of Class A Common Stock have one vote per share. The holders of
Class B Common Stock do not have any right to vote except as may be
provided pursuant to the Delaware General Corporation Law. The holders of
Class C Common Stock have one vote per share and normally vote together
with the holders of the Class A Common Stock as a single class. In
addition, the holders of Class C Common Stock have the additional voting
rights described below.
. Board Designation Rights. At any time while a Control Event (as
defined below) has occurred and is continuing, the holders of not less
than 51 percent of the Company's then outstanding Class C Common Stock
are entitled to deliver a notice to the Company. Upon delivery of such
a notice, the holders of Class C Common Stock will be entitled to
1,000 votes per share and will continue to vote together with the
holders of the Company's Class A Common Stock as a single class on all
matters other than the election or removal of directors. In addition,
the holders of Class C Common Stock, voting together as a separate
class, shall be entitled to elect the smallest number of directors to
the Board of Directors of the Company that shall constitute a majority
of the authorized number of directors on such Board of Directors. In
such event, the holders of the Class A Common Stock shall be entitled
to elect the remaining directors. BBV owns all of the outstanding
Class C Common Stock.
A "Control Event", as defined in the Charter, means (a) the Company shall
have failed to make any required payment of principal or interest when due
pursuant to the terms of any agreement evidencing Senior Indebtedness (as
defined in the Indenture) or pursuant to the terms of the Indenture, and
such failure to pay shall have continued without being cured, waived or
consented to, beyond the period of grace, if any, specified in such
agreement or the Indenture, as applicable, (b) there shall have occurred
any of certain events of default under any agreement evidencing Senior
Indebtedness which event of default shall have continued uncured for three
out of four consecutive fiscal quarters, (c) the Company shall have failed
to complete a Qualified Public Offering (as described in the Stockholder
Agreement, dated as of November 15, 1995, a copy of which has been filed as
an exhibit to this Annual Report on Form 10-K) on or prior to the third
anniversary of the completion of the 1995 acquisitions, or (d) there shall
exist a default or breach of any covenant, agreement or provision contained
in Section 6 of the Stockholder Agreement dated as of November 15, 1995, a
copy of which has been filed as an exhibit to this Annual Report on Form
10-K.
In May 1997 the Company further amended the Charter to authorize the
issuance of 20,000 shares of Preferred Stock ($1 par value per share),
12,000,000 shares of Class A Common Stock, 12,000,000 shares of Class B
Common Stock, and 1,175,000 shares of Class C Common Stock.
(b) Identification of Executive Officers
------------------------------------
Executive officers of the Company are appointed by the Board of Directors
on an annual basis and serve until their successors have been duly elected
and qualified. There are no family relationships among any of the executive
officers and directors of the Company.
38
NAME AGE POSITION
---- --- --------
Michael L. Lawrence 52 President and Chief Executive Officer
Richard A. Beauchamp 56 Chief Executive Officer, ART
Kenneth H. Evans, Jr. 44 Chief Financial and Accounting Officer
J. Michael May 52 General Counsel and Secretary
Michael Noel 58 Corporate Vice President - Sales
Joseph M. Samford 49
NAME AGE POSITION
---- --- --------
Michael L. Lawrence 53 Chairman, President and Chief Executive Officer
Richard A. Beauchamp 57 President, Specialized Group
Ronald N. Damico 56 President, Regional LTL Group
Kenneth H. Evans, Jr. 45 Chief Financial and Accounting Officer
Michael L. Langevin 50 Vice Chairman
J. Michael May 53 General Counsel and Secretary
Michael Noel 59 Corporate Vice President - Sales
Joseph M. Samford 50 Executive Vice President - Equipment and Maintenance
Daniel L. Van Alstine 39 Executive Vice President - Sales and Marketing
Terry A. Wallace 34 President, Refrigerated Group
48
Richard A. Beauchamp has been the President of the Specialized Group since
1997. He was Chief Executive Officer of ART since
1988.CMS Transportation Services, Inc.
from 1988 to 1996. He has been the President of Transportation Management
Services, Inc. since 1990, the President of I.L.C. Leasing, Inc. from 1988
until 1994, and the President of Carolina Transportation Company from 1992
until June of 1995. He has also been a director of Crown Anderson, Inc., a
pollution control company, since 1974. Mr. Beauchamp was previously
President and Chief Executive Officer of Refrigerated Transportation
Company, Inc., and has 31 years experience in the trucking industry.
Ronald N. Damico served as President of the Regional LTL Group since June
1997 and has been President of KTL, Inc. since 1980. He has more than 20
years of experience in the transportation industry.
Kenneth H. Evans, Jr. has been a Director and Chief Financial and
Accounting Officer of the Company since November 1995. He was National
Co-
Chairperson,Co-Chairperson, Transportation Industry Services of Coopers & Lybrand
L.L.P. from 1993 until 1995. He was a Business Assurance Partner of Coopers
& Lybrand L.L.P. from 1985 until 1995 and has served transportation clients
for 12 years.
William E. Greenwood has been President of Zephyr Group since 1994. From
1990 until 1994, Mr. Greenwood was the Chief Operating Officer of
Burlington Northern Railroad Company. He was the Executive Vice President
of marketing from 1986 to 1990. Mr. Greenwood is a director of Mark VII, an
intermodal, third party, truck brokerage and logistics company, and has
served in such position since 1994. He is also a director of Transport
Dynamics, Inc., a privately held logistics software development and service
company, and a director of Box Energy Corporation, a publicly held,
independent exploration and production company primarily engaged in the
exploration for, and the development and production of oil and natural gas.
Michael L. Lawrence has been a Director and the Chairman of the Board of
Directors of TBI since July 1990 and of W&L since August 1994. Mr. Lawrence
was a Director and Chief Executive Officer of TRISM, Inc., a trucking
company specializing in carrying heavy machinery and equipment, explosives
and radioactive materials, from January 1990 to March 1995. Mr. Lawrence
was the President, Chief Executive Officer and principal owner of Lucas
Trucking and Leasing from August 1989 to March 1991. He has a total of 2225
years experience in the trucking industry.
Michael J. Langevin served as Vice Chairman of the Company since June 1997
and has been a Director of the Company since January 1996. Since 1989, Mr.
Langevin has been an independent financial consultant associated with
Dunbar Associates, Inc., a financial management consulting firm.
J. Michael May has been a Director, General Counsel and Secretary of the
Company since January 1996. From August 1991 to January 1996, Mr. May was
General Counsel and Secretary of TRISM Inc., and from December 1979 to
August 1991 was General Counsel and Secretary of McGil Specialized
Carriers, Inc. He has 25 years experience in the trucking industry.
Michael Noel has been Corporate Vice President of Sales of the Company
since April 1996. He was employed as Executive Vice President of Tranax,
Ltd., the largest Canadian carrier of commodities requiring temperature
control, from April 1994 to April 1996. Prior to that, Mr. Noel was
employed as Executive Vice President of Wintz Companies for 10 years.
Joseph M. Samford has been Executive Vice President - Equipment and
Maintenance of the Company since March 1996. He was employed by TRISM, Inc.
from June 1992 until March 1996, last holding the position of President,
Trism Maintenance Services, Inc., a subsidiary of TRISM, Inc. For more than
five years prior to March 1992, Mr. Samford was Vice President of
Maintenance at Burlington Motor Carriers.
William P. Scales has been a Director of AmeriTruck since November 1995 and
was the Chief Executive Officer of Scales from 1984 until March 1997. Mr.
Scales previously held managerial positions with Ranger Transportation and
with Refrigerated Transportation Company, Inc. and has 29 years experience
in the trucking industry.
39Daniel L. Van Alstine has served as Executive Vice President of Marketing
since June 1997. He was Executive Vice President of Tran-Star, Inc. from
March 1993 until June 1997. From January 1992 until March 1993 he was Chief
Operating Officer for Prodrive, a driving training and recruiting firm. For
more than 5 years prior to January 1992, Mr. Van Alstine held various
management positions with North American Van Lines. He has more than 16
years in the trucking industry.
Terry A. Wallace has served as President of the Refrigerated Group since
December of 1997, and Executive Vice President of Operations for the
Refrigerated Carrier Group from June to Decemeber 1997. He was previously
Vice President of Operations of Transtar, Inc. and has held various
management positions with Transtar and its affiliates since 1987. He has
more than 12 years experience in the trucking industry.
49
ITEM 11. EXECUTIVE COMPENSATION
(a) Compensation to Named Executive Officers.
---------------------------------------------------------------------------------
The following table summarizes the total compensation paid by the
Company or one of the Operating Companies for services rendered during
the years ended December 31, 1997, 1996 1995 and 19941995 to the Chief
Executive Officer and to each of the four other most highly
compensated executive officers of the Company at the end of 1996 and
to two former executive officers of the Company.1997.
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- --------------------------------------------------------------- ---------------------- -------
Other Securities
Other
Annual Restricted Underlying All Other
Name and CompensationCompen- Stock Options/ LTIP CompensationCompen-
Principal Position Year Salary Bonus (1) (2)Bonus(1) sation(2) Award(s) SARs (#) Payouts (3)
- ---------------------------sation(3)
------------------ ---- ------ -------- --------- ------------ ------------ ----------- ---------- -------- -------------------- ------- ---------
Michael L. Lawrence 1996 $121,8751997 $300,000 $ - $ 6,3008,400 $ - - --- -- -- $ ---
President and Chief 1996 121,875 -- 6,300 -- -- -- --
Executive Officer 1995 75,085 - - - - --- -- -- -- -- 7,819
Executive Officer 1994 75,085 95,000 - - - - 8,024
Richard A.A Beauchamp 1997 210,010 -- 23,940 -- -- -- --
President 1996 200,099 --- 22,812 - - --- -- -- 1,795
Chairman, ARTSpecialized Group 1995 25,000 - - - - - -
1994 - - - - - - --- -- -- -- -- --
Kenneth H. Evans, Jr. 1996 192,000 - 6,300 - - - -1997 207,333 -- 8,400 -- -- -- --
Chief Financial and 1996 192,000 -- 6,300 -- -- -- --
Accounting Officer 1995 16,000 75,000 - - - - -
Accounting Officer 1994 - - - - - - -
William P. Scales 1996 150,000 - 5,600 - - - -
President, Scales 1995 25,000 - - - - - -
1994 - - - - - - --- -- -- -- --
Joseph M. Samford 1997 156,667 -- 8,400 -- -- --
Executive Vice Presi- 1996 120,833 16,066 6,300 - - - -
Executive Vice 1995 - - - - - - -
President - 1994 - - - - - --- -- -- --
dent - Equipment 1995 -- -- 7,700 -- -- -- --
and Maintenance
Michael J. CroweRonald N. Damico 1997 150,000 -- 8,400 -- -- -- --
President, Regional 1996 173,560 67,000 4,200 - - - -
Former President, 1995 120,251 104,000 - - - - -
W&L 1994 116,294 254,890 - - - - -
Randy Thompson 1996 150,121 - 6,300 - - - -
President, TBI 1995 132,340 - - - - - 13,782
Mail Division 1994 124,380 113,000 - - - - 13,29951,923 -- 2,800 -- -- -- --
LTL Group
(1) The bonus awards for the executive officers named in the table were paid
pursuant to the annual incentive compensation plans described in the
"Report onOn Executive Compensation."
(2) The other annual compensation includes amounts paid for monthly allowances.
(3) All other compensation includes matching contributions to the Company's
401(k) Plan or a company contribution under the profit sharing plan.
4050
OPINION/SAR GRANTS IN 19961997 FISCAL YEAR
The following table sets forth information with respect to the individuals named
in the Summary Compensation Table concerning the grant of options during 1996.1997.
% of Total
Potential Realizable
Options/SARs Value at Assumed Annual
Number of Granted to
Rates of Stock Price
Securities Employees in Appreciation for
Underlying Year ended Exercise or Option Term(2) GrantPresent
Name and Options/SARs December 31, Base Price Expiration ---------------------- DateValue of
Principal Position Granted (#) 19961997 ($/Sh) (1) Date 5% 10% Price
-Options(2)
------------------ ------------ ------------ ----------- ------------ --------- ------------ ---------- ---- -------
Michael L. Lawrence 30,000 4% $4.00245,000 13.4% 10 tiers May 16, 2006 $ 75,467 $191,249 $4.0022, 2007 $266,732
President and Chief
Executive Officer
Richard A. Beauchamp - - - - - - -
Chairman, ART30,000 1.6% 10 tiers May 22, 2007 $ 32,661
President Specialized
Group
Kenneth H. Evans, Jr. 20,000 3% $4.00145,000 7.9% 10 tiers May 16, 2006 $ 50,312 $127,499 $4.0022, 2007 $157,862
Chief Financial and
Accounting Officer
William P. Scales 40,000 5% $4.00 May 16, 2006 $100,623 $254,999 $4.00
President, Scales
Joseph M. Samford 30,000 4% $4.00 March 10,2006 $100,623 $254,999 $4.0075,000 4.1% 10 tiers May 22, 2007 $ 81,653
Executive Vice 10,000 1% $4.00 May 10, 2006
PresidentPresi-
dent - Equipment and
Maintenance
Michael J. Crowe 40,000 5% $4.00Ronald N. Damico 30,000 1.6% 10 tiers May 16, 2006 $100,623 $254,999 $4.00
Former22, 2007 $ 32,661
President, W&L
Randy Thompson 30,000 4% $4.00 May 16, 2006 $ 75,467 $191,249 $4.00
President, TBI Mail
DivisionRegional
LTL Group
(1) Exercise prices represent theare in 10 equal increments of 10% each, at exercise prices
of $3.10, $6, $8, $10, $12, $14, $16, $18, $20 and $22. The fair market
value on the date of grant was $2.75 as determined by the Board of
Directors, on the date of grant.Directors.
(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
Company's Common Stock. These dollar amounts represent gain before income
taxes.
51
AGGREGATED 19961997 STOCK OPTION/SAR EXERCISES
AND YEAR-END OPTION/SAR VALUES
The following table sets forth information with respect to the individuals
named in the Summary Compensation Table concerning their exercise of options
during 19961997 and unexercised stock options held as of the end of 1996.1997.
Number of Securities
Underlying UnexerciedUnexercised Value of Unexercised in-the-Money
Options/SARs at Year End Options/SARs at Year End
Name and ShareShares Acquired Value ------------------------- ----------------------------------------------------------- -----------------------------
Principal Position of Exercise (#)Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------------------------- ----------- ----------- ------------- ----------- -------------
Michael L. Lawrence - - 9,411 20,58929,311 246,689 - -
President and Chief
Executive Officer
Richard A. Beauchamp - - 41,741 35,259 - -
- -
Chairman, ARTPresident Specialized
Group
Kenneth H. Evans, Jr. - - 111,274 13,726124,180 145,820 - -
Chief Financial and
Accounting Officer
William P. Scales - - 12,548 27,452 - -
President, Scales
Joseph M. Samford - - 15,301 24,699 - -
Executive Vice PresidentPresi-
dent - Equipment and
Maintenance
Michael J. CroweRonald N. Damico - - - - - -
Former President, W&L
Randy Thompson - - 9,411 20,589600 29,400 - -
President, TBI, Mail
DivisionRegional
LTL Group
41
(b) Stock Option Plan
-----------------
In November 1995, the Company's Board of Directors and stockholders
approved the Company's 1995 Stock Option Plan ("1995 Plan"), which
provides for the grant of incentive stock options and nonstatutory
stock options to employees, and for the grant of nonstatutory stock
options to consultants, of the Company and its subsidiary
corporations. In May 1997, the 1995 Plan was amended to increase the
maximum number of shares. These stock options vest either ratably over
a two year period or a four year period from date of grant. In
addition, these options expire 10 years from date of grant or three
months from an employee's termination date. A maximum of 927,8873,271,881
shares of Class A Common Stock, $.01 par value, ("Common Stock") are
currently reserved for issuance under the 1995 Plan.Plan, as amended. After
giving effect to the 1995 and 1996 acquisitions and in conjunction
with the 1997 acquisitions, there are approximately 3,500,0004,230,275 shares of Common Stock
outstanding and a warrantwarrants to purchase 375,0001,875,000 shares of Common Stock.
No individual may be granted options under the 1995 Plan for a number
of shares in excess of two-thirds of the shares that from time to time
may be reserved for issuance under the 1995 Plan.
The 1995 Plan is administered by the Compensation Committee, which has
authority to determine which eligible individuals are to receive
options, the terms of such options, including the status of such
options as incentive or nonstatutory stock options under the federal
income tax laws, the numbersnumber of shares, exercise prices, and times at
which the options become and remain exercisable, and the time, manner,
and form of payment upon exercise of options, including cashless
exercise or payment of the exercise price with a promissory note. The
exercise price of incentive stock options granted under the 1995 plan
may not be less than 100 percent of the fair market value of the
underlying shares of Common Stock on the date of grant. Options
granted under the 1995 Plan may be immediately exercisable, or may
become exercisable in such cumulative or non-cumulative installments
as the Compensation Committee may determine (subject to acceleration
by the Compensation Committee in whole or in part at any time).
Incentive stock options may not be exercised after a maximum of three
months following termination of the optionee's employment with the
Company or one of its affiliates, except in the event that termination
is due to death or disability, in which case the incentive stock
option is exercisable for a maximum of one year after such
termination. Such three-
monththree-month and one-year periods may be shortened by
the Compensation Committee in the option agreement evidencing an
option grant. In any event, no incentive stock option may be exercised
after the tenth anniversary of its date of grant.
In the event of any stock dividend, stock split, or reverse stock
split affecting Common Stock, the numbers of shares and exercise
prices of outstanding options under the 1995 Plan will be
proportionately adjusted. In the event of a reclassification or change
of outstanding shares of Common Stock, upon exercise of an option
granted under the 1995 Plan, the optionee will receive such shares of
stock or other securities as are equivalent in kind and value to the
shares of Common Stock that the optionee would have received if he had
exercised the option immediately prior to such reclassification or
change and thereafter had
52
continued to hold those shares and all other shares, stock, and
securities thereafter issued in respect thereof.
In the event of a consolidation or merger of the Company with or into
another company, or the sale to another company of all or
substantially all of the Company's assets, then, subject to the
following sentence, upon exercise of an option granted under the 1995
Plan, the optionee will receive such shares of stock or other
securities as are equivalent in kind and value to the shares of stock
and/or other securities that the optionee would have received if he
had held the full number of shares of Common Stock subject to the
option immediately prior to such consolidation, merger, or sale, and
thereafter had continued to hold those shares and all other shares,
stock, and securities thereafter issued in respect thereof. Unless any
particular option agreement provides otherwise, however, in the event
of any such consolidation, merger, or sale the Compensation Committee
in its discretion may provide instead that any outstanding option will
terminate, to the extent not previously exercised, either (i) as of
the date of such transaction in consideration of the Company's payment
to the optionee of an amount of cash equal to the difference between
the aggregate fair market value of the shares of the Company's Common
Stock for which the option is then exercisable and the aggregate
exercise price for such shares under the option, or (ii) at the close
of a period of not less than ten days specified by the Compensation
Committee and commencing on the Compensation Committee's delivery of
written notice to the optionee of its decision to terminate such
option without payment of such consideration.
Upon dissolution or liquidation of the Company, all outstanding
options granted under the 1995 Plan will terminate to the extent not
previously exercised.
42
The Company's Board of Directors may at any time terminate the 1995
Plan or make such modifications of the 1995 Plan as it deems
advisable. No termination or amendment of the 1995 Plan may adversely
affect the rights of any individual to whom an option has previously
been granted without such individual's consent.
As of December 31, 1996,1997, options to purchase approximately 812,0002,413,002
shares of Common Stock have been granted under the 1995 Plan and are
outstanding, and options to purchase approximately 116,000858,879 additional
shares of Common Stock were available for future grants under the 1995
Plan.
(c) Compensation of Directors.
-------------------------
Mr. Greenwood received compensation as a director in the amount of $1,000
per month and $1,000 per committee meeting. Mr. Greenwood has also been awarded options to purchase 20,000 shares of
the Company's Common Stock. No
other directorMr. Scales received any compensation for his service as a
director.Director in the amount of $2,000 per month beginning with September,
1997. All directors will be reimbursed for any out-of-pocket expenses
incurred in attending Board of Directors meetings.
(d) Employment Contracts and Termination of Employment.
--------------------------------------------------
Employment Agreements have been entered into by AmeriTruck or one of
the Operating Companies, as specified below, with each of Messrs.
Lawrence, Bangerter, Beauchamp, Crowe,Damico, Evans Scales and Thompson.Samford:
Mr. Lawrence, the Chairman and Chief Executive Officer of AmeriTruck,
has entered into an employment agreement having a term expiring in
November 1998 and providing for a base salary of $75,000 annually
through October 31, 1996, and thereafter, an annual base salary of
$300,000. Any additional increases are at the discretion of
AmeriTruck's board of directors.
Mr. Beauchamp, President of the Chief Executive Officer of ART,Specialized Group, has entered into an
employment agreement having a term expiring in November 1998 and
providing for a base salary of $150,000 with increases thereafter
being at the discretion of the employer's board of directors.
Mr. Crowe,Damico, the former President of W&L, hadthe Regional LTL Group, has entered into
an employment agreement having a term expiring in November 19971998 and
providing for a base salary of $150,000 for the first twelve months following execution of an
amendment to the employment agreement in November 1995annually, with any increases
thereafter being at the discretion of W&L'sthe Company's board of
directors.
53
Mr. Evans, the Chief Financial Officer and Executive Vice President of
the Company, has entered into an employment agreement having a term
expiring in November 1998 and providing for a base salary of $192,000
for the first twelve months with any increases thereafter being at the
discretion of the Company's board of directors.
Mr. Samford, the Executive Vice President of Equipment and Maintenance
of the Company, has entered into an employment agreement having a term
expiring in November 1998 and providing for a base salary of $150,000
annually, with increases thereafter being at the discretion of the
Company's board of directors.
Mr. Scales, the President of Scales until March 1997, had entered into an
employment agreement having a term expiring in November 1998 and providing
for a base salary of $150,000 with increases thereafter being at the
discretion of Scales' board of directors.
Mr. Thompson, the President of TBI Mail Division, has entered into an
employment agreement having a term expiring in July 1997 and providing for
a base salary of $150,000 for the first twelve months following execution
of an amendment to the employment agreement in November 1995. Increases are
at the discretion of TBI's board of directors.
Mr. Damico, the President of KTL, has entered into an employment agreement
having a term expiring November 1998 and providing for a base salary of
$150,000 annually, with increases thereafter being at the discretion of the
Company's board of directors.
43
Each of the above described employment agreements includes a severance
clause under the terms of which the employee is entitled to severance
pay if during the term of the agreement or a renewal term, his
employment is terminated without cause by written notice by the
employer to the employee. Under this severance clause, the employer
must continue to pay to the employee his base salary as in effect
prior to the termination, such salary being payable until the longer
of (i) one year after the date of termination, or (ii) the end of the
stated term of the agreement. In addition, each of the above described
employment agreements provides that upon the employee's termination
(i) without cause by written notice by the employer to the employee or
(ii) due to the death or disability of the employee, the employee is
entitled to receive the management incentive bonus (described below
under "Long-Term Incentive Plan"), if any, that the employee would
have received for the fiscal year of the Company in which the
employment was terminated. The employee is not entitled to such
severance pay or management incentive bonuses in the event of a
termination for cause.
Each of the above described employment agreements also provides that
the employee shall be provided accident, disability and health
insurance under the respective employer's group accident, disability
and health insurance plan maintained for its full-time salaried
employees.
Each of the above described employment agreements also contains a
non-
competitionnon-competition provision pursuant to which the employee is
prohibited, during the term of his employment and generally for one
year thereafter, from engaging, within a designated area described
below, in competition with the employer, from diverting to any
competitor of the employer any customer of the employer, and from
soliciting or encouraging any officer, employee or consultant of the
employer to leave the employment of the employer for employment with
any competitor of the employer. Each of the above described employment
agreements provides that the employee may not compete with the
employer for the time periods and under the circumstances described
above anywhere within the continental United States of America.
(e) Long-Term Incentive Plan.
-------------------------------------------------
Senior management of the Company and each of the Operating Companies
are eligible to participate in an executive incentive compensation
plan pursuant to which, in general, they will be paid annual bonuses
based upon the financial performance of both their respective
individual Operating Companies and that of the Company. The bonus forsize of
the incentive compensation pool is determined each participant will beyear as 35% of the
Company's earnings in excess of the target. Each individual's share of
the pool is determined by reference to the relevant Operating
Company's growthperformance against the Company's operating plan as to such
key factors as, for example, revenue levels, rates per loaded mile,
load ratios, service quality, cost control and return on invested capitalcoordination with other
Operating Companies, as well as an assessment of the participant's
individual performance rating.individual's
performance.
(f) Compensation Committee Interlocks and Insider Participation.
-----------------------------------------------------------------------------------------------------------------------
Messrs. Michael L. Lawrence and William E. Greenwood have been the
members of the Compensation Committee since the Company's inception.
Mr. Lawrence is also PresidentChairman and Chief Executive Officer of the
Company.
54
(g) Board Compensation Committee Report.
-----------------------------------------------------------------------
The following report is presented by the Compensation Committee of the
Board (the "Committee"). The Compensation Committee consists of
Messrs. Lawrence and Greenwood. The committee administers the
executive compensation policies of the Company. All actions of the
committee pertaining to executive compensation are submitted to the
Board of Directors for approval.
The Company's executive compensation program is designed to attract,
retain, and motivate high caliber executives and to focus the
interests of the executives on objectives that enhance stockholder
value. These goals are attained by emphasizing "pay for performance"
by having a significant portion of the executive's compensation
dependent upon business results and by providing equity interests in
the Company. The principal elements of the Company's executive
compensation program are base salary, incentive compensation, and
stock options. In addition, the Company recognizes individual
contributions as well as overall business results, using a
discretionary bonus program.
In 19961997 no bonuses were paid to the Company's Executive Officers and
annual salaries were primarily determined based upon the amounts
required under their employment contracts. The Company increased Mr. Beauchamp's salary in
1996 above the salary required in his employment agreement in light of his
increased responsibilities for the Company's temperature controlled
operations.
Chief Executive Officer
Mr. Lawrence's base salary is determined by the terms of his
employment agreement with the Company. See "Employment Contracts and
Termination of Employment".Employment." In light of the Company's financial
performance in 1996,1997, the Company did not pay any bonuses to its
executive officers, including Mr. Lawrence.
MICHAELMichael L. LAWRENCE
WILLIAMLawrence
William E. GREENWOOD
44
Greenwood
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
-----------------------------------------------------------------------------------------------
The following table sets forth certain information regarding
beneficial ownership of the Common Stock of the Company by each person
known to the Company to own beneficially more than 5 percent of its
outstanding Common Stock.
Amount and Nature of
Name and Address Beneficial Ownership Percent of Class(1)Class/(1)/
---------------- ------------------- --------------------------------------- ---------------------
BancBoston Ventures, Inc./(2) 1,394,814 39.8%/ 2,030,449 48.0%
100 Federal Street
Boston, MA 02110
William P. Scales(3)Scales/(3)/ 392,217 11.2%9.3%
c/o Scales Transport Corporation
507 A Samples Scales Road
P.O. Box 189
Homer, GA 30547
Michael L. Lawrence 361,239 10.3%390,330 9.2%
c/o AmeriTruck Distribution Corp.
301 Commerce, Suite 1101
Fort Worth, TX 76102
Randy Thompson 338,782 9.7%8.0%
c/o Thompson Bros., Inc.
3605 Teem Drive
Sioux Falls, SD 57107
55
Richard Beauchamp(4)Beauchamp/(4)/ 283,363 8.1%6.7%
c/o AmeriTruck Refrigerated Transport, Inc.
4200 Northside Parkway
Building 8, Suite C
Atlanta, GA 30327
Ronald N. Damico 225,000 6.4%254,091 6.0%
c/o KTL, Inc.
1501 Lake Ave.
Largo, FL 34641
(1)/(1)/ Represents percentage ownership of all outstanding classes of
Common Stock. All stockholders except BBV hold shares of Class
A Common Stock.
(2)/(2)/ Excludes a warrant issued to BBV exercisable on or after
February 15, 1996 for 375,000 shares.
(3)/(3)/ Includes 27,860 shares held by Mr. Scales' spouse. Mr. Scales
disclaims beneficial ownership with respect to these shares.
(4)/(4)/ Includes 278,587 shares held by Mr. Beauchamp's spouse. Mr.
Beauchamp disclaims beneficial ownership with respect to these
shares.
45
(b) Security Ownership of Management.
--------------------------------
The following table shows as of March 15, 19971998 the beneficial
ownership of the Company's Common Stock by each director, Named
Executive Officereach current
executive office named in the Summary Compensation Table and officers
and directors as a group.
Name of Amount and Nature Name of of Beneficial Percent
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
---------------- ----------------- ------------------------------ ----------------
Class A Common William P. Scales 392,217(1) 11.2%9.3%
Michael L. Lawrence 361,239 10.3%390,330 9.2%
Richard Beauchamp 283,363(2) 8.1%6.7%
Kenneth H. Evans, Jr./(3)/
Michael J. Langevin(4)Langevin/(4)/ 102,934 2.9%2.4%
All Directors and
Executive Officers as a
Group (9)
Persons 1,139,753 32.5%(10) persons 1,173,208 27.7%
(1)/(1)/ Includes 27,860 shares held by Mr. Scales' spouse. Mr. Scales
disclaims beneficial ownership with respect to these shares.
(2)/(2)/ Includes 278,587 shares held by Mr. Beauchamp's spouse. Mr.
Beauchamp disclaims beneficial ownership with respect to these
shares.
(3)/(3)/ Mr. Evans holds options to purchase 125,000270,000 shares.
(4)/(4)/ Dunbar Associates, Inc. owns 102,934 shares. The President of
Dunbar Associates, Inc. is Vickie D. Langevin, Mr. Langevin's
spouse. Mr. Langevin disclaims any beneficial ownership with
respect to these shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS AND RELATED TRANSACTIONS
The information contained herein relating to the Stock Purchase Agreement
and the Employment Agreements (each as defined herein) is qualified in
its entirety by reference to the complete text of such agreements,
copies of which have been filed as exhibits to this Annual Report on
Form 10-K.
4656
Stock Purchase AgreementEmployment Agreements
In connection with the 1996 and 1995 acquisitions, the Company entered
into or amended employment agreements with each of the members of
senior management. In addition, in connection with the Tran-Star,
Monfort and Lynn acquisitions, the Company entered into employment
agreements certain key executives. For a description of the employment
agreements, see Item 11 - "Employment Contracts and Termination of
Employment."
Payments To Management and Significant Stockholders
In connection with the Tran-Star acquisition, the key executives,
Robert Goldberg, Paul Herzog, Daniel Van Alstine and Terry Wallace
received a total of $200,000 in cash and 400,000 stock options as an
incentive for employment. Mr. Goldberg's employment terminated in
December 1997.
PRE-1997 TRANSACTIONS
Since January 1, 1994, the Operating Companies have entered into a
number of transactions with significant stockholders, officers and
directors. Certain of these transactions were still in effect in 1997.
KTL
During the third quarter of 1996, AmeriTruck purchased all of the
outstanding stock of KTL, Inc. ("KTL") of Largo, Florida, from Ronald
N. Damico for a purchase price of $8.1 million in cash and 225,000
shares of Class A common stock of AmeriTruck valued at $900,000. As
part of the transaction, Mr. Damico and KTL entered into an employment
agreement under which Mr. Damico became employed as KTL's President
and Chief Executive Officer. The term of the employment agreement
expires on November 15, 1998. In addition,Damico. KTL has agreed to lease from Mr. Damico and his spouse
certain real estate at Clearwater, Florida on a month-to-month basis.
Further, KTL has agreed to lease the real estate at Largo, Florida used by
KTL as its corporate headquarters from a company owned by Mr. Damico
for an 18-month term, at which time KTL has agreed to purchase the
property for $2.4 million less the total amount of
environmental-related costs incurred subsequent to August 16, 1996. Employment Agreements
In connection withAn
agreement to extend the 1995 acquisitions, the Company entered into or
amended employment agreements with each of the members of senior
management. In addition, in connection with the KTL acquisition, the
Company entered into an employment agreement with Ronald N. Damico.
For a description of the employment agreements, see Item 11 -
"Employment Contracts and Termination of Employment."
Payments To Management and Significant Stockholders
In connection with the KTL acquisition, Ronald N. Damico received
$8,118,000 in cash and 225,000 shares of Common Stock in exchange for
his interest in KTL.
PRE-1995 TRANSACTIONS
Since January 1, 1994, the Operating Companies have entered into
a number of transactions with significant stockholders, officers and
directors. Certain of these transactions were still in effect in 1996.purchase obligation until April 1999 has been
reached.
CMS
The spouse of Mr. Richard A. Beauchamp (a stockholder and director of
the Company and an executive officer of CMS) owed CMS $639,073 as of
June 30, 1995, representing an unsecured advance. Prior to completion
of the Initial Offering,initial offering of the Subordinated Notes in 1995, CMS forgave
$437,823 of such amount. The balance of $201,250 is represented by an
interest-bearing note (with interest at the lowest rate required by
the Internal Revenue Service to avoid imputation of interest income)
due in ten years, with certain mandatory prepayments in the event of
public sales of Common Stock held by Mrs. Beauchamp.
REAL PROPERTY LEASES
Scales entered into lease agreements with respect to its Tampa,
Florida and Homer, Georgia facilities, respectively, with Phil and
Barbara Scales, the owners of both such facilities. Mr. Scales is a
stockholder and director of the Company, and he was an executive
officer of Scales until March 1997. Scales paid a total of $38,844
rent to Mr. and Mrs. Scales during 1994 under the terms of the lease
agreement with respect to 47
the Tampa facility and no rent to Mr. And
Mrs. Scales during 1994 under the terms of the lease agreement with
respect to the Homer facility, but did pay the taxes and insurance
with respect to the Homer facility. In connection with the
Acquisitionsacquisitions in 1995, these leases were revised to provide for three-yearthree-
year terms, terminable by either party upon six-months' prior notice,
and rent of $57,600 per year for the
57
Tampa facility and $6,000 per year for the Homer facility. The lease
on the Homer facility was terminated in March 1997 by mutual agreement
of the parties.
In connection with the KTL acquisition, the Company entered into a
lease with Ronald N. Damico and his spouse as discussed above under
"Stock Purchase Agreement."KTL."
ARRANGEMENTS WITH DUNBAR ASSOCIATES, INC.
TBI has entered into a Consulting and Non-Competition Agreement with
Dunbar Associates, Inc. ("Dunbar"), pursuant to which Dunbar agreed to
provide, through its representative, consulting services to TBI for a
term extending until November 13, 1998 (renewable for additional one
year terms thereafter upon the consent of the parties thereto). TBI
agreed to pay transaction fees to Dunbar, as approved by TBI's board
of directors, in connection with the completion of any major financing
or acquisition transaction by TBI, the aggregate amount of which
transaction fees shall not be less than $192,000 nor more than
$492,000 during any calendar year. TBI also agreed to pay a retainer
to Dunbar in the amount of $16,000 per month during the term of the
agreement, such retainer being applied against the amount of
transaction fees earned by Dunbar as described above. Michael J.
Langevin, a Director of the Company, is an employee of Dunbar, which
is owned by his spouse.
Dunbar has also issued separate promissory notes in favor of TBI and
W&L, in the original principal amounts of $245,235 and $491,104,
respectively, in connection with Dunbar's purchase of capital stock of
TBI and W&L. This stock was subsequently converted into shares of the
Company's Common Stock in connection with the Acquisitions. Each of
the promissory notes is secured by these shares and is payable in one
installment which is due on October 10, 2005. Each of the promissory
notes bears interest at the rate of 6.77 percent per annum, such
interest being payable at maturity.
FINANCING DURING 1997
In conjunction with the 1997 acquisitions of Monfort, Lynn and Tran-
Star, the Company issued 3,000 shares of Series A Redeemable Preferred
Stock and 727,272 shares of Common Stock with warrants to certain
existing stockholders, directors and executive officers of the
Company. The Preferred Stock was issued at a $1,000 per share for a
total purchase price of $3.0 million. The Common Stock along with
detached warrants for 1,500,000 shares of Common Stock, was issued for
$2.75 per share ($.01 par value) for a total purchase price of $2.0
million.
The Preferred Stock was purchased by (and detached warrants were
issued to) the following: BancBoston Ventures, 2,622 shares (1,311,000
warrants); Bristol Investment Partners, 90 shares (45,000 warrants);
Michael L. Lawrence, 120 shares (60,000 warrants); Ronald N. Damico,
120 shares (60,000 warrants); Ronald E. Adams, 30 shares (15,000
warrants); and William E. Greenwood, 18 shares (9,000 warrants). The
Class A Common Shares were purchased by BancBoston Ventures, Inc.
(633,636 shares), Bristol Investment Partners (21,818 shares), Michael
L. Lawrence (29,091 shares), Ronald N. Damico (29,091 shares), Ronald
E. Adams (7,273 shares) and William E. Greenwood (4,364 shares).
In connection with the amendment to the FINOVA Credit Facility, the
Company issued $1 million in Subordinated Notes (the "1997 Notes") to
certain existing stockholders. The 1997 Notes bear interest at a rate
of 14% per annum and mature on June 1, 1998. In connection with the
1997 Notes, the Company issued to the purchasers of the 1997 Notes
warrants to a number of shares of the Company's common stock equal to
the aggregate outstanding principal and interest of the 1997 Notes at
the time of exercise divided by 2 (the "1997 Warrants"). The issuance
of these shares was exempt under Section 4(2) of the Securities Act of
1933, as amended, as a transaction not involving any public offering.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
Consolidated Balance Sheets at December 31, 19961997 and 19951996
Consolidated Statements of IncomeOperations for the three years ended
December 31, 19961997
Consolidated Statements of Stockholders'
Equity for the three years ended December 31, 19961997
Consolidated Statements of Cash Flows for the three years
ended December 31, 19961997
Notes to Consolidated Financial
Statements Report of Independent Accountants
All schedules for the Company are omitted because they are not
required or not applicable. The required information is included in
the financial statements or notes thereto.
4858
EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit
Number Description
- ------- -------------------- -----------
* 3.1 Certificate of Incorporation of the Company, as amended.
* 3.2 By-laws of the Company, as amended
* 4.1 Indenture for the Notes, dated as of November 15, 1995, among the
Company, the Guarantors named therein and The Bank of New York, as
Trustee (including form of Exchange Note).
* 4.2 Purchase Agreement, dated as of November 10, 1995, among the Company,
the Guarantors named therein and Smith Barney Inc., as the Initial
Purchaser.
* 4.3 Registration Rights Agreement, dated November 15,1995,15, 1995, among the
Company, the Guarantors named therein, and the initialInitial Purchaser.
* 4.4 Form of Exchange Note (included in Exhibit 4.1)
** 10.1 First Amendment to Loan Agreement, dated August 13, 1996, to be
effective as of June 28, 1996, between the Company and NationsBank
of Texas, N.A. (Form 10-Q for the quarter ended September 30, 1996,
filed November 1996).
** 10.2 Stock Purchase Agreement, dated as of August 23, 1996, between the
Company and Ronald N. Damico, including his employment agreement.agreement
(Form 8-K dated August 23, 1996, filed September 1996). *****
** 10.3 Continuing and Unconditional Guaranty, dated as of September 16,
1996, between KTL and NationsBank of Texas, N.A. (Form 10-Q for the
quarter ended September 30, 1996, filed November 1996).
** 10.4 Security Agreement, dated as of September 16, 1996, between KTL and
NationsBank of Texas, N.A. (Form 10-Q for the quarter ended
September 30, 1996, filed November 1996).
** 10.5 Guarantee of 12 1/4% Senior Subordinated Notes due 2005, Series B,
dated as of September 19, 1996, by KTL (Form 10-Q for the quarter
ended September 30, 1996, filed November 1996).
** 10.6 Loan and Security Agreement, dated February 21, 1996, between Volvo
Truck Finance North America, Inc. ("Volvo") and the Company and
certain of its Subsidiaries (Form 8-K dated May 3, 1996, filed May
1996).
** 10.7 Financing Integration Agreement, dated February 21, 1996,
between Volvo and the Company and certain of its subsidiaries
(Form 8-K dated May 3, 1996, filed May 1996).
** 10.8 Loan Agreement, dated February 1, 1996, between the Company and
NationsBank of Texas, N.A. (Form 8-K dated May 3, 1996, filed May
1996).
** 10.9 Asset Purchase Agreement, dated as of January 5, 1996, between CMS
Transportation Services, Inc. and Freymiller Trucking, Inc., as
debtor and debtor-in-possession (Form 8-K dated May 3, 1996, filed
May 1996).
49
** 10.10 Consulting and Non-Competition Agreement, dated as of April 1,
1995, between Thompson Bros., Inc. and Dunbar Associates, Inc. (Form
8-K dated May 3, 1996, filed May 1996).** ***
* 10.11 Agreement and Plan of Reorganization, dated as of October 20, 1995
(including the amendment thereto dated as of November 14, 1995 and
including all exhibits thereto).
* 10.12 Stock Contribution Agreements, dated as of October 20, 1995, among
the Company and the stockholders of each of the Operating Companies,
respectively (each included in Exhibit 10.11).
* 10.13 Stockholder Agreement, dated as of November 15, 1995, among the
Company and each of its stockholders (included in Exhibit 10.11).
* 10.14 Registration Rights Agreement, dated as of November 15, 1995, among
the Company and each of its stockholders (included in Exhibit 10.11).
59
* 10.15 Warrant to Purchase 375,000 Shares of Common Stock of the Company,
dated as of November 15, 1995, issued to BancBoston Ventures, Inc.
* 10.16 Employment Agreements among the Company and/or certain of the
Operating Companies and each of Michael L. Lawrence, Paul L.
Bangerter, Richard Beauchamp, Michael J. Crowe, Kenneth H. Evans,
Jr., William P. Scales and Randy Thompson.** ***
* 10.17 1995 Stock Option Plan of the Company. *****
** 10.18 Stock Purchase Agreement, dated as of April 28, 1997, between the
Company and Monfort, Inc., and ConAgra Poultry Company (Form 8-K
dated June 6, 1997, filed June 1997).
** 10.19 Stock Purchase Agreement, dated as of June 27, 1997 between the
Company and Allways Services, Inc. and TranStar Services, Inc. (Form
8-K dated July 11, 1997, filed July 1997).
** 10.20 Loan and Security Agreement, dated as of May 5, 1997, between the
Company and FINOVA Capital Corporation (Form 10-Q for the quarter
ended June 30, 1997, filed August 1997).
** 10.21 Master Lease Agreement, dated as of August 14, 1997, between the
Company and Transamerica Business Credit Corporation (Form 10-Q for
the quarter ended September 30, 1997, and filed November 1997).
10.22 Securities Purchase Agreement, dated as of November 13, 1997, between
the Company and certain named investors.
10.23 Third Amendment to Loan and Security Agreement, dated as of November
13, 1997, between the Company and FINOVA Capital Corporation.
12 Computation of ratio of earnings to fixed charges.
* 16.1 Letter from Deloitte & TouchTouche LLP regarding their dismissal as
independent accountants of W&L Services Corp. and Subsidiaries.
* 21 Subsidiaries of the Company and Jurisdictions of Incorporation.
* 24 Powers of Attorney (see signature pages).
27 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form S-4,S-
4, Registration No. 33-99716, initially filed with the Securities and
Exchange Commission on November 24, 1995, as amended.
** Exhibit is incorporated by reference as indicated.
*** Management contract or compensatory plan or arrangement.
REPORTS ON FORM 8-K
During the fourth quarter of 1996, there1997, the following Form 8-K reports were
no reports filed on Form 8-K.
50filed: 11-10-97 "AmeriTruck Distribution Corp. Engages Investment Firm
To Raise Equity"
60
S I G N A T U R E S
-------------------
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, thereunto duly authorized.
AMERITRUCK DISTRIBUTION CORP.
/s/ Michael L. Lawrence
--------------------------------------------------------------------
Michael L. Lawrence
Director, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 31, 19971998 by the following persons on behalf of
the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Michael L. Lawrence Director, Chairman of the Board and
- ------------------------------------------------------------------- Chief Executive Officer
Michael L. Lawrence
/s/ Richard A. Beauchamp Director
- -------------------------------------------------------------------
Richard A. Beauchamp
/s/ Kenneth H. Evans, Jr. Director, Treasurer and Chief Financial
- ------------------------------------ Financial------------------------------- and Accounting Officer
Kenneth H. Evans, Jr.
/s/ William E. Greenwood Director
- -------------------------------------------------------------------
William E. Greenwood
/s/ Michael J. Langevin Director
- -------------------------------------------------------------------
Michael J. Langevin
/s/ J. Michael May Director, General Counsel and Secretary
- ------------------------------------ Secretary-------------------------------
J. Michael May
Director
- ------------------------------------/s/ William P. Scales 51Director
- -------------------------------
William P. Scales
61
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
10.22 Securities Purchase Agreements, dated as of November 13, 1997,
between the Company and certain named investors
10.23 Third Amendment to Loan and Security Agreement, dated as of
November 13, 1997, between the Company and FINOVA Capital
Corporation
12 Computation of ratio of earnings to Fixed Charges
27 Financial Data Schedule
5262