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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 1999
--------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------------------- -----------------
COMMISSION FILE NUMBER 0-24576
--------
ASCHE TRANSPORTATION SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3964954
- --------------------------------- ----------------------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer ofIdentification No.)
Incorporation or Organization) Identification No.)
10214 NORTH MOUNT VERNON ROAD
SHANNON, ILLINOIS 61078
(Address of Principal Executive Offices)
815-864-2421
(Registrant's telephone number, including area code)
N/A
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
Yes X No
----- ------------ -------
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date 5,956,9208,623,587 SHARES OF PAR
-----------------------
VALUE $.0001 COMMON STOCK
- -------------------------
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
ASCHE TRANSPORTATION SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JUNESEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- -------------
ASSETS------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7866,967 $ 2,761
Trade receivables, net 19,96920,273 15,947
Prepaid expenses and other current assets 6,6048,390 5,947
-------- -------------------- ------------
Total current assets 27,35935,630 24,655
Property and equipment, at cost 60,07762,477 57,053
Less accumulated depreciation and amortization (14,568)(15,509) (11,650)
-------- -------------------- ------------
Net property and equipment 45,50946,968 45,403
-------- -------------------- ------------
Excess of cost over net assets acquired, net 13,87013,824 14,176
Debt issuance cost, net 596426 1,045
Other assets 292280 2,999
-------- -------------------- ------------
TOTAL ASSETS $ 87,62697,128 $ 88,278
======== ==================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,4372,616 $ 1,657
Accounts payable 2,9524,893 3,756
Accrued liabilities 9051,509 3,453
Guaranteed obligation of Employee Stock Ownership Plan 155152 155
Line of credit 5,790 --4,974 -
Current maturities of long-term debt with unrelated parties 3,8973,630 4,152
Current maturities of long-term debt with related party --- 995
Current maturities of capital lease obligations with unrelated parties 2,2482,017 2,090
Current maturities of capital lease obligations with related parties. 33parties - 151
Subordinated debt, less unamortized debt discount of $9$ - and $107 2,261500 11,268
-------- -------------------- ------------
Total current liabilities 19,67820,291 27,677
LinesLine of credit 18,63617,424 18,660
Long-term debt with unrelated parties, less current maturities 16,59316,130 16,379
Long-term debt with related party, less current maturities 1,319 761
Capital lease obligations with unrelated parties, less current maturities 4,8944,492 5,797
Deferred revenue 6,540 --6,384 -
Minority interest 6831,500 563
Subordinated debt, less unamortized debt discount of $387 and $430 1,613- 1,570
Deferred income taxes 1,656 1,656
Accrued warrant accretion 1,3091,500 786
-------- -------------------- ------------
Total liabilities 72,92170,696 73,849
Stockholders' equity:
Common stock, $.0001 par value, 10,000,00025,000,000 shares authorized,
5,098,9308,623,587 and 4,696,130 shares issued and outstanding 1 ---
Additional paid-in capital 20,14434,066 18,077
Guarantee of Employee Stock Ownership Plan obligation (155)(152) (155)
Accumulated deficit (5,285)(7,483) (3,493)
-------- -------------------- ------------
Total stockholders' equity 14,70526,432 14,429
-------- -------------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 87,62697,128 $ 88,278
======== ==================== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ASCHE TRANSPORTATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share data)
(Unaudited)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
---------------------------- ----------------------------------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ------------- ----------- --------- ---------
NET REVENUES $ 38,82340,838 $ 29,12929,462 $ 71,578112,416 $ 51,29980,761
OPERATING EXPENSES:EXPENSES
Salaries, wages and benefits 15,013 10,774 27,981 18,90615,603 11,453 43,584 30,359
Fuel 4,689 3,516 8,583 6,4165,313 3,425 13,896 9,841
Purchased transportation 8,250 6,338 15,999 10,5588,846 6,295 24,845 16,853
Supplies and maintenance 4,503 3,315 8,243 5,1664,837 2,824 13,080 7,990
Depreciation and amortization 1,711 1,852 3,207 3,5091,764 1,643 4,972 5,152
Taxes and licenses 610 397 1,189 798703 474 1,893 1,272
Insurance 1,239 697 2,277 1,3751,333 886 3,610 2,261
Communications and utilities 477 327 887 622471 365 1,358 987
Gain on disposition of equipment (40) (22) (82) (48)(250) (409) (332) (457)
Other 778 167 1,358 580750 604 2,106 1,183
--------- ----------- ----------- ----------- -------------------- ---------
Total operating expenses 37,230 27,361 69,642 47,88239,370 27,560 109,012 75,441
--------- ----------- ----------- ----------- -------------------- ---------
OPERATING INCOME 1,593 1,768 1,936 3,4171,468 1,902 3,404 5,320
OTHER (EXPENSES) INCOME:INCOME
Interest expense (1,510) (1,387) (2,966) (2,225)(1,248) (1,408) (4,214) (3,633)
Warrant accretion expense (262)(191) (214) (523) (357)(714) (572)
Debt issuance cost (53)(24) (76) (151) (127)(184) (203)
Amortization of debt discount (63)(375) (72) (160) (120)(526) (192)
Minority interest expense (103)(817) (17) (120) (29)(937) (46)
Investment banking termination fee (1,000) - (1,000) -
Prepayment penalty (240) - (240) -
Warrant expense (56) - (56) -
Other 133 127 332 18437 112 369 296
--------- ----------- ----------- ----------- -------------------- ---------
(LOSS) INCOME BEFORE INCOME TAX BENEFIT (PROVISION),
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (265) 129 (1,652) 743(2,446) 227 (4,098) 970
INCOME TAX BENEFIT (PROVISION) (46) (181) 366 (509)399 (219) 764 (728)
--------- ----------- ----------- ----------- -------------------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (311) (52) (1,286) 234(2,047) 8 (3,334) 242
Loss on extinguishment of debt, net of tax benefit of $142 (228) -- (329) --$9 and $151 (150) - (479) -
--------- ----------- ----------- ----------- -------------------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (539) (52) (1,615) 234(2,197) 8 (3,813) 242
Cumulative effect of change in accounting for
start-up costs, net of tax benefit of $111 -- --- - (177) ---
--------- ----------- ----------- ----------- -------------------- ---------
NET (LOSS) INCOME $ (539)(2,197) $ (52)8 $ (1,792)(3,990) $ 234242
========= =========== =========== =========== ==================== =========
BASIC AND DILUTED NET (LOSS) INCOME PER
COMMON SHARE:SHARE
(Loss) income before extraordinary item and
cumulative effect of accounting change $ (0.06)(0.34) $ (0.01)0.00 $ (0.25)(0.62) $ 0.05
Extraordinary item (0.05) -- (0.07) --(0.02) - (0.09) -
Cumulative effect of accounting change -- --- - (0.04) ---
--------- ----------- ----------- ----------- -------------------- ---------
Net (loss) income $ (0.11) $ (0.01) $ (0.36) $ 0.00 $ (0.75) $ 0.05
========= =========== =========== =========== ==================== =========
Weighted average common shares outstanding 5,098,930 4,612,930 4,974,477 4,556,5756,032,750 4,626,130 5,353,088 4,580,014
========= =========== =========== =========== ==================== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ASCHE TRANSPORTATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
GUARANTEE OF
EMPLOYEE
COMMON STOCK ADDITIONAL STOCK TOTALCommon Stock Guarantee of
----------------------- Employee
$.0001 PAR VALUE PAID-IN OWNERSHIP ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL PLAN DEFICIT EQUITY
--------- --------- --------- --------- --------- ---------Par Value Additional stock Total
----------------------- Paid-In Ownership Accumulated Stockholders'
Shares Amount Capital Plan Deficit Equity
----------------------- ------------- ------------ ------------ -------------
Balance at December 31, 1998 4,696,130 $ --- $ 18,077 $ (155) $ (3,493) $ 14,429
Issuance of common stock 402,8003,927,457 1 2,067 -- -- 2,06815,989 - - 15,990
Reduction in Guarantee of ESOP obligation - - - 3 - 3
Net loss -- -- -- -- (1,792) (1,792)- - - - (3,990) (3,990)
----------------------- ----------- --------- --------- --------- --------- --------- -------------------- ------------
Balance at JuneSeptember 30, 1999 5,098,9308,623,587 $ 1 $ 20,14434,066 $ (155)(152) $ (5,285)(7,483) $ 14,70526,432
======================= =========== ========= ========= ========= ========= ========= ==================== ============
The accompanying notes are an integral part of these condensed consolidated financialf
inancial statements.
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ASCHE TRANSPORTATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNENine Months Ended
September 30,
------------------------------------------
1999 1998
-------- --------------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:ACTIVITIES
Net (loss) Incomeincome $(3,990) $ (1,792) $ 234242
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization 3,207 3,5094,972 5,152
Gain on disposition of equipment (82) (48)(332) (457)
Warrant accretion expense 523 357714 572
Amortization of debt discount 160 120526 192
Amortization of debt issuance costs 521 127619 203
Minority interest 120 29937 46
Changes in other operating items:
Trade receivables (4,022) (7,681)(4,326) (9,502)
Prepaid expenses and other assets 2,050 (2,413)276 (5,647)
Accounts payable (804) 1,7841,137 2,099
Accrued liabilities (2,548) 1,199
-------- --------(1,944) 1,664
------- -------
Net cash used in operating activities (2,667) (2,783)
-------- --------(1,411) (5,436)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:ACTIVITIES
Property and equipment additions:
Revenue equipment (2,685) (3,283)(4,388) (3,789)
Building, office equipment and other (540) (153)(2,657) (554)
Proceeds from the sale of equipment 300 5,9271,192 9,637
Purchase of Specialty Transportation Services, Inc. -- (31,564)
-------- --------- (31,817)
------- -------
Net cash used in investing activities (2,925) (29,073)
-------- --------(5,853) (26,523)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:ACTIVITIES
Proceeds from borrowings of debt with unrelated parties 1,374 18,0422,124 18,090
Proceeds from borrowings of subordinated debt --- 13,375
Minority interest --- 500
Debt issuance costs (72)- (1,175)
Net borrowings on lines of credit 5,766 5,8153,738 8,071
Net increase (decrease) in cash overdraft (220) 136959 1,217
Principal payments on subordinated debt (9,124) --(12,864) -
Principal payments on long-term debt with unrelated parties (1,852) (3,318)(2,895) (3,738)
Principal payments on long-term debt with related party -- (498)(437) (747)
Principal payments on capital leases with unrelated parties (745) (1,046)(1,378) (3,478)
Principal payments on capital leases with related parties (118) (367)(151) (548)
Deferred revenue 6,540 --6,384 -
Proceeds from exercise of options and warrants 2,06815,990 392
-------- --------------- -------
Net cash provided by financing activities 3,617 31,856
-------- --------
DECREASE11,470 31,959
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS: (1,975) --EQUIVALENTS 4,206 -
CASH AND CASH EQUIVALENTS:EQUIVALENTS
Beginning of period 2,761 --
-------- ---------
------- -------
End of period $ 7866,967 $ --
======== ========-
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:INFORMATION
Interest paid $ 3,2614,784 $ 2,257
======== ========3,677
======= =======
Income taxes paid $ 1851 $ 313
======== ========399
======= =======
The accompanying notes are an integral part of these consolidated financial statements.s
tatements.
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ASCHE TRANSPORTATION SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 1999
(in thousands, except per share and share data)
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESSNAME CHANGE
In May 1999, the Company changed its name from Aasche Transportation Services,
Inc. to Asche Transportation Services, Inc.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for fair presentation for the periods
presented have been reflected and are of a normal recurring nature. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto for the three years
ended December 31, 1998, 1997, and 1996, as filed with the Securities and
Exchange Commission as part of the Company's Annual Report on Forms 10-K and
10-K/A. Results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE 3 - ACQUISITION OF THE MUNICIPAL SOLID WASTE HAULING DIVISION OF JACK GRAY
TRANSPORT, INC.
On January 30, 1998, the Company purchased the net assets of the municipal solid
waste transport division of Jack Gray Transport, Inc. (the "Waste Transport
Business") for $30,200 in cash. The Waste Transport Business is operated through
Specialty Transportation Services, Inc. ("STS"), a newly formed subsidiary of
the Company, headquartered in Portage, Indiana. In conjunction with the
acquisition, the Company recorded $5,200 in cost in excess of net assets
acquired. The acquisition was accounted for as a purchase and accordingly, the
1998 consolidated statement of operations includes the results of operations of
STS from the date it was acquired.
The acquisition by STS was financed with an $18,000 senior bank credit facility,
$13,375 of subordinated debt, $2,125 of which was issued to related parties
(primarily directors), $8,000 of which was issued to American Capital
Strategies, Ltd. ("ACS") and $500 from the sale of a 10% common stock interest
in STS to ACS. In connection with the issuance of the subordinated debt, 947,500
warrants to acquire the Company's common stock at prices ranging from $3.49 to
$4.63 per share were issued to various investors, including related parties
(primarily directors), and warrants to acquire an additional 10% of STS common
stock were issued to ACS.
In addition, if the internal rate of return ("IRR") of the $8,000 subordinated
debt investment with ACS is less than 24%, STS is required to issue warrants to
purchase up to an additional 30% of STS common stock for a nominal cost. The
Company has the right to call all, but not less than all, of these warrants or
the underlying common stock, if previously converted, upon 30 days notice after
all, but not less than all, of the $8,000 of subordinated debt issued has been
paid in full by the Company for the greater of fair market value or a 24% IRR.
The Company has the right to call the warrants, or underlying common stock, if
previously converted, any time up to 5 years from the date of the acquisition.
Commencing February 1, 2003, the warrants or underlying common stock, if
previously converted, can be put to STS for cash, an increase in the
subordinated debt, or shares in the Company's common stock at the greater of
fair market value or a 24% IRR on its investment. ACS's $500 common stock
investment in STS can be put to STS after February 1, 2003 for the fair market
value of the common stock. Upon certain events, both the subordinated debt
warrants and the common stock in STS can be put to STS for cash, an increase in
the subordinated debt, or shares in the Company's common stock at an earlier
date. Subsequent to December 31, 1998, actions were taken by the Company
relating to the $8,000 of subordinated debt with ACS. Refer to Note 9.
6
710.
STS transports municipal solid and special waste under contracts ranging from
five to twenty years with municipalities and large national waste services
companies, including Waste Management, Browning-Ferris, Republic Industries and
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Allied Waste Industries. Under the exclusive waste transfer contracts, STS
transports solid and special waste from transfer stations to landfill sites
owned by either the municipality or a waste services company. Subsequent to the
acquisition, STS has expanded its operations to include the transportation of
bulk commodities for the scrap recycling, environmental, construction and
manufacturing industries.
STS is operated as a stand-alone business unit separate from the Company's
existing temperature-controlled operations.
The following unaudited pro forma statement of operations data is based on
certain amounts derived from the unaudited statement of operations of the Waste
Transport Business for the sixnine months ended JuneSeptember 30, 1998, and assumes
that the acquisition of the net assets of the Waste Transport Business occurred
on January 1, 1998. The pro forma data is not necessarily indicative of the
results of operations, which would have occurred had the acquisition taken place
on January 1, 1998, or of future results of the consolidated operations of STS
and the Company.
Net revenues $54,733
Net loss 232
Basic and diluted net loss per share 0.06
Net revenues $69,673
Net loss 531
Basic and diluted net loss per share 0.12
NOTE 4 - SEGMENT INFORMATION
DESCRIPTION OF THE TYPES OF SERVICES FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUES
The Company has two reportable segments, the Temperature-Controlled Segment and
the Municipal Solid Waste Segment (acquired January 30, 1998). The
Temperature-Controlled Segment consists of two operating companies, Asche
Transfer, Inc. and AG Carriers, Inc., that provide temperature-controlled,
time-sensitive transportation of perishable consumer products. The Municipal
Solid Waste Segment consists of one operating company, Specialty Transportation
Services, Inc., that provides municipal solid waste and bulk industrial
transport services.
MEASUREMENT OF SEGMENT PROFIT AND LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources on net profit and loss
from operations. The Municipal Solid Waste Segment financial data includes
parent company subordinated debt of $3,770$4,766 at JuneSeptember 30, 1999 ($5,375 at June 30,
1998),1998, less
unamortized debt discount of $396$609 at JuneSeptember 30, 1999 ($537 at June 30,
1998)1998 issued by the parent
company and related debt issuance costs of $210, less accumulated amortization
of $210 at JuneSeptember 30, 1999 ($6299 at JuneSeptember 30, 1998) in connection with the
acquisition of the Waste Transport Business. The related interest expense of
$256$337 for the sixnine month period ended JuneSeptember 30, 1999 ($278444 for the sixnine month
period ended JuneSeptember 30, 1998), amortization of debt issuance costs of $74 for
the sixnine month period ended JuneSeptember 30, 1999 ($6299 for the sixnine month period
ended JuneSeptember 30, 1998) and amortization of debt discount of $151$526 for the sixnine
month period ended JuneSeptember 30, 1999 ($44192 for the sixnine month period ended
JuneSeptember 30, 1998) are also included in the Municipal Solid Waste Segment.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer different
transportation services. The reportable segments are each managed separately
because of the distinct differences in the operations.
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TEMPERATURE- MUNICIPAL
SIXNINE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1999: CONTROLLED SOLID WASTE TOTALS
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ----------- --------
Net revenues $ 31,218 $ 40,360 $ 71,578$47,221 $65,195 $112,416
Depreciation and amortization 1,537 1,670 3,2072,270 2,702 4,972
Operating income 1,439 1,266 2,7052,061 2,559 4,620
Interest expense 646 2,291 2,9371,007 3,163 4,170
Income tax benefit (provision) (379) 438 59(510) 789 279
Segment profit (loss) before extraordinary item and
cumulative effect of accounting change 607 (1,402) (795)816 (3,319) (2,503)
Cumulation effect of accounting change - (177) (177)
Segment profit (loss) 607 (1,807) (1,200)816 (3,874) (3,058)
Significant noncash items included in segment profit (loss):
Warrant accretion expense - 523 523714 714
Amortization of debt issuance costs - 151 151184 184
Amortization of debt discount - 160 160526 526
Other - 120 120937 937
Segment assets 38,081 49,521 87,60241,029 50,976 92,005
Expenditures for long-lived assets 2,651 574 3,2255,642 1,403 7,045
OPERATING INCOME
Total operating income for reportable segments $ 2,7054,620
Parent company operating loss (769)
========(1,216)
--------
Total consolidated operating income $ 1,9363,404
========
SEGMENT LOSS
Total loss for reportable segments $ (1,200)(3,058)
Parent company loss (592)
=========(932)
--------
Total consolidated loss $ (1,792)
=========(3,990)
========
ASSETS
Total assets for reportable segments $ 87,60292,005
Parent company assets 24
=========5,123
--------
Total consolidated assets $ 87,626
=========
97,128
========
OTHER SIGNIFICANT ITEMS
PARENT
SEGMENT COMPANY CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
--------------------------------------------TOTAL
------- ----------- ------------
Interest expense $ 2,9374,170 $ 2944 $ 2,9664,214
Income tax benefit 59 307 366279 485 764
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TEMPERATURE- MUNICIPAL
SIXNINE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1998: CONTROLLED SOLID WASTE TOTALS
- --------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ------------ ----------- --------
Net revenues $ 31,308 $ 19,991 $ 51,299$45,830 $34,931 $80,761
Depreciation and amortization 2,293 1,216 3,5093,220 1,932 5,152
Operating income 2,188 1,802 3,9903,301 2,895 6,196
Interest expense 684 1,514 2,1981,043 2,547 3,590
Income tax provision 652 88 740984 98 1,082
Segment profit (loss) 988 (385) 6031,490 (683) 807
Significant noncash items included in segment profit (loss):
Warrant accretion expense - 357 357572 572
Amortization of debt issuance costs - 127 127203 203
Amortization of debt discount - 120 120192 192
Other - 29 2946 46
Segment assets 38,651 38,724 77,37536,066 42,566 78,632
Expenditures for long-lived assets 3,354 82 3,4363,506 837 4,343
OPERATING INCOME
Total operating income for reportable segments $ 3,9906,196
Parent company operating loss (573)
=========(876)
-------
Total consolidated operating income $ 3,417
=========5,320
=======
SEGMENT PROFIT (LOSS)
Total profit for reportable segments $ 603807
Parent company loss (369)
========(565)
-------
Total consolidated profit $ 234
========242
=======
ASSETS
Total assets for reportable segments $ 77,375$78,632
Parent company assets 169
========107
-------
Total consolidated assets $ 77,544
========
$78,739
=======
OTHER SIGNIFICANT ITEMS
PARENT
SEGMENT COMPANY CONSOLIDATED
TOTALS ADJUSTMENTS TOTALSTOTAL
------- ----------- ----------- -----------------------
Interest expense $ 2,1983,590 $ 2743 $ 2,2253,633
Income tax provision (benefit) 740 (231) 5091,082 (354) 728
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TEMPERATURE- MUNICIPAL
THREE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1999: CONTROLLED SOLID WASTE TOTALS
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------ ----------- --------
Net revenues $ 16,672 $ 22,151 $ 38,823$16,002 $24,836 $40,838
Depreciation and amortization 770 941 1,711732 1,032 1,764
Operating income 1,062 969 2,031623 1,292 1,915
Interest expense 341 1,155 1,496361 872 1,233
Income tax benefit (provision) (311) 90 (221)(130) 351 221
Segment profit (loss) before extraordinary item and
cumulative effect of accounting change 499 (532) (33)
Loss on extinguishment of debt -- (228) (228)210 (1,917) (1,707)
Segment profit (loss) 499 (760) (261)210 (2,067) (1,857)
Significant noncash items included in segment profit (loss):
Warrant accretion expense -- 261 261- 191 191
Amortization of debt issuance costs -- 53 53- 24 24
Amortization of debt discount -- 63 63- 375 375
Other -- 103 103- 817 817
Segment assets 38,081 49,521 87,60241,029 50,976 92,005
Expenditures for long-lived assets 659 -- 6592,991 829 3,820
OPERATING INCOME
Total operating income for reportable segments $ 2,0311,915
Parent company operating loss (438)
========(447)
-------
Total consolidated operating income $ 1,593
========1,468
=======
SEGMENT LOSS
Total loss for reportable segments $ (261)$(1,857)
Parent company loss (278)
=======(340)
-------
Total consolidated loss $ (539)$(2,197)
=======
ASSETS
Total assets for reportable segments $ 87,602$92,005
Parent company assets 24
=========5,123
-------
Total consolidated assets $ 87,626
=========$97,128
=======
OTHER SIGNIFICANT ITEMS
PARENT
SEGMENT COMPANY CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
- --------------------------------------------------------------------------------------------------------------------TOTAL
------- ----------- ------------
Interest expense $ 1,4961,233 $ 1415 $ 1,5101,248
Income tax benefit (provision) (221) 175 (46)221 178 399
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TEMPERATURE- MUNICIPAL
THREE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1998: CONTROLLED SOLID WASTE TOTALS
- ----------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------- ------------ ----------- --------
Net revenues $ 16,006 $ 13,123 $ 29,129$14,522 $14,940 $29,462
Depreciation and amortization 1,130 722 1,852927 716 1,643
Operating income 1,199 892 2,0911,112 1,093 2,205
Interest expense 389 984 1,373360 1,032 1,392
Income tax provision (benefit) 353 (42) 311332 10 342
Segment profit (loss) 538 (382) 156503 (299) 204
Significant noncash items included in segment profit (loss):
Warrant accretion expense - 214 214
Amortization of debt issuance costs - 76 76
Amortization of debt discount - 72 72
Other - 17 17
Segment assets 38,651 38,724 77,37536,066 42,566 78,632
Expenditures for long-lived assets 266 82 348152 755 907
OPERATING INCOME
Total operating income for reportable segments $ 2,0912,205
Parent company operating loss (323)(303)
-------
Total consolidated operating income $ 1,768
========1,902
=======
SEGMENT PROFIT (LOSS)
Total profit for reportable segments $ 156204
Parent company loss (208)
------(196)
-------
Total consolidated profit $ (52)
======8
=======
ASSETS
Total assets for reportable segments $ 77,375$78,632
Parent company assets 169
---------107
-------
Total consolidated assets $ 77,544
=========
$78,739
=======
OTHER SIGNIFICANT ITEMS
PARENT
SEGMENT COMPANY CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------------- ------------- ----------------TOTAL
------- ----------- ------------
Interest expense $ 1,3731,392 $ 1416 $ 1,3871,408
Income tax provision (benefit) 311 (130) 181342 (123) 219
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NOTE 5 - DEBT TO EQUITY EXCHANGES
OnIn January 29, 1999, certain related parties, substantially all of whom are officers
and directors of the Company, exchanged $675 of subordinated debt bearing 14%
interest for 135,000 shares of the Company's common stock.
OnIn March 12, 1999, an unrelated individual who is an affiliate of the Company exchanged $1,150
of subordinated debt bearing 14% interest for 230,000 shares of the Company's
common stock. In addition, $189 of accrued interest owed to this individual was
exchanged for an additional 37,800 shares of the Company's common stock and
75,000 warrants to purchase the Company's common stock at $5 per share were also issued to this
individual.share. In
connection with the issuance of the warrants to purchase the Company's common
stock, the Company recorded a non-recurring, non-cash, one-time extraordinary
loss of $102 in the first quarter of 1999.
In July 1999, certain unrelated individuals exchanged $400 of subordinated debt
bearing 14% interest for 88,894 shares of the Company's common stock.
Additionally, $86 of accrued interest owed to these individuals was exchanged
for an additional 19,096 shares of the Company's common stock.
NOTE 6 - MODIFICATION OF LONG-TERM CONTRACT AND PREPAYMENT OF SUBORDINATED DEBT
In June 1999, STS modified a long-term contract with the Metropolitan Service
District of Portland ("Metro"). Under the terms of the modification, STS willagreed
to give Metro a rate reduction of one dollar per ton to transport municipal
solid waste. In exchange of the rate reduction, Metro agreed to prepay $6,592 of
monthly fixed payments provided for in the original contract. In addition, Metro
agreed to return $2,500 of cash to STS that was held by Metro to secure STS's
performance under their contract. STS hauls approximately 650 tons of municipal
solid waste per year under this contract.
In June 1999, STS prepaid $7,500 of subordinated debt with ACS. In conjunction
with the prepayment, STS and ACS entered into an agreement, whereby STS agreed
to a floor on ACS's common stock investment in STS of an internal rate of return
of 24% to ACS in exchange for STS's right to call ACS's common stock investment
in STS after the final payment of the remaining $500 of subordinated debt with
ACS.
NOTE 7 - ISSUANCES OF COMMON STOCK
In July 1999, the Company issued 750,000 shares of the Company's common stock in
a private sale to an individual investor who is an affiliate of the Company for
$3,000.
In September 1999, the Company issued 2,666,667 shares of the Company's common
stock in a private sale to Churchill Environmental & Industrial Equity Partners,
L.P ("Churchill") for $12,000, $10,621 net of offering expenses. A portion of
the proceeds were used to pay-off subordinated debt of $1,950 and pay-down the
lines of credit by $4,156.
Under the agreement with Churchill, if the highest average closing price on the
NASDAQ of the Company's common stock for any ten consecutive trading days during
the period from September 1, 2000 to November 1, 2000 (the "Adjustment Price")
is less than $6.50, the Company is required to issue to Churchill a number of
additional shares, if any, equal to the quotient of (x) (1) $6.50 multiplied by
2,666,667; minus (2) the greater of the Adjustment Price or $3.00 per share
multiplied by 2,666,667, divided by (y) the greater of the Adjustment Price or
$3.00 per share.
NOTE 8 - COMMON SHARE DATA
Basic income per share is computed using the weighted-average number of shares
outstanding. On a diluted basis, the weighted average number of shares
outstanding is adjusted for the incremental shares attributed to outstanding
options and warrants, when the effect of such items are dilutive. Diluted
weighted-average shares outstanding for the sixthree months ended JuneSeptember 30,
1998 in connection with options and warrants amountamounted to 564,295559,075. Diluted
weighted-average shares outstanding for the nine months ended September 30, 1998
in connection with options and warrants amounted to 568,638 shares.
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13
NOTE 89 - RECENT ACCOUNTING STANDARDS
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities", which requires the costs of start-up activities, including
organization costs, to be expensed as incurred. The SOP broadly defines start-up
activities as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or beneficiary, initiating a new process in an existing facility, or
commencing some new operation. The SOP is effective for the Company for fiscal
years beginning after December 15, 1998, and requires the Company upon adoption
to write off any previously capitalized start-up or organization costs as a
cumulative effect of a change in accounting principle. Thus, effective January
1, 1999, the Company wrote off all organization and start-up costs under the SOP
as a cumulative effect of a change in accounting principle in the amount of
$177, net of tax benefit of $111, which primarily relatesrelated to the STS costs
incurred in 1998 to open new terminals or expand existing facilities.
NOTE 910 - SUBSEQUENT EVENTS
The Company was not in compliance with certain loan covenants during the year
ended December 31, 1998 and as of April 15, 1999 had not obtained necessary
waivers and amendments from its lenders.
The Company's management has actively pursued various financing and equity
related transactions subsequent to the filing of its Form 10-K on April 15,
1999. As a result of the various actions taken by the Company, the Company has
been successful in obtaining all the necessary waivers and amendments by August
10, 1999 from its lenders in order for the debt to no longer be considered in
default at and for the year ended December 31, 1998.
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13
Additionally, management believes that the Company's financial performance for
1999 and planned activities will enable the Company to comply with its amended
loan covenant requirements during 1999.
In July 1999, the Company completed a private placement of the Company's common
stock to an individual investor. The Company raised $3,000 in exchange for
750,000 shares of the Company's common stock.
In JulyOctober 1999, the Company paid off $1,050 of$4,515 to ACS to pay-off all remaining
subordinated debt bearing 14%
interest.held by ACS ($500), to call all warrants in STS held by ACS,
to purchase the 10% common stock in STS held by ACS and to terminate an
investment banking agreement between STS and ACS. In July 1999, certain unrelated individuals exchanged $400 ofconjunction with these
transactions and the subordinated debt bearing 14% interest for 88,894 shares of the Company's common stock.
Additionally, $86 of accrued interest owed to these individuals was exchanged
for an additional 19,096 shares of the Company's common stock.
In August$1,950 paid-off in September 1999 (see
Note 7), the Company paid off $350incurred a one-time, non-recurring charge of subordinated debt bearing 14%
interest.$1,780, net of
income tax benefit of $995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations contain forward-looking statements relating to future
financial results or business expectations. Business plans may change as
circumstances warrant. Actual results may differ materially as a result of
factors over which the Company has no control. Such factors include, but are not
limited to: general economic conditions, availability of drivers, labor costs,
fuel costs, interest rates, competition and governmental regulations. These risk
factors and additional information are included in the Company's reports on file
with the Securities and Exchange Commission.
On January 30, 1998, the Company purchased the net assets of the Waste Transport
Business ("STS Acquisition") for $30,200 in cash. The Waste Transport Business
is operated through STS, a newly formed subsidiary of the Company. The STS
acquisition was accounted for as a purchase and accordingly, the 1998
consolidated statement of operations includes the results of STS from the date
it was acquired. The results of operations discussed below are not necessarily
comparable between periods because the results from operations for the sixnine
months ended JuneSeptember 30, 1999 include STS and the results from operations for
the sixnine months ended JuneSeptember 30, 1998 only includes STS since the date it was
acquired.
RESULTS OF OPERATIONS
COMPARISON OF THE SIXNINE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1999 WITH THE SIX MONTHNINE-MONTH
PERIOD ENDED JUNESEPTEMBER 30, 1998.
Net revenues increased $20.3$31.7 million, or 39.5%,39.2 %, to $71.6$112.4 million in 1999, from
$51.3$80.8 million in 1998, largely due to the STS Acquisition. During the first halfnine
months of 1999, the Company increased its revenue producing power units by 139235
units. Without giving effect to the additional net revenues contributed by the
STS Acquisition, the Company's net revenues decreasedincreased by $0.1$1.4 million, or 0.3%3.0%.
Net revenues on a pro forma basis (assuming the STS Acquisition had occurred on
January 1, 1998) increased $16.9$28.2 million, or 30.8%33.5% to $71.6$112.4 million for 1999
due to increased volume from existing customers and the addition of new
customers in 1999.
Total miles increased 12.719.6 million, or 32.2%,31.5 %, to 52.281.8 million in 1999 from 39.562.2
million in 1998, largely due to the STS Acquisition. Average miles per tractor
decreased 10.8%10.9% to 48,92273,335 miles in 1999 from 54,83982,332 miles in 1998. Average
revenue per tractor decreased 5.8%5.6% to $67,021$100,822 in 1999 from $71,179$106,827 in 1998.
The decreases in average miles per
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14
tractor and average revenue per tractor are primarily attributable to the
effects of the STS Acquisition. Without giving effect to the STS Acquisition,
the Company's total miles decreasedincreased by 0.10.9 million, or 0.3%3.3%. Competition for
drivers is intense within the trucking industry and the Company occasionally
experiences difficulty attracting and retaining qualified drivers and
owner-operators in its Temperature-Controlled Segment, which results in the
temporary idling of revenue equipment.
The Company's operating ratio (operating expenses divided by operating revenues)
increased 4.0%3.6%, to 97.3%97.0% in 1999 from 93.3%93.4% in 1998. The increase in the
operating ratio is largely due to the STS Acquisition and a shortage of drivers
13
14
at Asche Transfer, Inc.,the Temperature-Controlled Segment, which resulted in poor operating results
in January 1999. Without giving effect to the STS Acquisition, the Company's
operating ratio increased 3.1%3.5%, to 97.9%98.2% in 1999 from 94.8%94.7% in 1998. Total
operating expenses increased $21.8$33.6 million, or 45.4%44.5%, to $69.6$109.0 million in 1999,
compared to $47.9$75.4 million in 1998, largely due to the STS Acquisition. Without
giving effect to the STS Acquisition, the Company's total operating expenses
increased by $0.9$3.0 million, or 2.9%6.8%.
Operating expenses on a pro forma basis increased $18.8$30.6 million, or 36.9%39.0% to
$69.6$109.0 million for 1999.
Salaries, wages and benefits increased $9.1$13.2 million, or 48.0%43.6%, to $28.0$43.6 million
in 1999 compared to $18.9$30.4 million in 1998, due to the STS Acquisition and
increases in overall compensation of drivers that were needed to enhance
recruitment and retention. Without giving effect to the STS Acquisition, the
Company's salaries, wages and benefits increased by $0.6$1.3 million, or 5.4%7.1%,
largely due to increases in overall compensation of drivers that were needed to
enhance driver recruitment and retention.
Salaries, wages and benefits on a pro forma basis increased $7.9$12.0 million, or
39.0%38.0% to $28.0$43.6 million for 1999, largely due to increases in overall
compensation of drivers that were needed to enhance driver recruitment and
retention, as well as, having more tractors in service.
Fuel expenses increased $2.2$4.1 million, or 33.8%41.2%, to $8.6$13.9 million in 1999
compared to $6.4$9.8 million in 1999,1998, largely due to the effect of the STS
Acquisition which more than offset decreased fuel prices. Without giving effect
to the STS Acquisition, the Company's fuel expense decreased by $0.5$0.2 million or
11.0%2.6%, largely due to decreased fuel prices.
Fuel expense on a pro forma basis increased $1.8$3.7 million, or 26.9%36.4% to $8.6$13.9
million for 1999, due to having more tractors in service which more than offset
decreased fuel prices.
Purchased transportation expense increased $5.4$8.0 million, or 51.5%47.4%, to $16.0$24.8
million in 1999 compared to $10.6$16.9 million in 1998, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
purchased transportation expense increased by $1.0$1.6 million, or 16.6%17.9%, due to an
increase in contractor operated units.
Purchased transportation expense on a pro forma basis increased $4.8$7.3 million, or
42.7%41.9% to $16.0$24.8 million for 1999, due to an increase in contractor-operated
units.
Supplies and maintenance expenses increased $3.1$5.1 million, or 59.6%63.7%, to $8.2$13.1
million in 1999 compared to $5.2$8.0 million in 1998, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
supplies and maintenance expense decreasedincreased by $0.3$0.02 million, or 11.5%, due to a
decrease in company-owned units in service.0.6%.
Supplies and maintenance expense on a pro forma basis increased $2.8$4.8 million, or
50.5%57.6% to $8.2$13.1 million for 1999, due to having more tractors in service.
Insurance expense increased $0.9$1.3 million, or 65.6%59.7%, to $2.3$3.6 million in 1999
compared to $1.4$2.3 million in 1998, largely due to the STS Acquisition.
Interest expense increased $0.7$0.6 million, or 33.3%16.0%, to $3.0$4.2 million in 1999
compared to $2.2$3.6 million in 1998, due to the STS Acquisition. Outstanding debt
and capital lease obligations aggregated $57.4$50.6 million at JuneSeptember 30, 1999
compared with $62.0 million at December 31, 1998.
Warrant accretion expense of $523$714 and $357$572 in 1999 and 1998, respectively,
represents the accretion of STS warrants in connection with the STS Acquisition.
Debt issuance cost of $160$184 and $127$203 in 1999 and 1998, respectively, represents
the amortization of debt issuance costs in connection with the STS Acquisition.
14
15
Amortization of debt discount of $151$526 and $120$192 in 1999 and 1998, respectively,
represents the amortization of debt discount in connection with the STS
Acquisition.
Minority interest expense of $120$937 and $29$46 in 1999 and 1998, respectively,
represents the increase in minority interest in connection with the STS
Acquisition.
14
15The investment banking termination fee of $1,000 in 1999 represents the
termination of an investment banking agreement between STS and ACS.
The effective income tax rates of 22.2%18.6% (benefit) and 68.5%75.1% (provision) in 1999
and 1998, respectively, are higher than the federal statutory rate due primarily
to the non-deductibility of certain expenses (i.e. warrant accretion expense,
amortization of debt discount, minority interest and per diem expense
reimbursement paid to drivers.)
The loss on extinguishment of debt of $329,$479, net of tax benefit of $142,$151, relates
to the issuance of warrants to purchase the Company's common stock issued in
connection with an exchange of subordinated debt for common stock in March 1999
and the
write-off of debt issuance costs due to the prepayment of subordinated debt in June 1999.debt.
The cumulative effect of change in accounting relates to the write-off of
organization costs of $177, net of tax benefit of $111, in accordance with SOP
98-5 "Reporting on the Costs of Start-up Activities".
Net loss increased $2.0$4.2 million to $1.8$4.0 million in 1999 compared to net income
of $0.2 million in 1998, largely due to non-recurring one-time charges (i.e.,
loss on extinguishment of debt, and cumulative effect of a change in accounting)accounting,
warrant accretion expense, debt issuance cost, amortization of debt discount,
minority interest expense, investment banking termination fee, prepayment
penalty and warrant expense) totaling $0.3$4.6 million, $0.2$2.9 million net of tax, as
well as, a loss before
cumulative effect of accounting change of $1.6 million at STS, largely due to
the start-up operations of six new terminals in 1999 and a shortage of
drivers at Asche Transfer, Inc.the Temperature-Controlled Segment which resulted in poor operating
results in January 1999.
COMPARISON OF THE THREE MONTH PERIOD ENDED JUNESEPTEMBER 30, 1999 WITH THE
THREE MONTHTHREE-MONTH PERIOD ENDED JUNESEPTEMBER 30, 1998.
Net revenues increased $9.7$11.4 million, or 33.3%38.6%, to $38.8$40.8 million in 1999, from
$29.1$29.5 million in 1998, largely due to having more tractors in service. During
the secondthird quarter of 1999, the Company increased its revenue producing power
units by 13096 units. Without giving effect to the additional net revenues
contributed by the STS Acquisition, the Company's net revenues increased by $0.7$1.5
million, or 4.2%10.2%, due to having more tractors in service.
Total miles increased 6.46.8 million, or 29.1%30.0%, to 28.429.5 million in 1999 from 22.022.7
million in 1998, largely due to having more tractors in service. Average miles
per tractor decreased 7.5%14.3% to 25,96823,541 miles in 1999 from 28,06927,483 miles in 1998.
Average revenue per tractor decreased 4.3%8.6% to $35,520$32,566 in 1999 from $37,121$35,638 in
1998. The decreases in average miles per tractor and average revenue per tractor
are primarily attributable to the effects of the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's total miles increased by 0.51.1
million, or 3.9%9.8%, due to having more tractors in service. Competition for
drivers is intense within the trucking industry and the Company occasionally
experiences difficulty attracting and retaining qualified drivers and
owner-operators in its Temperature-Controlled Segment, which results in the
temporary idling of revenue equipment.
The Company's operating ratio (operating expenses divided by operating revenues)
increased 2.0%2.9%, to 95.9%96.4% in 1999 from 93.9%93.5% in 1998. The increase in the
operating ratio is largely due to increases in salaries, wages and benefits,
supplies andfuel, maintenance and insurance
expenses. Without giving effect to the STS Acquisition, the Company's operating
ratio increased 1.8%4.5%, to 96.3%98.9% in 1999 from 94.5%94.4% in 1998. Total operating
expenses increased $9.9$11.8 million, or 36.1%42.9%, to $37.2$39.4 million in 1999, compared
to $27.4$27.6 million in 1998, largely due to increases in salaries, wages and benefits, supplies andfuel, maintenance and
insurance expenses. Without giving effect to the STS Acquisition, the Company's
total operating expenses increased by $0.9$2.1 million, or 6.1%15.4%.
Salaries, wages and benefits increased $4.2 million, or 39.3%36.2%, to $15.0$15.6 million
in 1999 compared to $10.8$11.5 million in 1998, due to having more tractors in
service and increases in overall compensation of drivers that were needed to
enhance recruitment and retention. Without giving effect to the STS Acquisition,
the Company's salaries, wages and benefits increased by $0.5$0.6 million, or 8.1%10.5%,
largely due to increases in overall compensation of drivers that were needed to
enhance driver recruitment and retention.
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Fuel expenses increased $1.2$1.9 million, or 33.4%55.1%, to $4.7$5.3 million in 1999 compared
to $3.5$3.4 million in 1999,1998, largely due to having more tractors in service which
more than offset decreasedand
increased fuel prices. Without giving effect to the STS Acquisition, the
Company's fuel expense decreasedincreased by $0.2$0.3 million or 9.1%16.7%, largely due to
decreasedincreased fuel prices.
Purchased transportation expense increased $1.9$2.6 million, or 30.2%40.5%, to $8.3$8.8
million in 1999 compared to $6.3 million in 1998, largely due to an increase in
contractor-operated units. Without giving effect to the STS Acquisition, the
Company's purchased transportation expense increased by $0.4$0.6 million, or 12.7%20.7%,
due to an increase in contractor operated units.
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16
Supplies and maintenance expenses increased $1.2$2.0 million, or 35.8%71.3%, to $4.5$4.8
million in 1999 compared to $3.3$2.8 million in 1998, largely due to an increase in
company-owned units in service. Without giving effect to the STS Acquisition,
the Company's supplies and maintenance expense decreasedincreased by $0.1$0.3 million, or
6.1%34.0%.
Insurance expense increased $0.5$0.4 million, or 77.8%50.5%, to $1.2$1.3 million in 1999
compared to $0.7$0.9 million in 1998, largely due to increased insurance claims.claims and
an increase in tractors in service.
Interest expense increased $0.1decreased $0.2 million, or 8.9%11.4%, to $1.5$1.2 million in 1999
compared to $1.4 million in 1998. Outstanding debt and capital lease obligations
aggregated $57.4$50.6 million at JuneSeptember 30, 1999 compared with $62.0 million at
December 31, 1998.
Warrant accretion expense of $262$191 and $214 in 1999 and 1998, respectively,
represents the accretion of STS warrants in connection with the STS Acquisition.
Debt issuance cost of $63$24 and $76 in 1999 and 1998, respectively, represents the
amortization of debt issuance costs in connection with the STS Acquisition.
Amortization of debt discount of $53$375 and $72 in 1999 and 1998, respectively,
represents the amortization of debt discount in connection with the STS
Acquisition.
Minority interest expense of $103$817 and $17 in 1999 and 1998, respectively,
represents the increase in minority interest in connection with the STS
Acquisition.
The investment banking termination fee of $1,000 in 1999 represents the
termination of an investment banking agreement between STS and ACS.
The effective income tax rates are higher than the federal statutory rate due
primarily to the non-deductibility of certain expenses (i.e. warrant accretion
expense, amortization of debt discount, minority interest and per diem expense
reimbursement paid to drivers.)
The loss on extinguishment of debt of $228,$150, net of tax benefit of $142,$9, relates to
the write-off of debt issuance costs due to the prepayment of subordinated debt in June 1999.debt.
Net loss increased $0.5$2.2 million to $0.5$2.2 million in 1999, largely due to a
non-recurring one-time charge (i.e., loss on extinguishment of debt)debt, warrant
accretion expense, debt issuance cost, amortization of debt discount, minority
interest expense, investment banking termination fee, prepayment penalty and
warrant expense) totaling $0.2$2.9 million, as well as, increases in salaries, wages and benefits, supplies
andfuel,
maintenance and insurance expenses.
LIQUIDITY AND CAPITAL RESOURCES
At JuneSeptember 30, 1999, the Company had net working capital of $7.7$15.3 million. The
Company historically has funded its working capital requirements through a
combination of operating profits, short turnover in trade receivables, effective
cash management practices and borrowing under its revolving bank lines of
credit. The Company has two revolving bank lines of credit with a total
borrowing limit of $24.0 million, consisting of $18.0 million (Municipal Solid
Waste Segment) and $6.0 million (Temperature-Controlled Segment), based on a
percentage of eligible trade receivables and certain other fixed assets, $24.4$22.4
million was borrowed against the lines of credit at JuneSeptember 30, 1999,
consisting of $18.6$17.4 million (Municipal Solid Waste Segment) and $5.8$5.0 million
(Temperature-Controlled Segment). The Company had no availability$2.3 million available at
JuneSeptember 30, 1999.
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17
The Company's growth and the significant investment in its modern fleet of
tractors and trailers have historically been financed substantially through
long-term debt and lease obligations collateralized by the equipment. The
Company's outstanding debt and capital lease obligations, including current
maturities, aggregated $57.4$50.6 million and $62.0 million at JuneSeptember 30, 1999 and
December 31, 1998, respectively. The debt to equity ratio (calculated excluding
payables and other liabilities) was 3.91:1.92:1 at JuneSeptember 30, 1999 and 4.30:1 at
December 31, 1998.
The Company believes that available cash, cash flow from future operations, and
borrowings under its lines of credit will be sufficient to meet its current
working capital needs and short-term commitments. The Company's long-term
commitments consist of long-term debt and lease obligations. The Company
believes that available cash, cash flow from operations, equity that the Company
has in its equipment upon sale, and borrowings under its lines of credit will be
sufficient to meet its long-term commitments.
16
17
OnIn January 29, 1999, certain related parties, substantially all of whom are officers
and directors of the Company, exchanged $0.7 million of the
subordinated debt for
135,000 shares of the Company's common stock. OnIn March 12, 1999, an unrelated individual who
is an affiliate of the Company exchanged $1.2 million of the subordinated debt
for 230,000 shares of the Company's common stock. Additionally, $0.2 million of
accrued interest owed to this individual was exchanged for 37,800 additional
shares of the Company's common stock.
In June 1999, STS modified a long-term contract with Metro. Under the terms of
the modification, STS willagreed to give Metro a rate reduction of one dollar per
ton to transport municipal solid waste. In exchange of the rate reduction, Metro
agreed to prepay $6.6 million of monthly fixed payments provided for in the
original contract. In addition, Metro agreed to return $2.5 million of cash to
STS that was held by Metro to secure STS's performance under their contract.
The proceeds were used to prepay $7.5 million of subordinated debt with ACS.
In July 1999, the Company completed a private placement of the Company's common
stock to an individual investor. The Company raised $3.0 million in exchange forissued 750,000 shares of the Company's common stock.stock in
a private sale to an individual investor who is an affiliate of the Company for
$3,000. In July 1999, the Company paid off $1.1 million of subordinated debt
bearing 14% interest. In July 1999, certain unrelated individuals exchanged $0.4
million of subordinated debt bearing 14% interest for 88,894 shares of the
Company's common stock. Additionally, $0.1 million of accrued interest owed to
these individuals was exchanged for 19,096 additional shares of the Company's
common stock. In August 1999, the Company paid off $0.4 million of subordinated
debt bearing 14% interest. In September 1999, the Company issued 2,666,667
shares of the Company's common stock in a private sale to Churchill for $12
million, $10.6 million net of offering expenses. The Company
anticipates prepaying the remainingproceeds were used to
pay-off subordinated debt through an equity
infusion.of $ 2.0 million and pay-down the lines of credit by
$4.2 million.
The Company anticipates its future growth in the Municipal Solid Waste Segment
to be more prominent than the Temperature-Controlled Segment. Certain growth in
the Municipal Solid Waste Segment is also anticipated to come from new contract
opportunities at existing terminal facilities, also requiring the purchase of
additional motor carrier and other equipment. These equipment purchases are
anticipated to be financed primarily through long-term debt and lease
obligations collateralized by the equipment. Certain growth in the Municipal
Solid Waste Segment is also anticipated to come from new contract opportunities
at new locations requiring a significantly greater investment by the Company.
The Company anticipates financing start-up costs for the new terminal facilities
primarily through lease obligations.
As the Company continues to facilitate its planned future growth, the Company's
capital needs may require additional borrowings or an equity infusion.
RECENT ACCOUNTING STANDARDS
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities", which requires the costs of start-up activities, including
organization costs, to be expensed as incurred. The SOP broadly defines start-up
activities as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer or beneficiary, initiating a new process in an existing facility, or
commencing some new operation. The SOP is effective for the Company for fiscal
years beginning after December 15, 1998, and requires the Company upon adoption
to write off any previously capitalized start-up or organization costs as a
cumulative effect of a change in accounting principle. Thus, effective January
1, 1999, the Company wrote off all organization and start-up costs under the SOP
as a cumulative effect of a change in accounting principle in the amount of $0.2
million, net of tax benefit of $0.1 million, which primarily relates to the STS
costs incurred in 1998 to open new terminals or expand existing facilities.
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CHANGE IN ESTIMATED SALVAGE VALUES
In July 1998, the Company adjusted the estimated salvage values related to
certain motor carrier equipment of AG Carriers, Inc. from 20% to 49% of the
original purchase price. The change better aligns the allocation of equipment
cost with its expected use. This change reduced operating expenses approximately
$0.1$0.15 million, $0.06$0.09 million after-tax ($0.01 basic and diluted net income per common
share) in the sixnine month period ended JuneSeptember
30, 1999.
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RELATED PARTY LEASES
The Company currently leases certain of its revenue equipment from related
parties. These leases are accounted for as capital leases. Payments to related
parties on capital lease obligations in the sixnine month periods ended JuneSeptember
30, 1999 and 1998 were $0.1$0.2 million and $0.4$0.6 million, respectively.
SEASONALITY
The Company's Temperature-Controlled Segment results of operations show a
seasonal pattern because certain of the frozen food companies serviced by the
Company generally reduce shipments during the summer season. During the winter
months, the Company has at times experienced delays in meeting its pick-up and
delivery schedules as a result of severe weather conditions. In addition, the
Company's operating expenses have historically been higher in the winter months
due to decreased fuel efficiency and increased maintenance costs in colder
weather. Accordingly, such factors cause fluctuations in results of operations.
The foliage business of ATIAsche Transfer, Inc. experiences seasonal fluctuations
in volume during certain periods of the year. The Company's Municipal Solid
Waste Segment does not experience significant seasonal fluctuations.
YEAR 2000
Computer programs have historically been written to abbreviate dates by using
two digits instead of four digits to identify a particular year. The so-called
"year 2000 problem" or "millennium bug" is the inability of computer software or
hardware to recognize or properly process dates ending in "00" and dates after
the year 2000. Significant attention is focused as the year 2000 approaches on
updating or replacing such software and hardware in order to avoid system
failures, miscalculations or business interruptions that might otherwise result.
The Company is taking the steps we believe are necessary to insure that this
potential problem does not adversely affect our operating results in the future.
We are continuinghave completed our as-yet-incomplete assessment of the impact of the year 2000 problem.
The Company has reviewed its internal information systems and believes that the
costs and efforts to address the year 2000 problem will not be material to our
business, financial condition or results of operations, and may be resolved
through replacements and upgrades to our software or hardware. The year 2000
problem may, however, adversely impact the Company by affecting the business and
operations of parties with which we transact business, although we are unable to
precisely determine the likelihood or potential impact of any such event. There
can be no assurance that the Company will be able to effectively address year
2000 issues in a cost-efficient manner and without interruption to our business,
or that year 2000 problems encountered by our suppliers, customers or other
parties will not have a material impact on our business, financial condition and
results of operations.
The Company's state of readiness for the year 2000, our estimated costs
associated with year 2000 issues, the risks we face associated with year 2000
issues and our year 2000 contingency plans are summarized below.
STATE OF READINESS
Internally, we have implemented a three-phase process to assess year 2000
compliance of our systems and remediate any material non-compliance. The phases
are (1) to identify and test our material computer software and hardware in
order to determine whether they are year 2000 compliant; (2) to correct or
replace those software or hardware systems in which we determine there is a
material problem with year 2000 compliance; and (3) to internally test the
corrected or upgraded systems in order to determine whether they are year 2000
compliant. We have completed all three phases
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with respect to most of our purchased information technology ("IT") systems and non-IT
systems and believe the systems are year 2000 compliant. We anticipate completinghave completed all
three phases with respect to the remainder of the purchased IT and non-IT
systems byand believe the end
of the third quarter of 1999.systems are year 2000 compliant.
Externally, we have implemented a three-phase process to assess year 2000
compliance of the systems of our vendors, customers and third-party servicers,
and remediate any material non-compliance. The phases are (1) to identify the
vendors, customers and other third parties with whom we transact business and
determine whether they are significant to our business ("core" parties)core parties"); (2) to
contact the vendors, customers and other third parties with whom we do business
by, among other methods, sending them letters and questionnaires designed to
solicit information relating to the year
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responses received from the vendors, customers and other third parties. The
questionnaire we are using asks vendors, customers and other third parties such
questions as (i) whether they have a documented year 2000 compliance plan, (ii)
whether they are aware of any year 2000 readiness issues that could affect the
Company, (iii) whether, if such an issue exists, they have plans to ensure
compliance, (iv) what their target date is for year 2000 compliance and (v)
whether they have any contingency plans. We have completed all three phases with
respect to core parties and non-core parties.
COSTS ASSOCIATED WITH YEAR 2000 ISSUES
We estimate that the costs associated with implementing all phases of our year
2000 assessment and resolving any year 2000 problems will be less than $100.
This estimate includes expenditures for both repairs and upgrades. We believe
that these costs, assuming this estimate is accurate, would not have a material
effect on our business, financial condition and results of operations. We
anticipate that cash flow from operations will be used to pay the costs
associated with our year 2000 problem. All year 2000 costs are expensed as
incurred.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
We are unaware of any material risk to the Company associated with year 2000
issues at the present time. We believe that the reasonably likely worst caseworst-case
year 2000 scenario is a decrease in the efficiency with which we procure and
deliver loads, and a decrease in the efficiency with which we receive payment
for services rendered. A decrease in efficiency, however, would not necessarily
result in a decrease in business. We expect that load procurement, load delivery
and billing all could be achieved through alternative methods within a
relatively short period of time. Any disruption, however, could result in some
lost revenue.
We face the additional risk of experiencing an increase in claims and litigation
relating to the year 2000 problem because, among other reasons, there is no
uniform definition of year 2000 "compliance" and because all vendor, customers
and third party situations cannot be anticipated, particularly those involving
third party products. Such claims, if successful, could have a material adverse
effect on future results. Moreover, the costs of defending the Company against
such claims, even if ultimately resolved in our favor, could have a material
adverse effect on future results.
CONTINGENCY PLANS
We have not yet developed specific contingency plans for the millennium bug
because our assessment of year 2000 issues is incomplete.bug. We
generally expect
that our contingency plans will be to identify and have available to usidentified alternate vendors and service providers to decrease the impact
on the Company if one or more of the core parties with whom we do business
suffers a significant year 2000 problem. We expect to have the Company's contingency plans complete
before the end of the third quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity. The Company's earnings are affected by changes in
short-term interest rates as a result of its notes payable under theirits revolving
lines of credit. If the market interest rates for such borrowings average 1%
more during 1999 than they did during 1998, the Company's interest expense would
increase and the income before income taxes would decrease by approximately $0.1
million. This analysis does not consider the effects of the reduced level of
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overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management could take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
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PART II
ASCHE TRANSPORTATION SERVICES, INC.
(A DELAWARE CORPORATION)
ITEMItem 1. LEGAL PROCEEDINGS.
Not applicable.
ITEMItem 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM1. On July 7, 1999, the Company sold 750,000
shares of its Common Stock to an accredited investor
for $3,000,000 in reliance on Rule 506 of Regulation
D.
2. On August 4, 1999, the Company issued 107,990
shares of its Common Stock to several accredited
investors in exchange for $485,917 of subordinated
indebtedness of the Company in reliance on Rule 506
of Regulation D.
3. On September 24, 1999 the Company sold
2,666,667 shares of its Common Stock to an accredited
investor for $12,000,000 in reliance on Rule 506 of
Regulation D.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable
ITEMItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a)(i) Date of Meeting
On May 19,September 17, 1999 the Company held its Annuala
Special Meeting of the Stockholders.
(b)(i) Description of each matter voted on and number of
votes cast. The following actions were taken at the
AnnualSpecial Meeting:
1. To elect Richard S. Baugh as a Class III Director.approve the investment proposal with Churchill
Environmental & Industrial Equity Partners, L.P.:
For: 4,017,8303,561,500; Against: 54,325; Abstain: 37,086;
Not Voted: 1,880,826
2. To elect Michael Todd Recob as a Class III Director:
For: 4,015,730
3. To adopt the secondan amendment to the Company's Stock
Option Plan.
For: 3,908,867; Against: 353,348 Abstain: 23,750
4. To adopt the Amendment to the Certificate of
Incorporation to create 1,000,000increase the number of authorized
shares of Preferred Stock.Common Stock from 10,000,000 to
25,000,000: For: 1,616,174;5,141,037; Against: 814,674;355,364;
Abstain: 24,248,
Not Voted: 1,829,169.
5.37,436
3. To adopt the Amendmentan amendment to the Certificate of
Incorporation and the By-Laws to changeincrease the
namemaximum number of the
Companydirectors from not greater than
nine to "Asche Transportation Services,
Inc."not greater than fifteen: For: 4,132,250;3,402,935;
Against: 136,440;204,643; Abstain: 17,275.
ITEM45,333; Not Voted:
1,880,826
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Item 5. OTHER INFORMATION.
Not applicable.
ITEMItem 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Second Amendment to the Company's Stock Option Plan
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
covered by this Report.
20on July 22, 1999
Form 8-K filed on August 11, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Asche Transportation Services, Inc.
Date August 10November 12 , 1999 BY: s//s/Leon M. Monachos
------------------------------ ------------------------------------------ -----------------------------------------
Leon M. Monachos, Chief Financial Officer
Date August 10November 12 , 1999 BY: s//s/Larry L. Asche
------------------------------ ------------------------------------------ -----------------------------------------
Larry L. Asche, Chairman and
Chief Executive Officer
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