Transport Corporation Of America (TCAM) 10-Q 2002 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

OR

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-24908

TRANSPORT CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)

Minnesota	41-1386925
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

1715 Yankee Doodle Road
Eagan, Minnesota 55121
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (651) 686-2500

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

As of May 13, 2002, the Company had outstanding 7,251,130 shares of Common Stock, $.01 par value.

This Form 10-Q consists of 13 pages.

TRANSPORT CORPORATION OF AMERICA, INC.
Quarterly Report on Form 10-Q

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001  
Page 3

Consolidated Statements of Operations for the
three months ended March 31, 2002 and 2001  
Page 4

Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001  
Page 5

Notes to Consolidated Financial Statements Page 6

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations  
Page 8

Item 3. Quantitative and Qualitative Disclosure about
Market Risk  
Page 12

Part II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K Page 13

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Item 1. Financial Statements

Transport Corporation of America, Inc.
Consolidated Balance Sheets
(In thousands)

Assets	March 31, 2002			December 31, 2001
	(unaudited)			*
Current assets:
Cash and cash equivalents	$	1,427		$	1,107
Trade accounts receivable, net		29,347			26,864
Other receivables		4,168			1,590
Operating supplies - inventory		1,198			1,196
Deferred income tax benefit		3,810			3,474
Prepaid expenses		4,420			1,801
Total current assets		44,370			36,032
Property and equipment:
Land, buildings, and improvements		17,886			17,860
Revenue equipment		217,800			227,149
Other equipment		24,507			24,162
Total property and equipment		258,326			269,171
Less accumulated depreciation		(105,357	)		(100,203	)
Property and equipment, net		152,969			168,968
Other assets
Other assets, net		2,266			2,030
Goodwill, net		0			24,366
Total other assets, net		2,266			26,396
Total assets	$	201,472		$	231,396
Liabilities and Shareholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	10,554		$	14,111
Current maturities of capital lease obligations		4,317			4,244
Accounts payable		6,824			5,873
Checks issued in excess of cash balances		4,867			1,118
Due to independent contractors		2,282			1,496
Accrued expenses		14,954			14,495
Total current liabilities		43,798			41,337
Long-term debt, less current maturities		48,282			51,077
Capital lease obligations, less current maturities		21,895			23,019
Deferred income taxes		26,313			35,516
Shareholders’ equity:
Common stock		72			72
Additional paid-in capital		30,459			30,205
Retained earnings		30,653			50,170
Total shareholders’ equity		61,184			80,447
Total liabilities and shareholders’ equity	$	201,472		$	231,396

* Based upon audited financial statements
See accompanying notes to consolidated financial statements

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Transport Corporation of America, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)

	Three months ended March 31,
	2002			2001
Operating revenues	$	66,048		$	66,107
Operating expenses:
Salaries, wages, and benefits		20,497			19,264
Fuel, maintenance, and other expenses		9,331			9,887
Purchased transportation		20,567			22,061
Revenue equipment leases		63			14
Depreciation and amortization		7,177			7,584
Insurance, claims and damage		3,327			2,362
Taxes and licenses		1,381			1,182
Communications		695			618
Other general and administrative expenses		1,984			2,330
Impairment of revenue equipment		4,741			0
Loss on sale of property and equipment		1			49
Total operating expenses		69,764			65,351
Operating income (loss)		(3,716	)		756
Interest expense		1,495			1,993
Interest income		(4	)		(5	)
Interest expense, net		1,491			1,988
Loss before income taxes and cumulative
effect of change in accounting principle		(5,207	)		(1,232	)
Income tax benefit		(2,384	)		(480	)
Loss before cumulative effect
of change in accounting principle		(2,823	)		(752	)
Cumulative effect of change in
accounting principle, net of tax effect		16,694			0
Net loss	$	(19,517	)	$	(752	)
Net loss per share – basic:
Before cumulative effect of change
in accounting principle	$	(0.39	)	$	(0.10	)
Cumulative effect of change in
accounting principle, net of tax effect		(2.31	)		—
Net loss per share	$	(2.70	)	$	(0.10	)
Net loss per share – diluted
Before cumulative effect of change
in accounting principle	$	(0.39	)	$	(0.10	)
Cumulative effect of change in
accounting principle, net of tax effect		(2.31	)		—
Net loss per share	$	(2.70	)	$	(0.10	)
Average common shares outstanding:
Basic		7,227,320			7,189,349
Diluted		7,227,320			7,189,349

See accompanying notes to consolidated financial statements

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Transport Corporation of America, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Three months ended March 31,
	2002			2001
Operating activities:
Net loss	$	(19,517	)	$	(752	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization		7,177			7,584
Cumulative effect of change in accounting
principle, net of tax effect		16,694			0
Impairment of revenue equipment		4,741			0
Loss on sale of property and equipment		1			49
Deferred income taxes		(1,866	)		(450	)
Changes in operating assets and liabilities:
Trade receivables		(2,483	)		2,293
Other receivables		(2,578	)		166
Operating supplies		(2	)		47
Prepaid expenses		(2,619	)		(2,493	)
Accounts payable		951			(206	)
Due to independent contractors		786			482
Accrued expenses		459			420
Net cash provided by operating activities		1,744			7,140
Investing activities:
Purchases of revenue equipment		(1,950	)		(78	)
Purchases of property and other equipment		(456	)		(450	)
(Increase) decrease in other assets		(257	)		39
Proceeds from sales of equipment		4,639			1,326
Net cash provided by investing activities		1,976			837
Financing activities:
Proceeds from issuance of common stock,
and exercise of options and warrants		254			46
Proceeds from issuance of long-term debt		274			0
Principal payments on long-term debt		(4,277	)		(4,672	)
Proceeds from issuance of notes payable to bank		9,100			25,150
Principal payments on notes payable to bank		(12,500	)		(26,800	)
Change in net checks issued in excess of cash balances		3,749			(1,701	)
Net cash used by financing activities		(3,400	)		(7,977	)
Net increase in cash		320			0
Cash and cash equivalents, beginning of period		1,107			234
Cash and cash equivalents, end of period	$	1,427		$	234
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,420		$	1,926
Income taxes	��	0			90

See accompanying notes to consolidated financial statements

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TRANSPORT CORPORATION OF AMERICA, INC.

Notes to Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

           The unaudited interim consolidated financial statements contained herein reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the interim periods. They have been prepared in accordance with the instructions to Form 10-Q, Article 10 of Regulation S-X and, accordingly, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

           These financial statements should be read in conjunction with the financial statements and footnotes included in the Company’s most recent annual financial statements on Form 10-K for the year ended December 31, 2001. The critical accounting policies described in that report are used in preparing quarterly reports. Certain balances from prior periods have been reclassfied to conform to current presentation.

           The Company’s business is seasonal. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

2. Effect of New Accounting Standard

           In 2001, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. As a result of its adoption of SFAS No. 142 on January 1, 2002, the Company recorded a $16.7 million impairment charge for goodwill, net of tax benefit of $7.7 million, which has been reported as a cumulative effect of change in accounting principle. The fair value of the Company (single reporting unit) was determined based on quoted market prices for the Company’s common stock.

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           The following table reflects the consolidated results, adjusted as though the adoption of SFAS No. 142 occurred as of the beginning of the three month period ended March 31, 2001:

(Dollars in thousands, except per share amounts)	Three months ended March 31,
	2002			2001
Net loss:
As reported	$	(19,517	)	$	(752	)
Goodwill amortization, net of tax		—			167
Adjusted net loss:	$	(19,517	)	$	(585	)
Net loss per share — basic:
As reported	$	(2.70	)	$	(0.10	)
Goodwill amortization, net of tax		—			0.02
Adjusted basic net loss per share	$	(2.70	)	$	(0.08	)
Net loss per share — diluted:
As reported	$	(2.70	)	$	(0.10	)
Goodwill amortization, net of tax		—			0.02
Adjusted diluted net loss per share	$	(2.70	)	$	(0.08	)

           A roll-forward of goodwill for the three month period ended March 31, 2002 is as follows:

(Dollars in thousands)
Balance as of December 31, 2001	$	24,366
Impairment		(24,366	)
Balance as of March 31, 2002	$	—

           In 2001 the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” This statement establishes a single accounting model for the impairment or disposal of long-lived assets. The Company adopted the provisions of SFAS No. 144 on January 1, 2002. There was no impact on the financial statements from the adoption of SFAS No. 144.

           During March 2002 the Company initiated a plan to accelerate the disposal of approximately 260 tractors and 500 trailers. As a result of the change in utilization period and related estimated cash flows, the Company recorded a pre-tax $4.7 million impairment charge on this revenue equipment. The estimated fair value of the revenue equipment was based on a combination of market quotes and independent appraisals of the equipment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended March 31, 2002 and 2001

           Operating revenues, including fuel surcharges, were $66.0 million for the quarter ended March 31, 2002, compared to $66.1 million for the same quarter of 2001. Excluding fuel surcharges, revenues increased 4.0% when compared to the same period of 2001. Fuel surcharges were $0.4 million and $2.9 million, for the first quarters of 2002 and 2001, respectively, reflecting the effect of lower fuel costs in 2002. Primarily as a result of the mix of customer freight and competitive pricing pressure in the market, revenues per mile, excluding fuel surcharges, were $1.24 per mile for the first quarter of 2002, compared to $1.27 for the same quarter of 2001. Excluding the effect of lower fuel surcharge revenues, equipment utilization, as measured by average revenues per tractor per week, was $2,594 during the first quarter of 2002, compared to $2,380 for the same quarter of 2001. The improved equipment utilization in 2002 reflects higher loaded miles and a lower number of unseated tractors, when compared to the same period of 2001.

           At March 31, 2002 and 2001, respectively, the Company’s fleet included 1,245 and 1,262 Company-owned tractors, and 756 and 761 tractors owned by independent contractors.

           Salaries, wages, and benefits, as a percentage of operating revenues, were 31.0% for the first quarter of 2002, compared to 29.1% for the same quarter of 2001. The percentage increase is a reflection of a higher proportion of miles driven by employee drivers and higher employee benefit expenses, partially offset by lower non-driver compensation expense, when compared to the same period of 2001. Efficiency, as measured by average annualized revenues per non-driver employee, was $561,000 for the first quarter of 2002, compared to $507,000 for the same quarter of 2001. The increase reflects reductions of non-driver personnel subsequent to the first quarter of 2001.

           Fuel, maintenance, and other expenses, as a percentage of operating revenues, were 14.1%, compared to 15.0% for the same quarter of 2001. The decrease in 2002 primarily reflects lower fuel costs, partially offset by a higher proportion of miles driven by employee drivers, when compared to the same period of 2001.

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           Purchased transportation, as a percentage of operating revenues, was 31.1% for the first quarter of 2002, compared to 33.4% for the same quarter of 2001. The decrease in 2002 reflects a lower proportion of miles driven by independent contractors and a lower pass-through of fuel surcharge revenues to independent contractors as a reflection of lower fuel costs.

           Revenue equipment leases, as a percentage of operating revenues, was 0.1% for the first quarter of 2002, compared to 0.0% for the same quarter of 2001. The increase reflects the Company’s use of operating leases for certain tractors acquired in 2002.

           Depreciation and amortization, as a percentage of operating revenues, was 10.9% of operating revenues for the first quarter of 2002, compared to 11.5% for the same quarter of 2001. The decrease is primarily a result of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” under which goodwill is longer amortized. Amortization of goodwill in the first quarter of 2001 was $274,000.

           Insurance, claims and damage expense, as a percentage of operating revenues, was 5.0% for the first quarter of 2002, compared to 3.6% for the same quarter of 2001. The increase is primarily a result of higher liability insurance premium expense and higher accident and claims expense in 2002.

           Taxes and licenses, as a percentage of operating revenues, was 2.1% for the first quarter of 2002, compared to 1.8% for the same quarter of 2001. The increase is primarily a result of the higher proportion of miles driven by company drivers and a higher proportion of license fees paid on behalf of independent contractors in 2002, when compared to the same period of 2001.

           Other general and administrative expense, as a percentage of operating revenues, was 3.0% for the first quarter of 2002, compared to 3.5% for the same quarter of 2001. The decrease is primarily a result of lower driver training costs in 2002.

           Impairment of revenue equipment was $4.7 million, or 7.2% of operating revenues, in the first quarter of 2002. The Company has identified a group of 260 tractors and approximately 500 trailers that it intends to dispose within the next year. Accordingly, these assets were written down to their estimated fair value under the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The tractors identified for accelerated disposition represent over-the-road units not covered by manufacturer guaranteed residual value programs. The trailers to be disposed have been identified as being in excess of the Company’s needs.

9

           Loss on the disposition of equipment was $1,000 for the first quarter of 2002, compared to a loss of $49,000 for the same quarter of 2001, reflecting fewer equipment dispositions in 2002.

           Net interest expense, as a percentage of operating revenues, was 2.3% for the first quarter of 2002, compared to 3.0% for the same quarter of 2001. The decrease reflects lower debt balances and interest rates in 2002.

           The effective tax rate as a percentage of operating revenues was 45.8% for the first quarter of 2002, compared to 39.0% for the same quarter of 2001. The higher effective rate in 2002, compared to 2001, primarily reflects the effect of non-deductible items for tax purposes in relation to lower pre-tax earnings.

           As a result of the items discussed above, the Company’s operating ratio (operating expenses as a percentage of operating revenues), including the $4.7 million impairment loss, was 105.6% for the first quarter of 2002, compared to 98.9% for the same quarter of 2001. Loss before the effect of a change of accounting principle, was $2.8 million, or 4.3% of operating revenues, for the first quarter of 2002, compared to a net loss of $0.8 million, or 1.2% of operating revenues, for the first quarter of 2001.

            Upon its adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company recorded a goodwill impairment charge of $16.7 million, net of tax benefit of $7.7 million, as a cumulative effect of change in accounting principle. At December 31, 2001, the carrying value of goodwill, net of amortization, was $24.4 million.

           Net loss, including the cumulative effect of a change in accounting principle in the first quarter of 2002, was $19.5 million, compared to a net loss of $0.8 million for the same quarter of 2001.

Liquidity and Capital Resources

           Net cash provided by operating activities for the first quarter of 2002 was $1.7 million. The net change of operating assets and liabilities consumed $5.5 million, including $2.4 million for receivables associated with equipment dispositions, $1.1 million for income taxes receivable, $2.3 million for seasonal payments of annual operating license fees, and $2.5 million for increased trade receivables.

           Investing activities for the first quarter of 2002 provided net cash of $2.0 million. Proceeds from sales of equipment exceeded expenditures for revenue and other equipment during the first quarter of 2002.

           Financing activities for the first quarter of 2002 consumed $3.4 million, including net repayments of the Company’s credit facility and scheduled principal payments on long-term debt of $3.4 million and $4.3 million, respectively. At March 31, 2002, the Company had outstanding non-cancelable commitments of approximately $7.8 million for the purchase or lease of revenue equipment, which will be partially offset by anticipated proceeds from used equipment dispositions and trade-in amounts.

10

           In the first quarter of 2002, the Company financed approximately $4.7 million of revenue equipment as operating leases.

           Working capital was $0.6 million at March 31, 2002, compared to negative $5.3 million at December 31, 2001. The Company relies primarily on its operating cash flows and available borrowings under its credit facility to satisfy its short-term capital and debt-service requirements. At March 31, 2002, the Company had additional amounts available under its credit facility of $21.5 million.

           The Company has a credit agreement for a secured credit facility with maximum combined borrowings and letters of credit of $40 million. Amounts actually available under the credit facility are limited by the Company’s accounts receivable and certain unencumbered revenue equipment. The credit facility is used to meet working capital needs, purchase revenue equipment and other assets, and to satisfy letter of credit requirements associated with the Company’s self-insured retention arrangements. At March 31, 2002, there were outstanding borrowings and letters of credit of $15.6 million and $2.9 million, respectively, and the Company was in compliance with the financial covenants under the credit facility. The Company expects to continue to fund its liquidity needs and anticipated capital expenditures with cash flows from operations, the credit facility, and other financing arrangements related to revenue equipment purchases.

11

Forward-looking Statements

           Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report, elsewhere in this Report, in future filings by the Company with the SEC, in the Company’s press releases, and in oral statements made with the approval of an authorized executive officer which are not historical or current facts, are forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. The following important factors, among other things, in some cases have affected and in the future could affect the Company’s actual results and could cause the Company’s actual financial performance to differ materially from that expressed in any forward-looking statement: (1) the highly competitive conditions that currently exist in the Company’s market and the Company’s ability to compete, (2) the Company’s ability to recruit, train, and retain qualified drivers, (3) increases in fuel prices, and the Company’s ability to recover these costs from its customers, (4) changes in governmental regulations applicable to the Company’s operations, (5) adverse weather conditions, (6) accidents, (7) the market for used revenue equipment, (8) changes in interest rates, (9) cost of liability insurance coverage, and (10) downturns in general economic conditions affecting the Company and its customers. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise or update any previously made forward-looking statements. Unanticipated events are likely to occur.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

           The Company is exposed to certain market risks with its $40 million credit agreement, of which $18.5 million was outstanding at March 31, 2002. The agreement bears interest at a variable rate, which was 4.4% at March 31, 2002. Consequently, the Company is exposed to the risk of greater borrowing costs if interest rates increase. Although the Company does not currently employ derivatives or similar instruments to hedge against increases in fuel prices, fuel surcharge provisions enable the Company to reduce the effects of price increases.

12

PART II  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K:

(a) Exhibits:

Exhibit
Number  
Description

10.1 1995 Stock Plan, as amended

11.1 Statement re: Computation of Net Earnings per Share

(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 2002.

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.

		TRANSPORT CORPORATION OF AMERICA, INC.
Date:	May 13, 2002	/s/ Michael J. Paxton
		Michael J. Paxton
		President and Chief Executive Officer
		(Principal Executive Officer)
		/s/ Keith R. Klein
		Keith R. Klein
		Chief Financial Officer and Chief Information Officer
		(Principal Financial and Accounting Officer)

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