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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 JUNE 30, 2000
OR
[ ] 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: 1-14181
TRANSPORTATION COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0562800
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THREE RIVERWAY
SUITE 200
HOUSTON, TEXAS 77056
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 332-2500
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 [ ]
The number of shares outstanding of the registrant's common stock, as of
August 11, 2000, was 17,810,186.
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TRANSPORTATION COMPONENTS, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets of Transportation Components, Inc. at
June 30, 2000 (unaudited) and December 31, 1999..................... 3
Unaudited Consolidated Statements of Operations of Transportation
Components, Inc. for the three months and six months ended
June 30, 2000 and 1999.............................................. 4
Unaudited Consolidated Statements of Cash Flows of Transportation
Components, Inc. for the six months ended June 30, 2000 and 1999.... 5
Notes to Unaudited Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 16
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 17
Item 4. Submission of Matters to Vote of Security Holders.............. 17
Item 6. Exhibits and Reports on Form 8-K............................... 17
Signature............................................................... 18
- 2 -
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
--------- -----------
Current assets: (UNAUDITED) (NOTE 1)
Cash and cash equivalents .................................. $ 4,078 $ 2,859
Accounts receivable, net of allowance for bad debts of
$1,629 and $1,586.......................................... 39,267 40,029
Receivables from related parties ........................... 323 508
Notes receivable, current .................................. 681 732
Inventories ................................................ 69,490 67,203
Prepaid expenses and other ................................. 3,553 2,941
Deferred tax asset ......................................... 4,593 5,447
--------- ---------
Total current assets .................................. 121,985 119,719
Property and equipment, net .................................... 13,664 14,532
Notes receivable, net .......................................... 709 752
Notes receivable from related parties .......................... 427 858
Goodwill, net .................................................. 86,232 87,358
Other assets ................................................... 1,356 1,351
--------- ---------
Total assets .......................................... $ 224,373 $ 224,570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................... $ 36,590 $ 42,459
Subordinated debt and other payables to related parties .... 4,416 1,762
Current portion of long-term debt .......................... 628 743
Other current liablities ................................... 932 1,004
--------- ---------
Total current liablities .............................. 42,566 45,968
Long-term debt, less current portion ........................... 69,147 61,173
Deferred tax liability ......................................... 2,077 2,962
Subordinated debt and other payables to related parties ........ 9,795 12,488
--------- ---------
Total liablities ...................................... 123,585 122,591
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par, 5,000,000 shares authorized,
none issued ............................................... -- --
Common stock, $0.01 par, 102,000,000 shares authorized,
17,782,054 shares issued .................................. 178 178
Additional paid-in capital ................................ 102,522 102,522
Treasury stock, at cost - 0 and 121,411 shares, respectively 0 (304)
Cumulative translation adjustments ......................... 88 134
Retained deficit ........................................... (2,000) (551)
Total stockholders' equity ............................ 100,788 101,979
--------- ---------
Total liabilities and stockholders' equity ............ $ 224,373 $ 224,570
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
TRANSPORTATION COMPONENTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues ........................................... $ 75,052 $ 81,108 $ 152,902 $ 159,350
Cost of sales ...................................... 52,662 56,481 107,393 5110,244
------------ ------------ ------------ ------------
Gross profit ................................... 22,390 24,627 45,509 49,1067
Selling, general and administrative expenses ....... 21,306 19,996 41,961 39,284
Amortization of goodwill ........................... 565 513 1,130 1,056
------------ ------------ ------------ ------------
Income from operations ............................. 519 4,118 2,418 8,766
Other income (expense):
Interest expense ............................... (1,898) (1,366 (3,748) (2,614)
Other income, net .............................. (451) 294 (229) 522
------------ ------------ ------------ ------------
Income (loss) before income taxes .................. (1,830) 3,046 (1,559) 6,674
Provision (benefit) for income taxes ............... (445) 1,424 (111) 3,092
------------ ------------ ------------ ------------
Net (loss) income .................................. $ (1,385) $ 1,622 $ (1,448) $ 3,582
============ ============ ============ ============
(Loss) income per share - Basic .................... $ (.08) $ .09 $ (0.08) $ .20
============ ============ ============ ============
(Loss) income per share - Diluted .................. $ (.08) $ .09 (0.08) $ .20
============ ============ ============ ============
Number of shares used in the per share calculations:
Basic .......................................... 17,740,969 17,727,815 17,708,933 17,727,815
============ ============ ============ ============
Diluted ........................................ 17,740,969 19,334,080 17,708,933 19,334,080
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
TRANSPORTATION COMPONENTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
-------------------
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ....................................... $(1,448) $ 3,582
Adjustments to reconcile net (loss) income to net cash
used by operating activities:
Depreciation and amortization 2,683 2,479
Provision for bad debts 379 266
Gain on sale of assets (16) (37)
Deferred tax provision (35) 575
Compensation expense related to issuance of common
stock to associate benefit plans ............... 309 -0-
Changes in operating assets and liabilities, net of
assets acquired
Accounts receivable and notes receivable ............. 1,078 (2,708)
Inventories .......................................... (2,344) (3,073)
Other assets ......................................... (619) 195
Accounts payable and accrued expenses ................ (5,893) (1,993)
------- -------
Net cash (used in) provided by operating
activities ...................................... (5,906) (714)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................. (877) (1,835)
Cash paid for acquisitions ........................... -0- (1,031)
Other ................................................ 192 363
------- -------
Net cash used in investing activities ............. (685) (2,503)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of long term debt 7,819 3,107
------- -------
Net cash provided by financing activities ......... 7,819 3,107
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (9) 14
------- -------
Net increase (decrease) in cash and cash equivalents .... 1,219 (96)
Cash and cash equivalents, beginning of period .......... 2,859 4,090
Cash and cash equivalents, end of period ................ $ 4,078 $ 3,994
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
- 5 -
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Transportation Components, Inc., a Delaware corporation also known as
TransCom USA ("TransCom", and collectively with its subsidiaries, the
"Company"), was founded in October 1997 to become a leading national distributor
of replacement parts and supplies for commercial trucks, trailers and other
heavy-duty vehicles and equipment. Prior to its initial public offering (the
"IPO"), TransCom had not conducted any operations. Concurrent with the
consummation of its IPO on June 24, 1998, TransCom acquired nine companies in
separate merger transactions. During the third and fourth quarters of 1998,
TransCom acquired an additional nine companies.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presenation have been included. All significant intercompany transactions and
balances have been eliminated. Operating results for the three months and six
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
the disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published, and (iii) the reported amount of
revenues and expenses recognized during the periods presented. Uncertainties
with respect to such estimates and assumptions are inherent in the preparation
of financial statements. The Company regularly reviews all significant estimates
affecting its consolidated financial statements. Adjustments made with respect
to the use of estimates often relate to improved information not previously
available.
-6-
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss)
earnings per share for the periods indicated (in thousands, except for share and
per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------------- ----------------------------------
2000 1999 2000 1999
----------------- ------------ ----------------- ------------
NET (LOSS) INCOME
Net (loss) income ........................... $ (1,385) $ 1,622 $ (1,448) $ 3,582
Add interest on 5% convertible notes (assumed
converted), net of federal income tax effect -0- 114 -0- 229
----------------- ------------ ----------------- ------------
Adjusted net (loss) income ............... $ (1,385) $ 1,736 $ (1,448) $ 3,811
================= ============ ================= ============
BASIC
Basic weighted average shares ............ 17,740,969 17,727,815 17,708,933 17,727,815
================= ============ ================= ============
DILUTED
Basic weighted average shares ............ 17,740,969 17,727,815 17,708,933 17,727,815
Effect of dilutive securities
Options ................................. -0- 12,057 -0- 6,627
Warrants ................................ -0- -0- -0- -0-
Convertible subordinated notes .......... -0- 1,599,638 -0- 1,599,638
----------------- ------------ ----------------- ------------
Diluted weighted average shares .......... 17,740,969 19,339,510 17,708,933 19,334,080
================= ============ ================= ============
NET (LOSS) INCOME PER SHARE
Basic ...................................... $ (.08) $ .09 $ (.08) $ (.20)
================= ============ ================= ============
Diluted .................................... $ (.08) $ .09 $ (.08) $ (.20)
================= ============ ================= ============
The computation of diluted weighted shares for 2000 did not include shares
potentially issuable for warrants, options and conversion of the convertible
subordinated notes because their inclusion would have been antidilutive. The
computation for 1999 did not include shares potentially issuable for warrants
because their inclusion would have been antidilutive.
3. LONG TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
-------- -----------
Long-term Debt
Revolving credit facility .............. $ 68,400 $ 60,100
Notes payable to a financial institution 1,128 1,355
Other .................................. 247 461
-------- --------
Total long-term debt ................... 69,775 61,916
Less: current portion ................. (628) (743)
-------- --------
$ 69,147 $ 61,173
======== ========
-7-
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
2000 1999
-------- -----------
Subordinated Debt and Other
Subordinated convertible debt ............. $ 13,635 $ 13,635
Other long-term payables to related parties 576 615
-------- --------
Total long-term subordinated debt and
other payables to related parties ....... 14,211 14,250
Less: current portion .................... (4,416) (1,762)
-------- --------
$ 9,795 $ 12,488
======== ========
Effective June 30, 2000, the Company entered into an amendment to the
Credit Facility. The primary changes were to modify two of the financial
covenants; increase the interest rate payable for the period from July 1, 2000
to September 30, 2000 to 350 basis points over LIBOR and 200 basis points over
the agent bank's prime rate; prohibit future payment of principal on the $13.6
million of 5% convertible subordinated notes; and extend the maturity date to
July 31, 2001. The interest rate will increase by an additional 25 basis points
each quarter until maturity. The maximum borrowing capacity of $75.0 million was
not changed.
The Credit Facility as amended as of June 30, 2000 prohibits principal
payments on the $13.6 million of 5% convertible subordinated notes. The next
principal payment on the notes is due September 15, 2000. Notes in the amount of
approximately $4.3 million call for $1.6 million of principal payments during
the twelve months ended June 30, 2001. The entire $4.3 million of these notes
has been classified as current at June 30, 2000 under the assumption that these
notes will be in default and therefore due and payable. After a payment default,
the note holder must wait 180 days to begin collection proceedings. The Company
intends to extend or replace all of the subordinated notes, however, such
extended notes or replacement debt may have higher interest costs, greater
equity dilution and more restrictive conditions.
4. COMPREHENSIVE (LOSS) INCOME
In 1998, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 130, "Reporting Comprehensive Income", which requires companies to
display comprehensive income and its components in the financial statements.
Comprehensive income, which encompasses net (loss) income and currency
translation adjustments, is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
Net (loss) income .............. $(1,385) $ 1,622 $(1,448) $ 3,582
Currency translation adjustments (38) 10 (46) 72
------- ------- ------- -------
Comprehensive (loss) income .... $(1,423) $ 1,632 $(1,494) $ 3,654
======= ======= ======= =======
-8-
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. SEGMENT INFORMATION
TransCom classifies its business into two reportable segments based on
geographic areas: "Domestic" (revenues generated from customers for use within
the United States) and "International" (revenues generated from customers for
use outside the United States - Canada, Mexico, South America, Central America,
Australia, New Zealand, Europe and Asia). All international operations have been
aggregated into one reportable segment because their operations are similar in
the nature of the product and production process, type of customer, and
distribution method. Operating income by segment is calculated using direct cost
of goods and services, direct selling, general and administration expenses, and
allocating general office expenses based on segment revenues.
Information as to the operations of TransCom's reportable segments is as
follows (in thousands):
DOMESTIC INTERNATIONAL INTERSEGMENT TOTAL
--------- ------------- ------------ ---------
THREE MONTHS ENDED JUNE 30, 2000
Revenues ............................ $ 64,585 $ 10,512 $ (45) $ 75,052
Operating income .................... (106) 638 (13) 519
Depreciation and amortization expense 1,174 165 1,339
Capital expenditures ................ 376 20 396
SIX MONTHS ENDED JUNE 30, 2000
Revenues ............................ $ 132,487 $ 20,530 $ (115) $ 152,902
Operating income .................... 1,019 1,431 (32) 2,418
Depreciation and amortization expense 2,366 317 2,683
Capital expenditures ................ 811 66 877
Identifiable assets ................. 192,004 32,369 224,373
THREE MONTHS ENDED JUNE 30, 1999
Revenues ............................ $ 71,022 $ 10,114 $ (28) $ 81,108
Operating income .................... 3,142 984 (8) 4,118
Depreciation and amortization expense 1,125 127 1,252
Capital expenditures ................ 1,032 76 1,108
-9-
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DOMESTIC INTERNATIONAL INTERSEGMENT TOTAL
-------- ------------- ------------ --------
SIX MONTHS ENDED JUNE 30, 1999
Revenues ............................ $141,173 $ 18,269 $ (92) $159,350
Operating income .................... 7,056 1,737 (27) 8,766
Depreciation and amortization expense 2,181 298 2,479
Capital expenditures ................ 1,674 161 1,835
Identifiable assets .................. 193,112 31,508 224,620
Information as to TransCom's operations in different geographical areas is
as follows (in thousands):
UNITED ALL OTHER
STATES MEXICO CANADA INTERNATIONAL(1) TOTAL
-------- -------- -------- --------------- --------
THREE MONTHS ENDED JUNE 30, 2000
Revenues ....................... $ 64,585 $ 5,944 $ 2,898 $ 1,625 $ 75,052
SIX MONTHS ENDED JUNE 30, 2000
Revenues ....................... $132,487 $ 11,753 $ 5,590 $ 3,072 $152,902
Long-lived assets .............. 86,162 10,873 5,354 102,389
THREE MONTHS ENDED JUNE 30, 1999
Revenues ....................... $ 71,022 $ 5,444 $ 3,110 $ 1,532 $ 81,108
SIX MONTHS ENDED JUNE 30, 1999
Revenues ....................... $141,173 $ 9,988 $ 5,738 $ 2,451 $159,350
Long-lived assets .............. 87,153 10,674 5,568 103,395
- --------
(1)Includes South America, Central America, Australia, Europe and Asia.
-10-
TRANSPORTATION COMPONENTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS SOME "FORWARD-LOOKING STATEMENTS" WHICH
GIVE THE COMPANY'S CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. SUCH
STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMS SUCH AS
"BELIEVES," "EXPECTS," "MAY," "ESTIMATES," "WILL," "SHOULD," "PLANS" OR
"ANTICIPATES" OR OTHER SIMILAR WORDS IN ANY DISCUSSION OF FUTURE OPERATING OR
FINANCIAL PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF ANY NUMBER OF FACTORS, MOST OF WHICH ARE BEYOND THE CONTROL OF
MANAGEMENT. IN PARTICULAR, THE COMPANY HAS IDENTIFIED SPECIFIC RISKS AND
UNCERTAINTIES RELATED TO THE COMPANY'S BUSINESS UNDER "ITEM 1. BUSINESS - RISK
FACTORS" ON PAGE 9 OF THE COMPANY'S ANNUAL REPORT OR FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1999. OTHER FACTORS COULD CAUSE ACTUAL RESULTS TO VARY
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THIS DISCUSSION IS PROVIDED AS
PERMITTED BY THE PRIVATE LITIGATION SECURITIES LITIGATION REFORM ACT OF 1995.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto in this
Report, and the Company's audited consolidated financial statements contained in
the Form 10-K for the year ended December 31, 1999.
OVERVIEW
Since early 1999, we have focused on integrating our operations. We have
completed the installation of common operating and financial systems and a wide
area network in the majority of our branch locations. We have centralized
payroll and standardized employee benefits such as health insurance, flexible
benefit plans and the 401(k) program for all domestic associates. We have also
(1) transferred the accounts payable function from several branches to the
general office in Houston, (2) centralized invoice payments for approximately 25
of our larger vendors and (3) transferred the purchasing and inventory
replenishment functions for many of our branches to the general office. During
the first half of 2000, we continued to focus on processes related to our
recently installed systems. We estimate that the accounts payable and purchasing
functions for most of our remaining domestic branches will be centralized during
2000.
We have not yet realized significant cost savings from centralizing our
administrative functions in our general office due to the related staffing and
training costs. It is necessary to build the infrastructure in the general
office to centralize the branch administrative functions before significant
costs can be reduced at the branches. Additionally, we incurred costs to train
our associates on the recently installed common operating and financial systems.
We recorded approximately $0.9 million and $0.5 million of charges for severance
costs associated with our centralization of administration and other headcount
reductions in the fourth quarter of 1999 and the second quarter of 2000,
respectively. We expect that additional administrative costs at our branch
locations can be eliminated or reduced during the second half of 2000. We expect
these administrative cost reductions will result in additional charges for
severance costs.
We believe the business level of the heavy-duty truck parts industry
slowed during 1999 from the record levels experienced in 1997 and early 1998 and
has continued to decline in the first half of 2000. Our revenue in 1999 declined
slightly from 1998. Revenues for the second quarter and first half of 2000 were
7.5% and 4.0%, respectively, below revenues for the same period of 1999.
Second quarter 2000 pre-tax income was reduced by $1.2 million of
nonrecurring special charges consisting of $0.5 million of severance charges for
headcount reductions and $0.7 million of reserves for non-cash reductions in the
value of notes receivable recorded in connection with an acquisition, a building
and various equipment in process of being sold.
TRANSPORTATION COMPONENTS, INC.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30
-----------------------------------------
2000 % 1999 %
-------- ----- -------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues ................................... $ 75,052 100.0 $ 81,108 100.0
Cost of sales .............................. 52,662 70.2 56,481 69.6
-------- ----- -------- -----
Gross profit ........................... 22,390 29.8 24,627 30.4
Selling, general and administrative expenses 21,306 28.4 19,996 24.7
Amortization of goodwill ................... 565 .7 513 .6
-------- ----- -------- -----
Income from operations ................. 519 0.7 4,118 5.1
Interest expense ........................... (1,898) (2.5) (1,366) (1.7)
Other income, net .......................... (451) (.6) 294 .4
-------- ----- -------- -----
(Loss) income before income taxes ...... $ (1,830) (2.4) $ 3,046 3.8
======== ===== ======== =====
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1999
REVENUES. Revenues of $75.1 million for the first three months ended June
30, 2000 declined $6.1 million, or 7.5%, from $81.1 million of revenues for the
three months ended June 30, 1999. Revenues declined in connection with what we
believe is a general softening in the domestic industry. Of the $6.1 million
decline, $1.7 million was applicable to a decline in our sales of new trucks.
This decline is primarily the result of a nationwide decline in demand for new
heavy-duty trucks. Revenues in Mexico increased approximately 9%.
GROSS PROFIT. Total gross profit of $22.4 million for the three months
ended June 30, 2000 declined by $2.2 million, or 9.1%, from $24.6 million of
gross profit for the three months ended June 30, 1999. As a percentage of
revenues, gross profit of 29.8% for the second quarter of 2000 declined 60 basis
points from gross profit of 30.4% for the second quarter of 1999. This decline
was partially the result of vendor price increases, which we did not immediately
pass through to our customers, and changes in product mix.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $1.3 million, or 6.6%, to $21.3 million for the three months
ended June 30, 2000 from $20.0 million for the three months ended June 30, 1999.
Selling, general and administrative expenses as a percentage of revenues
increased from 24.7% for the second quarter of 1999 to 28.4% for the second
quarter of 2000. Severance expenses of $0.5 million, or 0.7% of revenues, were
recorded for announced headcount reductions. The additional increases were the
result of costs to build the infrastructure, including staffing and training of
our general office, enabling us to centralize the branch administrative
functions. We expect that significant administrative costs at our branch
locations can be eliminated or reduced during the second half of 2000.
OTHER INCOME. Other income for the three months ended June 30, 2000 was an
expense of $0.5 million compared to income of $0.3 million for the three months
ended June 30, 1999. This decline from income to expense was principally the
result of recording approximately $0.7 million of reserves to recognize
nonrecurring, non-cash reductions in the value of notes receivable from former
business owners originally recorded in an acquisition completed in June 1998, a
building and various equipment in process of being sold.
INTEREST EXPENSE. Interest expense for the three months ended June 30,
2000 increased $0.5 million, or 38.9%, to $1.9 million compared to $1.4 million
of interest expense for the three months ended June 30, 1999. The increase in
interest expense was from an approximate $1.7 million increase in the average
amount of debt outstanding between the two periods and an approximate 200 basis
point increase in the average interest rate between the two quarters. We also
paid fees for the amendments to our revolving credit facility, which have been
recorded as interest expense. LIBOR was approximately 120 basis points higher at
the end of the second quarter of 2000 compared to the end of the second quarter
of 1999. The margin above LIBOR, which we paid, increased by 125 basis points
from the end of the second quarter of 1999 to the end of the second quarter of
2000. The margin above the LIBOR increased in connection with the increase in
our ratio of debt to earnings before interest,
-12-
TRANSPORTATION COMPONENTS, INC.
taxes, depreciation and amortization. The increase in the average debt
outstanding was primarily from the increased working capital invested in
inventory.
SIX MONTHS ENDED JUNE 30
-------------------------------------------
2000 % 1999 %
--------- ----- --------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
Revenues ................................... $ 152,902 100.0 $ 159,350 100.0
Cost of sales .............................. 107,393 70.2 110,244 69.2
--------- ----- --------- -----
Gross profit ........................... 45,509 29.8 49,106 30.8
Selling, general and administrative expenses 41,961 27.5 39,284 24.6
Amortization of goodwill ................... 1,130 .7 1,056 .7
--------- ----- --------- -----
Income from operations ................. 2,418 1.6 8,766 5.5
Interest expense ........................... (3,748) (2.5) (2,614) (1.6)
Other income, net .......................... (229) (.1) 522 .3
--------- ----- --------- -----
(Loss) income before income taxes ...... $ (1,559) (1.0) $ 6,674 4.2
========= ===== ========= =====
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999
REVENUES. Revenues of $152.9 million for the first six months ended June
30, 2000 declined $6.4 million, or 4.0%, from $159.3 million of revenues for the
six months ended June 30, 2000. Revenues declined in connection with what we
believe is a general softening in the domestic industry. Of the $6.0 million
decline, $1.6 million was applicable to a decline in our sales of new trucks.
This decline is primarily the result of a nationwide decline in demand for new
heavy-duty trucks. Revenues in Mexico increased approximately 20%.
GROSS PROFIT. Total gross profit of $45.5 million for the six months ended
June 30, 2000 declined by $3.6 million, or 7.3%, from $49.1 million of gross
profit for the six months ended June 30, 1999. As a percentage of revenues,
gross profit of 29.8% for the first half of 2000 declined 100 basis points from
gross profit of 30.8% for the first half of 1999. This decline was partially due
to vendor price increases, which we did not immediately pass through to our
customers, and changes in product mix.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $2.7 million, or 6.8%, to $42.0 million for the six months
ended June 30, 2000 from $39.3 million for the six months ended June 30, 1999.
Selling, general and administrative expenses as a percentage of revenues
increased from 24.6% for the first half of 1999 to 27.5% for the first half of
2000. Severance expense of $0.5 million, or 0.3% of revenues, were recorded for
announced headcount reductions. The additional increases were the result of
costs to build the infrastructure, including staffing and training of our
general office, enabling us to centralize the branch administrative functions.
We expect that significant administrative costs at our branch locations can be
eliminated or reduced during the second half of 2000.
OTHER INCOME. Other income for the six months ended June 30, 2000 was an
expense of $0.2 million compared to income of $0.5 million for the six months
ended June 30, 1999. This decline from income to expense was from recording
approximately $0.7 million of reserves to recognize nonrecurring, non-cash
reductions in the value of notes receivable from former business owners
originally recorded in an acquisition completed in June 1998, a building and
various equipment in process of being sold.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 2000
increased $1.1 million, or 43.4%, to $3.7 million compared to $2.6 million of
interest expense for the six months ended June 30, 1999. The increase in
interest expense was due to an approximate $2.6 million increase in the average
amount of debt outstanding between the two periods and an approximate 200 basis
point increase in the average interest rate between the two periods. We also
paid fees for the amendments to our revolving credit facility, which have been
recorded as interest expense. LIBOR was approximately 120 basis points higher at
the end of the first half of 2000 compared to the end of the first half of 1999.
The margin above LIBOR, which we paid, increased by 125 basis points from June
30, 1999 to June 30, 2000. The margin above the LIBOR increased in connection
with the
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TRANSPORTATION COMPONENTS, INC.
increase in our ratio of debt to earnings before interest, taxes, depreciation
and amortization. The increase in the average debt outstanding was primarily
from the increased working capital invested in inventory.
LIQUIDITY AND CAPITAL RESOURCES
As a distributor of heavy-duty truck parts, we require significant
amounts of working capital to fund inventories and accounts receivable.
Additional cash is required for capital items such as delivery vehicles,
information technology and warehouse equipment. We also require cash to pay our
lease obligations and to service our debt.
We used $5.9 million in net cash in operating activities during the
six months ended June 30, 2000. This cash was invested in increased inventory
and used to reduce accounts payable to our vendors. Net cash used for investing
activities (capital expenditures) was $0.7 million for the six months ended June
30, 2000, primarily relating to the purchase of information technology systems.
At June 30, 2000, we had cash of $4.1 million, working capital of $79.4 million
and total debt of $84.0 million compared to $2.9 million of cash, $73.8 million
of working capital and $76.2 million of total debt at December 31,1999.
In June 1998, we entered into a three-year revolving credit facility,
which provided for a line of credit up to $75 million. This credit facility was
to mature June 24, 2001 and beared interest at either the LIBOR rate plus an
applicable margin based on the ratio of debt to cash flows (as defined), or the
bank's prime rate, at our option. Under the terms of the credit facility, we
were required to comply with various affirmative and negative covenants.
Effective September 30, 1999, we entered into an Amended and Restated
Credit Agreement, or Credit Facility. The primary changes were to modify two of
the financial covenants, increase the interest rates payable by 75 to 150 basis
points, and collateralize the loan with a pledge of our assets other than real
estate and vehicles. The maximum borrowing capacity of $75.0 million and the
maturity date of June 24, 2001 were not changed.
During March 2000, our internal cash flow projection indicated we would
violate certain financial ratios required by our Credit Facility at March 31,
2000. As a result, we requested and received an amendment, which cured the
projected covenant violations as of March 31, 2000.
Effective June 30, 2000, we entered into an amendment to the Credit
Facility. The primary changes were to modify two of the financial covenants,
increase the interest rate payable by 75 basis points, prohibit future payment
of principal on the $13.6 million of 5% convertible subordinated notes, and
extend the maturity date to July 31, 2001. The interest rate will increase by an
additional 25 basis points each quarter until maturity. The maximum borrowing
capacity of $75.0 million was not changed. As of June 30, 2000, we are in
compliance with the financial covenants in our Credit Facility as amended as of
June 30, 2000. At June 30, 2000, $6.4 million was available for borrowings under
the most restrictive covenants under the Credit Facility.
As described above, our Credit Facility matures on July 31, 2001.
Therefore, to keep amounts borrowed under the Credit Facility classified in our
balance sheet as long-term, we must renew and extend or replace the Credit
Facility as of September 30, 2000. We intend to replace the Credit Facility with
a long-term, asset based facility during the next three months. However, we may
not be able to renew and extend or replace the Credit Facility. Any replacement
facility may have higher interest costs, less borrowing capacity, more
restrictive conditions and could involve equity dilution. Our ability to obtain
a satisfactory credit facility may depend, in part, upon the level of our asset
base for collateral purposes, our future financial performance and the terms of
any restructuring of our subordinated debt.
At June 30, 2000, approximately $250,000 of deferred unamortized costs
associated with the Credit Facility are included on the balance sheet. If we are
successful in replacing the Credit Facility, these costs will be expensed.
The Credit Facility as amended as of June 30, 2000 prohibits principal
payments on the $13.6 million of 5% convertible subordinated notes. The next
principal payment on the notes is due September 15, 2000. Notes
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TRANSPORTATION COMPONENTS, INC.
in the amount of approximately $4.3 million call for $1.6 million of principal
payments during the twelve months ended June 30, 2001. The entire $4.3 million
of these notes has been classified as current at June 30, 2000 under the
assumption that these notes will be in default and therefore due and payable.
After a payment default, the note holder must wait 180 days to begin collection
proceedings. We intend to extend or replace all of the subordinated notes,
however, such extended notes or replacement debt may have higher interest costs,
greater equity dilution and more restrictive conditions.
Our internal cash flow projections indicate our cash flow from operations
will provide cash to meet our normal working capital needs. Planned capital
expenditures for 2000 of approximately $3 million are expected to be funded from
cash flow from operations and supplemented as necessary by borrowings from the
Credit Facility, and any replacement or renewed credit facility or other sources
of financing. However, we will require additional debt or equity financing to
meet our future debt service obligations, which may include additional bank debt
or the public or private sale of equity or debt securities. In connection with
this financing, we may be required to issue securities that substantially dilute
the interests of our stockholders.
We will require additional capital to fund any future acquisitions. At
this time, we do not plan to grow through acquisitions in the near term unless
the market price of our common stock rises to levels that will make acquisitions
accretive to our earnings or we generate excess cash flow. We also may pursue
additional equity or debt financing to fund future acquisitions, although we may
not be able to obtain additional financing on attractive terms.
FOREIGN CURRENCY FLUCTUATIONS
A portion of the Company's consolidated revenues are billed and collected
in Mexican pesos and Canadian dollars. Additionally, substantially all of the
operating expenses related to foreign locations are incurred in a foreign
currency. Consequently, the Company's reported financial results are affected by
fluctuation of foreign currencies against the U.S. dollar. The Company
periodically performs foreign currency hedging to reduce its foreign currency
transaction exposures.
SEASONALITY
Weather extremes cause increased parts wear and breakdowns of trucks and
trailers; however, extreme weather, particularly during winter months, could
inhibit general business activity. These seasonal trends may cause fluctuations
in the Company's earnings. Additionally, quarterly results may be materially
affected by the timing of acquisitions, variations in the margins of products
sold and services performed during any particular quarter, the timing and
magnitude of acquisition assimilation projects and regional economic conditions.
Accordingly, the Company's operating results in any particular quarter may not
be indicative of the results that can be expected for any other quarter or for
the entire year.
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TRANSPORTATION COMPONENTS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily from interest rates and foreign
currency exchange rates. We actively monitor our exposure to market risks and
continue to develop and use appropriate risk management techniques. Accordingly,
we may enter into certain derivative financial instruments such as interest rate
caps or swaps and foreign currency futures contracts or obligations. We do not
use derivative financial instruments for trading or to speculate on changes in
interest rates or foreign currency exchange rates.
The sensitivity analyses below, which hypothetically illustrate our
potential market risk exposure, estimate the effects of hypothetical sudden and
sustained changes in the applicable market conditions on 2000 earnings. The
sensitivity analyses presented do not consider any additional actions we might
take to mitigate our exposure to such changes. The market changes, assumed to
occur as of January 1, 2000, include a 100 basis point increase in market
interest rates and a 10% weakening of all other currencies relative to the U.S.
dollar. The hypothetical changes and assumptions may be different from what
actually occurs in the future.
INTEREST RATES. As of June 30, 2000, we had no derivative financial
instruments to manage interest rate risk. Accordingly, we are exposed to
earnings and fair value risk due to changes in interest rates with respect to
our long-term obligations. As of June 30, 2000, approximately 87% of our
long-term obligations were floating rate obligations. The hypothetical 100 basis
point increase in interest rates described above would reduce pre-tax income for
the six months ended June 30, 2000 and 1999 by approximately $0.7 million and
$0.6 million, respectively. This effect is primarily due to the floating rate
borrowings under our revolving credit facility.
FOREIGN CURRENCY EXCHANGE RATES. Our earnings and cash flows are subject
to fluctuations due to changes in foreign currency exchange rates. We manage our
exposure to changes in exchange rates by buying or selling currency futures
contracts and options. Our risk management objective is to reduce our exposure
to the effects of changes in exchange rates on the value of our accounts
receivable denominated in foreign currency on a monthly basis. To a certain
extent, foreign exchange rate changes may affect business practices and/or
pricing strategies of non-U.S. based competitors. Our foreign currency risk
policies entail entering into foreign currency futures contracts only to manage
risk - not for speculative investments.
A hypothetical 10% weakening of the average exchange rate for the six
months ended June 30, 2000 and 1999 of all other currencies relative to the U.S.
dollar would have reduced our sales by $2.0 million and $1.8 million,
respectively, and operating income by $0.1 million and $0.2 million,
respectively. The hypothetical change in exchange rates ignores the effect this
movement may have on other variables, including competitive risk. If it were
possible to quantify this competitive impact, the results could well be
different than the effects of the sensitivity analysis shown above.
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TRANSPORTATION COMPONENTS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation that management considers to
be of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held May 25, 2000, the shareholders
elected the five persons nominated for election to the Company's Board of
Directors, approved the Company's 2000 Employee Stock Purchase Plan and ratified
the selection of Arthur Andersen LLP as our independent public auditors. The
results of the elections were as follows:
A. ELECTION OF DIRECTORS
Number of Shares Voted
---------------------------------------------
Name and Nominee For Against Abstained
----------------------- ------------- -------------- --------------
Maura L. Berney 11,043,808 122,378 0
Lawrence K. King 11,043,808 122,378 0
Mac McConnell 11,043,808 122,378 0
Mark E. Speese 11,043,808 122,378 0
Thomas A. Work 11,043,808 122,378 0
B. APPROVAL OF 2000 EMPLOYEE STOCK PURCHASE PLAN
Number of Shares Voted
---------------------------------------------
For Against Abstained
------------- -------------- --------------
7,598,996 116,460 5,285
C. RATIFICATION OF INDEPENDENT AUDITORS
Number of Shares Voted
---------------------------------------------
Name of Accounting
Firm For Against Abstained
----------------------- ------------- -------------- --------------
Arthur Andersen LLP 10,408,326 756,360 1,050
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
3.1 Amended and Restated Certificate of Incorporation of Transportation
Components, Inc. (incorporated herein by reference from the
Company's Form S-1, file number 333-50447)
3.2 Bylaws of Transportation Components, Inc. as amended (incorporated
herein by reference from the Company's Form S-1, file number
333-50447)
4.1 Amendment No. 2 (effective June 30, 2000) to Amended and Restated
Credit Agreement dated as of September 30, 1999
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None
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SIGNATURE
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, who has signed this report on behalf of
the Registrant and as the principal financial officer of the Registrant.
TRANSPORTATION COMPONENTS, INC.
Date: August 14, 2000 By: /s/ MAC McCONNELL
-------------------------
Mac McConnell, Senior Vice President
and Chief Financial Officer
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