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, 1999
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.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1386925
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1769 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, 1999, the Company had outstanding 7,053,625 shares of Common
Stock, $.01 par value.
This Form 10-Q consists of 15 pages.
TRANSPORT CORPORATION OF AMERICA, INC.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998..........................Page 3
Consolidated Statements of Earnings for the
three months ended March 31, 1999 and 1998....................Page 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998....................Page 5
Notes to Consolidated Financial Statements....................Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................Page 7
PART II. OTHER INFORMATION
Item 5. Other Information.............................................Page 13
Item 6. Exhibits and Reports on Form 8-K..............................Page 13
Exhibit 11 Statement re: Computation of Earnings per
Common Share..................................................Page 14
Exhibit 27 Financial Data Schedule............................Page 15
2
ITEM 1. FINANCIAL STATEMENTS
Transport Corporation of America, Inc.
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1999 1998
------------ ------------
(unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 934 $ 448
Trade accounts receivable, net 30,579 27,403
Other receivable 2,441 1,593
Operating supplies - inventory 1,331 1,378
Deferred income tax benefit 5,443 5,443
Prepaid expenses and tires 4,481 2,212
------------ ------------
Total current assets 45,209 38,477
Property and equipment:
Land, buildings, and improvements 19,306 18,759
Revenue equipment 186,803 179,042
Other equipment 10,696 9,905
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Total property and equipment 216,805 207,706
Less accumulated depreciation (48,312) (46,946)
------------ ------------
Property and equipment, net 168,493 160,760
Other assets, net 24,952 25,315
------------ ------------
Total assets $ 238,654 $ 224,552
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,892 $ 13,717
Accounts payable 5,245 7,207
Checks issued in excess of cash balances 2,203 426
Due to independent contractors 3,325 2,126
Accrued expenses 12,624 11,795
------------ ------------
Total current liabilities 37,289 35,271
Long term debt, less current maturities 88,109 79,531
Deferred income taxes 29,049 27,749
1,200,000 shares of common stock with non-detachable put 20,268 20,268
Stockholders' equity:
Common stock 67 67
Additional paid-in capital 24,220 24,093
Retained earnings 39,652 37,573
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Total stockholders' equity 63,939 61,733
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Total liabilities and stockholders' equity $ 238,654 $ 224,552
============ ============
* Based upon audited financial statements
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Transport Corporation of America, Inc.
Consolidated Statements of Earnings
(In thousands, except share and per share amounts)
Three months ended
March 31,
------------------------------
1999 1998
------------ ------------
(unaudited)
Operating revenues $ 67,145 $ 49,488
Operating expenses:
Salaries, wages, and benefits 18,735 15,106
Fuel, maintenance, and other expenses 6,833 6,796
Purchased transportation 23,664 14,160
Revenue equipment leases 869 966
Depreciation and amortization 5,733 4,410
Insurance, claims and damage 1,917 1,525
Taxes and licenses 1,300 835
Communications 739 612
Other general and administrative expenses 2,330 1,933
(Gain) loss on sale of equipment 46 (12)
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Total operating expenses 62,166 46,331
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Operating income 4,979 3,157
Interest expense 1,581 1,115
Interest income (12) (91)
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Interest expense, net 1,569 1,024
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Earnings before income taxes 3,410 2,133
Provision for income taxes 1,331 833
------------ ------------
Net earnings $ 2,079 $ 1,300
============ ============
Net earnings per share:
Basic $ 0.26 $ 0.19
============ ============
Diluted $ 0.25 $ 0.19
============ ============
Average common shares outstanding:
Basic 7,896,938 6,669,700
Diluted 8,374,025 6,767,671
4
Transport Corporation of America, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Three months ended
March 31,
--------------------------
1999 1998
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Operating activities:
Net earnings $ 2,079 $ 1,300
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 5,733 4,410
(Gain) loss on sale of equipment 46 (12)
Deferred income taxes 1,300 870
Tax benefits related to employee stock transactions 0 0
Changes in operating assets and liabilities:
Trade receivable (3,176) (223)
Other receivable (848) 3,679
Operating supplies 47 85
Prepaid expenses and tires (2,269) (1,689)
Accounts payable (1,962) (342)
Due to independent contractors 1,199 1,337
Accrued expenses 829 1,952
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Net cash provided by operating activities 2,978 11,367
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Investing activities:
Payments for purchases of revenue equipment (17,279) (3,774)
Payments for purchases of property and other equipment (1,383) (633)
(Increase) decrease in other assets (19) 0
Proceeds from sales of equipment 5,532 962
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Net cash used in investing activities (13,149) (3,445)
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Financing activities:
Proceeds from issuance of common stock,
and exercise of options and warrants 127 396
Principal payments on long-term debt (3,247) (4,476)
Proceeds from issuance of notes payable to bank 44,400 0
Principal payments on notes payable to bank (32,400) 0
Change in net checks issued in excess of cash balances 1,777 1,643
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Net cash provided by (used in) financing activities 10,657 (2,437)
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Net increase in cash 486 5,485
Cash and cash equivalents, beginning of period 448 1,383
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Cash and cash equivalents, end of period $ 934 $ 6,868
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,562 $ 1,099
Income taxes, net 401 41
5
TRANSPORT CORPORATION OF AMERICA, INC.
Notes to Consolidated Financial Statements
1. Interim Consolidated Financial Statements (unaudited)
The unaudited interim consolidated financial statements
contained herein reflect all adjustments which, in the opinion of
management, are necessary to 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, 1998. The policies described in that report are used in
preparing quarterly reports. Certain balances from prior periods have
been restated to conform to current presentation.
The Company's business is seasonal. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31,
1999.
2. Commitments
As of March 31, 1999 the Company had commitments for the
purchase of approximately $32.5 million of revenue equipment, net of
anticipated proceeds from the disposition of used equipment. The
Company also has committed $1.4 million to complete the construction of
a terminal facility in Atlanta, Georgia. Construction of the facility
is expected to be complete in the second quarter of 1999.
In April of 1999, the Company entered into a five year lease
for the construction of a new headquarters facility in Eagan, MN. The
aggregate lease payments are contingent on the final construction costs
of approximately $13 million.
3. Subsequent Event
On April 30, 1999, the Company completed its acquisition of
Robert Hansen Trucking, Inc., a privately-held truckload carrier based
in Delavan, Wisconsin. The purchase price consists of $2.2 million in
cash, approximately 350,000 shares of common stock, and $16 million of
assumed debt.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended March 31, 1999 and 1998
Operating revenues increased 35.7% to $67.1 million for the
quarter ended March 31, 1999 from $49.5 million for the quarter ended
March 31, 1998. Additional revenues attributable to the acquisition of
North Star Transport, Inc., which became effective July 1, 1998, and
revenue growth from existing customers were the primary factors of the
revenue increase in the first quarter of 1999, when compared to the
same quarter in 1998. The additional North Star drivers provided
significantly greater capacity throughout the first quarter of 1999
compared to the same quarter a year ago. Revenues per mile, excluding
fuel surcharges, was $1.25 per mile in the first quarter of 1999,
compared to $1.24 per mile for the same period of 1998. The improvement
in revenues per mile reflects an increase in rates, partially offset by
an increase in empty miles from 10.9% in the first quarter of 1998 to
11.3% in the first quarter of 1999. Equipment utilization, as measured
by average revenues per tractor per week, net of fuel surcharges, was
$2,663 during the first quarter of 1999, compared to $2,795 in the
first quarter of 1998. The 4.7% decline reflected poorer equipment
utilization resulting from the integration of the historically lower
utilization of North Star contractors and a more adverse winter in
1999.
North Star utilized the services of independent contractors
for substantially all of its driver workforce. Following the North Star
acquisition, independent contractors represented a significantly higher
share of the Company's total driver workforce than in prior periods. In
addition to providing their own tractors, independent contractors are
responsible for operating expenses including repairs, fuel and other
direct costs associated with their equipment. As a result of the
greater proportion of independent contractors than in the same quarter
a year ago, several expense categories declined as a percentage of
revenue in the first quarter of 1999, offsetting an increase in
purchased transportation expense as a percentage of revenues, when
compared to the same quarter in 1998. At March 31, 1999 there were 900
independent contractors, compared to 445 at March 31, 1998.
Pre-tax margin (earnings before income taxes as a percentage
of operating revenues) increased to 5.1% in the first quarter of 1999
from 4.3% for the same period of 1998. Efficiency, as measured by
average annualized revenues per non-driver employee, improved 2.9% to
$564,000 for the first quarter of 1999, compared to $548,000 for the
same period of 1998. Salaries, wages and benefits as a percentage of
operating revenues dropped to 27.9% in the first quarter of 1999,
compared to 30.5% for the same period of 1998. The decrease is
primarily a reflection of a higher average number of independent
contractors in the first quarter of 1999 compared to the same period of
1998. Miles driven by independent contractors in the first quarter of
1999 increased 77.8% over the same
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quarter in 1998 as a result of the higher number of independent
contractors in the first quarter 1999 compared to the same period in
1998. Accordingly, purchased transportation increased as a percentage
of operating revenues to 35.2% in the first quarter of 1999 from 28.6%
for the same quarter of 1998. The decline of fuel, maintenance and
other expenses as a percentage of operating revenues to 10.2% in the
first quarter of 1999, compared to 13.7% in the first quarter of 1998,
also reflects the increase of independent contractors, partially offset
by increased fuel prices. Revenue equipment leases decreased as a
percentage of operating revenues to 1.3% in the first quarter of 1999
from 2.0% for the same period of 1998 as a result of a decrease in the
use of leases. Depreciation and amortization were 8.5% for the first
quarter of 1999, compared to 8.9% for the first quarter of 1998
primarily as result of the larger proportion of revenue equipment
supplied by independent contractors during the first quarter 1999. Net
interest expense increased as a percentage of operating revenues to
2.3% for the first quarter 1999 from 2.1% for the first quarter 1998,
primarily reflecting higher average debt in 1999 resulting from the
acquisition of North Star in July 1998, and purchases of additional
revenue equipment in the second half of 1998 and first quarter 1999.
Loss on the disposition of equipment was $46,000 in the first
quarter of 1999, compared to a gain of $12,000 in the first quarter of
1998. The effective tax rate for the first quarters of both 1999 and
1998 was 39.0%.
As a consequence of the items discussed above, net earnings
increased 59.9% to $2.1 million, or 3.1% of operating revenues for the
quarter ended March 31, 1999 from $1.3 million, or 2.6% of operating
revenues for the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3.0 million in
the first three months of 1999. Working capital as of March 31, 1999
was $7.9 million, compared to $3.2 million as of December 31, 1998. In
August of 1998, the Company arranged for a long-term credit facility
which resulted in the retirement of $7.7 million of current maturities
of long-term debt and a corresponding increase of non-current long-term
liabilities. Accrued liabilities include normal provisions for accident
and workers' compensation claims associated with the Company's
self-insured retention insurance program, less claim payments actually
made. The Company believes that its reserves and liquidity are adequate
for expected future claim payments.
Investing activities in the first three months of 1999
consumed net cash of $13.1 million, primarily for the purchase of forty
six new tractors, as well as other equipment and improvements, less
proceeds from the disposition of twenty three used tractors. As of
March 31, 1999 the Company had commitments for the purchase of
approximately $32.5 million of revenue equipment and $1.4 million to
complete the construction of a terminal facility in Atlanta, Georgia.
In addition, the Company entered into a five year lease for the
construction of a new headquarters facility in Eagan, Minnesota. The
aggregate lease payments are
8
subject to final construction costs and expected to be approximately
$13 million. The Company expects to use its' long term credit facility
to purchase the revenue equipment and complete construction of the
terminal facility.
Net cash provided by financing activities was $10.7 million in
the first three months of 1999, including $12.0 million representing
net proceeds from the Company's credit facility.
The Company has a credit agreement with seven major banks for
an un-secured credit facility with maximum combined borrowings and
letters of credit of $100 million. Amounts actually available under the
credit facility may be limited by the company's accounts receivable and
unencumbered revenue equipment. The credit facility, which expires in
March 2001, is used to meet working capital needs, purchase revenue
equipment and other assets, satisfy letter of credit requirements
associated with the Company's self-insured retention arrangements, and
for acquisitions. At March 31, 1999, there were outstanding borrowings
of $65.0 million and letters of credit outstanding totaling $3.6
million under this credit facility. The Company expects to continue to
fund its liquidity needs and anticipated capital expenditures with cash
flows from operations and the credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("Statement No. 133"). Statement No. 133 requires that an
enterprise recognize all derivatives as either assets or liabilities in
the consolidated balance sheet and measure those instruments at fair
value. Statement No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. The Company is currently
assessing the effect, if any, of Statement No. 133 on its financial
statements.
YEAR 2000
GENERAL STATE OF READINESS:
Transport America has instituted a Steering Committee (the
"Committee") to assess the readiness and take remedial action to
correct the Company's systems to accommodate Year 2000 ("Y2K") issues.
The Committee, consisting of senior management representing both
technical and operating departments, is charged with developing a
project plan, detailed management and remediation plans, as well as
execution of these plans.
The Company is currently dependent upon systems that are not
Y2K compliant, including the Company's operations systems, which is
critical to coordinate driver movements with customer needs and which
interacts with other
9
internal accounting and operating systems as well as external customer
information systems. Development of a replacement operations system
commenced in 1997, and coding and testing of this system is
substantially complete. Training and implementation is anticipated to
be complete in the second quarter of 1999. The replacement system has
been designed to provide operational capabilities and enhancements not
present in the current systems, in addition to achieving Y2K
compliance.
Under the guidance of the Committee, an inventory and
assessment of all systems has been completed. A remediation timeline
for non-compliant systems will be completed in the second quarter of
1999.
The Company is dependent upon system-based relationships with
outside parties, including customers, banks, payroll processors,
suppliers, communication service providers, and other business
partners. The Company has outlined its core business processes and
identified customers and vendors who are critical to these processes.
The Company has implemented a series of phone and printed surveys which
have been sent to these business partners to assess their Y2K
readiness. Responses to these surveys are being collected and
assessments made to determine the degree of impact on Company
operations, should any of these outside parties fail to achieve Y2K
compliance. Remediation actions and alternate procedures will be
developed to overcome any significant business partner issues
discovered as a result of the surveys.
COSTS TO ADDRESS THE COMPANY'S Y2K ISSUES
The Company believes that the costs of addressing internal Y2K
issues will not have a material adverse effect upon its results of
operations or financial condition. The major initiative, consisting of
replacing the operations system, is primarily directed at improving
operational effectiveness, with the added benefit of replacing a
non-Y2K compliant system. The Company has estimated that internal costs
associated with Y2K compliance will be $350,000, of which approximately
$250,000 has been incurred and expensed to date including approximately
$50,000 in the first quarter of 1999. The potential financial impact on
the Company resulting from the failure of any of the Company's business
partners to be Y2K compliant cannot be estimated until the Company has
received and evaluated responses to its surveys of its business
partners.
RISKS ASSOCIATED WITH THE COMPANY'S Y2K ISSUES
The Company's failure to implement Y2K compliant systems could
disrupt daily operations, impairing, for example, the Company's ability
to receive and record customer orders, coordinate driver movements, and
invoice customers, all of which could have a material adverse effect
upon the Company's results of operations and liquidity, if prolonged.
Although the Company believes alternate manual processes exist that
could temporarily minimize the disruption caused by a
10
Y2K failure, such processes would not likely be effective for an
extended period of time.
The Company is dependent upon third party resources which are
outside its direct control. Among the more critical of these is the
telecommunication system, upon which the Company depends to receive
customer orders and direct driver movements. Daily activities are very
dependent upon voice-based phone systems and satellite-based
communication systems. Failure of the voice-based phone system would
pose a critical loss of capabilities, only partially offset by
satellite communication options.
Several critical relationships exist between the Company and
its customers, particularly those who electronically initiate order
transactions with the Company or interact directly with the Company's
systems. Failure of the Company's customers to achieve Y2K compliance
could jeopardize the Company's ability to transact business
electronically with those customers. In the event of a customer's Y2K
failure, the success of manual interim processes will be largely out of
the Company's control.
CONTINGENCY PLANS
The Company has developed a comprehensive Y2K Contingency
Plan. The plan includes alternative manual and electronic procedures.
FORWARD-LOOKING STATEMENTS
The Company has included various statements in this
Management's Discussion and Analysis and Results Of Operations which
may be considered as forward-looking statements of expected future
results of operations or events made pursuant to the safe harbor
provisions of the Private Securities Litigations Reform Act of 1995.
Such statements, based upon management's interpretation of currently
available information, are subject to risks and uncertainties that
could cause future financial results or events to differ materially
from those which are presented. Such risks and factors which are
outside of the Company's control include general economic conditions,
competition in the transportation industry, governmental regulation,
the Company's ability to recruit, train and retain qualified drivers,
fuel prices, and adverse weather conditions. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
11
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to certain market risks with its $100
million credit agreement, of which $65.0 million is outstanding at
March 31, 1998. The agreement bears interest at a variable rate,
which was 6.4% at December 23, 1998. In addition, the Company also has
1.2 million shares of common stock with a non-detachable Put option.
The Put gives the shareholder the right to sell some or all of the 1.2
million shares of the Company's common stock back to the Company at
$16.89 per share, payable in cash, during a 60-day period commencing
June 30, 2001.
12
PART II OTHER INFORMATION
Item 5. Other Information:
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit
Number Description Page
------ ----------- ----
11.1 Statement re: Computation of Net Earnings per Share..... 14
27 Financial Data Schedule................................. 15
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
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, 1999 /s/ James B. Aronson
------------------ -------------------------------------------------
James B. Aronson
Chairman of the Board and Chief Executive Officer
/s/ Robert J. Meyers
-------------------------------------------------
Robert J. Meyers
President, Chief Operating Officer, and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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