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, 1996
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 33-99716
AMERITRUCK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2619368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
City Center Tower II, Suite 1101,
301 Commerce Street, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 332-6020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
i
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996* 1995* 1996* 1995*
-------- -------- -------- -------
Operating revenue $53,673 $20,886 $98,322 $41,090
------- ------- ------- -------
Operating expenses:
Salaries, wages and fringe benefits 17,685 6,162 32,125 12,322
Purchased transportation 13,901 6,031 24,121 11,665
Operating supplies and expenses 9,860 2,932 18,439 5,858
Depreciation and amortization of
capital leases 3,233 1,507 6,220 2,960
Claims and insurance 2,026 780 3,724 1,676
Operating taxes and licenses 1,163 273 2,165 553
General supplies and expenses 2,521 601 4,338 1,224
Amortization of intangibles 265 120 498 240
Gain on disposal of property and
equipment (68) (38) (255) (62)
------- ------- ------- -------
Total operating expenses 50,586 18,368 91,375 36,436
------- ------- ------- -------
Operating income 3,087 2,518 6,947 4,654
Interest expense 3,955 833 7,643 1,558
Amortization of financing fees 120 2 235 3
Other income, net (135) (67) (290) (157)
------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item (853) 1,750 (641) 3,250
Income taxes (benefit) (380) 710 (287) 1,327
------- ------- ------- -------
Income (loss) before extraordinary item (473) 1,040 (354) 1,923
Extraordinary item, loss on early
retirement of debt, net of taxes of $154 - - (230) -
------- ------- ------- -------
Net income (loss) $ (473) $ 1,040 $ (584) $ 1,923
======= ======= ======= =======
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
1
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,070 $ 15,286
Accounts and notes receivable, net 22,126 12,269
Prepaid expenses 6,941 4,057
Repair parts and supplies 1,108 844
Deferred income taxes 1,206 960
Other current assets 2,141 941
-------- --------
Total current assets 37,592 34,357
Property and equipment, net 97,316 67,191
Goodwill, net 32,270 32,705
Notes receivable 921 -
Other assets 8,145 6,282
-------- --------
Total assets $176,244 $140,535
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 6,590 $ 10,566
Accounts payable and accrued expenses 11,987 12,071
Claims and insurance accruals 1,594 1,852
Other current liabilities 576 499
-------- --------
Total current liabilities 20,747 24,988
Long-term debt 147,734 107,769
Deferred income taxes 7,597 7,773
Other liabilities 2,567 1,822
-------- --------
Total liabilities 178,645 142,352
-------- --------
Stockholders' equity (deficiency):
Common stock; $.01 par value; 3,278
shares issued and outstanding 33 33
Loans to stockholders (1,435) (1,435)
Accumulated deficit (999) (415)
-------- --------
Total stockholders' equity
(deficiency) (2,401) (1,817)
-------- --------
Total liabilities and
stockholders' equity
(deficiency) $176,244 $140,535
======== ========
See accompanying notes to consolidated financial statements.
2
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------
1996* 1995*
--------- --------
OPERATING ACTIVITIES:
Net income (loss) $ (584) $ 1,923
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization of
capital leases 6,220 2,960
Amortization of intangibles 498 240
Gain on disposal of property and
equipment (255) (62)
Provision (benefit) for deferred income taxes (441) 232
Other, net (936) 64
Changes in current assets and
liabilities, net of effects
from acquisition:
Accounts and notes receivable, net (8,588) 1,689
Prepaid expenses (1,507) (240)
Repair parts and supplies (25) (94)
Other current assets (7) 114
Accounts payable and accrued
expenses (973) (1,037)
Claims and insurance accruals 988 474
Other current liabilities 76 3
-------- -------
Net cash provided by (used in)
operating activities (5,534) 6,266
-------- -------
INVESTING ACTIVITIES:
Purchase of Freymiller assets, net of
liabilities assumed (18,821) -
Purchase of property and equipment (17,388) (3,594)
Payment for Dietz acquisition, net of
cash acquired - (1,959)
Proceeds from sale of property and
equipment 3,162 383
Other, net 528 (1)
-------- -------
Net cash used in investing
activities (32,519) (5,171)
-------- -------
FINANCING ACTIVITIES:
Revolving line of credit 28,596 -
Proceeds from issuance of long-term
debt 13,365 5,756
Repayment of long-term debt (15,124) (5,475)
Dividends paid - (74)
-------- -------
Net cash provided by financing
activities 26,837 207
-------- -------
Net increase (decrease) in cash and
cash equivalents (11,216) 1,302
Cash and cash equivalents, beginning of
period 15,286 1,617
-------- -------
Cash and cash equivalents, end of period $ 4,070 $ 2,919
======== =======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 7,650 $ 1,339
Income taxes 97 1,544
Property and equipment financed
through capital lease obligations and
other debt 5,786 4,451
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
3
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND INTERIM RESULTS
The 1995 Annual Report on Form 10-K for AmeriTruck Distribution Corp.
("AmeriTruck" or the "Company") and its wholly-owned subsidiaries includes
a summary of significant accounting policies and should be read in
conjunction with this Form 10-Q. The statements for the periods presented
are condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1996 and December 31, 1995 and the
results of operations for the three-month and six-month periods ended June
30, 1996 and 1995 and cash flows for the six-month periods ended June 30,
1996 and 1995 have been included. The results of operations for any interim
period are not necessarily indicative of the results of operations to be
expected for the entire year. Certain prior year data has been reclassified
to conform to current year presentation.
Separate financial statements of the Company's subsidiaries are not
included because (a) all of the Company's direct and indirect subsidiaries
have guaranteed the Company's obligations under the Indenture, dated as of
November 15, 1995 (the "Indenture"), among the Company, such subsidiaries
(in such capacity, the "Guarantors"), and The Bank of New York, as Trustee,
(b) the Guarantors have fully and unconditionally guaranteed the 12 1/4%
Senior Subordinated Notes due 2005 ("Subordinated Notes") issued under the
Indenture on a joint and several basis, (c) the Company is a holding
company with no independent assets or operations other than its investments
in the Guarantors and (d) the separate financial statements and other
disclosures concerning the Guarantors are not presented because management
has determined that they would not be material.
2. ACQUISITIONS
AmeriTruck was formed in August 1995 to effect the combination of six
regional trucking lines in November 1995 (the "Acquisitions"): W&L Services
Corp. ("W&L"), Thompson Bros., Inc. ("TBI"), J.C. Bangerter & Sons, Inc.
("Bangerter"), CMS Transportation Services, Inc. and certain related
companies ("CMS"), Scales Transport Corporation and a certain related
company ("Scales") and C.B.S. Express, Inc. ("CBS" and, collectively the
"Operating Companies"). Prior to the Acquisitions, W&L and TBI had certain
common stockholders who controlled approximately 87 percent of the common
equity of W&L and TBI on a combined basis. In addition, these stockholders
control approximately 67 percent of the outstanding common stock of
AmeriTruck after the consummation of the Acquisitions. Therefore, these
common stockholders of W&L and TBI have been treated as the acquirer for
purposes of accounting for the Acquisitions. The accompanying AmeriTruck
consolidated statements of operations and cash flows reflect only W&L and
TBI combined results for the 1995 periods.
In February 1996, the Company, through CMS, purchased (the "Purchase")
certain assets of Freymiller Trucking Inc. ("Freymiller"). Freymiller had
been the subject of a Chapter 11 bankruptcy proceeding in Oklahoma.
Pursuant to the Purchase, CMS purchased certain specific automobiles,
computer hardware and software, furniture and fixtures, rights to the trade
name "Freymiller", existing spare parts, tires and fuel, rights under
certain leases, certain leasehold improvements and shop equipment and
installment sales contracts relating to tractors and trailers sold by
Freymiller out of the ordinary course of business (with all of the
foregoing referred to as the "Freymiller Assets"). The Company also
negotiated with Freymiller's lenders and lessors to purchase approximately
185 tractors and 309 trailers, previously operated by Freymiller, for
approximately $14 million. An additional 80 trailers were leased for a
seven-year period. In exchange for the Freymiller Assets, the Company paid
approximately $2.7 million in cash at closing and assumed approximately $2
million in existing equipment financing.
4
In addition, the Company assumed a lease for Freymiller's maintenance
facility in Oklahoma City and certain routine executory business contracts.
Except as provided above, the Company did not assume any obligations or
liabilities of Freymiller.
In connection with these transactions, the Company purchased real
property in Oklahoma City, Oklahoma from Freymiller's Chairman of the
Board, President and Chief Executive Officer for approximately $1.5 million
in cash.
The Company has made the Purchase in order to supplement its existing
temperature-controlled trucking business. The Company funded the cash
payments referred to above primarily from borrowings under the NationsBank
Credit Facility. See footnote "3. Long-Term Debt."
In April 1996, the Company changed the corporate name of CMS to
AmeriTruck Refrigerated Transport, Inc. ("ART"). ART currently conducts the
operations not only of CMS but also those formerly conducted with the
Freymiller Assets.
The Company has signed a letter of intent to purchase the stock of KTL,
Inc. ("KTL") of Largo, Florida. KTL is a carrier of refrigerated and non-
refrigerated products and would significantly increase the Company's market
share in Florida, New Jersey and Indiana. KTL had revenues of $23.6 million
and $6.3 million for the year ended December 31, 1995 and for the quarter
ended March 31, 1996, respectively. KTL operates approximately 140 tractors
and 300 trailers and employs approximately 300 persons, of whom 240 are
drivers and many of whom operate as teams. Consumation of this acquisition
is subject to the completion of numerous items including, but not limited
to, the negotiaion and execution of the definitive purchase agreement.
In May 1995, W&L acquired Dietz Motor Lines, Inc. for $2.0 million in
cash, which includes payment for non-compete agreements of $400,000 as well
as an amount for certain eligible accounts receivable. This acquisition has
been accounted for using the purchase method of accounting. Accordingly,
the purchase price was allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition.
The results of operations of the acquired company are included in the
financial statements from the date of acquisition.
3. LONG-TERM DEBT
NationsBank Credit Facility
In February 1996, the Company and the Operating Companies entered into a
Loan Agreement and related documents (collectively, the "NationsBank Credit
Facility") with NationsBank of Texas, N.A. ("NationsBank") pursuant to
which NationsBank has committed, subject to the terms and conditions of the
NationsBank Credit Facility, to provide a $30 million credit facility to
the Company. Borrowings under the NationsBank Credit Facility can be used
for acquisitions, operating capital, capital expenditures, letters of
credit and general corporate purposes. Pursuant to the NationsBank Credit
Facility, as amended, NationsBank has agreed to provide a $30 million
revolving credit facility, with a $7 million sublimit for letters of
credit, maturing on February 1, 1998, at which time the revolving credit
facility will convert into a term loan maturing on February 1, 2003. This
facility is also subject to a borrowing base consisting of eligible
receivables and eligible revenue equipment. Currently, the Company's
borrowing base exceeds $30 million. Borrowings under the NationsBank Credit
Facility bear interest at a per annum rate equal to either NationsBank's
base rate or the rate of interest offered by NationsBank in the interbank
eurodollar market plus an additional margin ranging from 1.5 percent to 2.0
percent based on the Senior Funded Debt Ratio of the Company. The Company
also pays a letter of credit issuance fee and a quarterly unused facility
fee. Borrowings under the NationsBank Credit Facility were $21.2 million at
June 30, 1996 and were primarily used for the purchase of the Freymiller
Assets. Available borrowings were $4.5 million at June 30, 1996 as there
were $4.3 million in letters of credit outstanding.
The Company's obligations under the NationsBank Credit Facility are
collateralized by substantially all assets of the Company and its
subsidiaries and are guaranteed in full by each of the Operating Companies.
For purposes of the Indenture, such borrowings under the NationsBank Credit
Facility constitute Senior Indebtedness of the Company and Guarantor Senior
Indebtedness of the Operating Companies.
5
The NationsBank Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative and negative covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Senior Funded Debt Ratio and Fixed Charge Coverage Ratio.
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies entered into a
Loan and Security Agreement, a Financing Integration Agreement and related
documents (collectively, the "Volvo Credit Facilities") with Volvo Truck
Finance North America, Inc. ("Volvo") pursuant to which Volvo has
committed, subject to the terms and conditions of the Volvo Credit
Facilities, to provide (i) a $10 million line of credit facility (the
"Volvo Line of Credit") to the Company and the Operating Companies, and
(ii) up to $28 million in purchase money or lease financing (the "Equipment
Financing Facility") in connection with the Operating Companies'
acquisition of new tractors and trailers manufactured by Volvo GM Heavy
Truck Corporation. Borrowings under the Volvo Line of Credit are secured by
certain specified tractors and trailers of the Company and the Operating
Companies (which must have a value equal to at least 1.75 times the
outstanding amount of borrowings under the Volvo Line of Credit) and are
guaranteed in full by each of the Operating Companies. Borrowings under the
Volvo Line of Credit bear interest at the prime rate. The Volvo Line of
Credit contains customary representations and warranties and events of
default and requires compliance with a number of affirmative and negative
covenants, including a profitability requirement and a coverage ratio.
The Equipment Financing Facility is being provided by Volvo in
connection with the Operating Companies' agreement to purchase 400 new
trucks manufactured by Volvo GM Heavy Truck Corporation between March 1,
1996 and June 30, 1997. The Operating Companies have agreed to utilize such
facility for at least the first 200 of the new trucks. The borrowings under
the Equipment Financing Facility are collateralized by the specific trucks
being financed and are guaranteed in full by each of the Operating
Companies. Borrowings under this facility bear interest at the prime rate.
At June 30, 1996, borrowings outstanding under the Volvo Line of Credit and
the Equipment Financing Facility were $7.4 million and $5.7 million,
respectively.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture,
the borrowings under the Volvo Credit Facilities constitute Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies.
4. CHANGE IN ACCOUNTING ESTIMATES
During 1995, the Company changed its estimate of the useful lives and
salvage values of certain revenue equipment. This change had the effect of
increasing operating income for the six months ended June 30, 1995, by
approximately $207,000.
5. OTHER INCOME, NET
Other (income) expenses consist of the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
Interest income $(135) $ (65) $(286) $(158)
Miscellaneous, net - (2) (4) 1
----- ----- ----- -----
$(135) $ (67) $(290) $(157)
===== ===== ===== =====
6
6. CONTINGENCIES
Bangerter has been named as a defendant in a lawsuit entitled The Ekotek
----------
Site PRP Committee v. Steven M. Self et al., Civil No. 2:94CV277K (U.S.
-------------------------------------------
District Court Utah, Central Division), alleging that Bangerter is a
potentially responsible party with respect to the removal and remediation
cost of The Ekotek Site, located in North Salt Lake City, Utah. The suit
alleges that hazardous waste generated by Bangerter, together with
substantial volumes of additional hazardous waste generated by numerous
other businesses, were taken to the site by a waste disposal firm engaged
by Bangerter. Bangerter has reached an agreement in principle to settle the
litigation for $25,000 and it is the opinion of management and counsel that
there is no reasonable probability of additional liability. The Company
cannot predict with any certainty that it will not in the future incur
liability with respect to environmental compliance or liability associated
with the contamination of additional sites owned or operated by the Company
and the Operating Companies, sites formerly owned or operated by the
Company and the Operating Companies (including contamination caused by
prior owners and operators of such sites), or off-site disposal of
hazardous material or waste that could have a material adverse effect on
the Company's consolidated financial condition, operations or liquidity.
The Company and the Operating Companies are a party to litigation
incidental to its business, primarily involving claims for personal injury
or property damages incurred in the transportation of freight. The Company
is not aware of any claims or threatened litigation that might have a
material adverse effect on the Company's consolidated financial position,
operations or liquidity.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the consolidated
financial statements included in Item 1 - "Financial Statements." Results for
the three and six months ended June 30, 1995 include W&L and TBI results on a
combined basis as the "Predecessor Company". Results for the three and six
months ended June 30, 1996 for the Company include the results of W&L, TBI,
Bangerter, ART (including the Freymiller Assets since February 5, 1996), Scales
and CBS for the entire 1996 periods. Bangerter, ART (including the Freymiller
Assets), Scales and CBS are collectively referred to below as the "Acquired
Companies."
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995
Net Income
For the quarter ended June 30,1996, the Company had a net loss of $473,000
compared with net income of $1.0 million for the same period in 1995. The
additional revenue and operating income from the Acquired Companies in the
second quarter of 1996 was substantially offset by additional interest costs
incurred on the Subordinated Notes and the NationsBank Credit Facility.
Revenues
Second quarter revenues for 1996 improved $32.8 million, or 157 percent,
compared with the second quarter of 1995. Approximately $30.9 million, or 94
percent of this increase, reflects revenues of the Acquired Companies. The
Predecessor Company had increased revenues of $1.9 million primarily
attributable to increased volume during the three month period ended June 30,
1996.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1996 to 1995.
THREE MONTHS ENDED
JUNE 30, VARIANCE
-------------------- INCREASE
1996 1995 (DECREASE)
--------- --------- ----------
Salaries, wages and fringe benefits 32.9% 29.5% 3.4%
Purchased transportation 25.9 28.9 (3.0)
Operating supplies and expenses 18.4 14.0 4.4
Depreciation and amortization of
capital leases 6.0 7.2 (1.2)
Claims and insurance 3.8 3.7 .1
Operating taxes and licenses 2.1 1.3 .8
General supplies and expenses 4.7 2.9 1.8
Amortization of intangibles .5 .6 (.1)
Gain on disposal of property and
equipment (.1) (.2) .1
---- ---- ----
Operating Ratio 94.2% 87.9% 6.3%
==== ==== ====
Salaries, wages and fringe benefits for the second quarter of 1996
increased $11.5 million, or 187 percent, compared with the second quarter 1995
due to the addition of $10.7 million in salaries, wages and fringe benefits
attributable to the Acquired Companies. In addition, the increase is
attributable to corporate salaries, some of which should generate future cost
savings for the Company as a whole due to more competitive prices obtained in
such areas as equipment and parts, fuel, insurance and financing. The 3.4
percentage point increase in salaries, wages and fringe benefits as a percentage
of revenue is attributable primarily to the Acquired Companies, because only 16
percent of their three month average
8
combined driver base consisted of owner operators, whose costs are reflected in
purchased transportation. In contrast, at June 30, 1995 41 percent of the
Predecessor Company's driver base consisted of owner operators. The Predecessor
Company also had increases in wages and salaries for drivers and terminal
personnel due to the increased mileage during the second quarter of 1996.
Purchased transportation costs were up $7.9 million in the second quarter
of 1996, but decreased on a percentage of revenue basis by 3.0 percentage
points. The Acquired Companies added $7.2 million to these costs, but their
driver base, which consists of just 16 percent owner operators, helped to lower
purchased transportation costs as a percentage of revenue. The Predecessor
Company showed an increase of $709,000 in purchased transportation costs in the
1996 period due to expanded freight opportunities and its continued use of owner
operator drivers.
Operating supplies and expenses for the Company were $6.9 million higher
for the quarter ended June 30, 1996 over 1995. Of this increase, $6.7 million
is attributable to the Acquired Companies. The Predecessor Company also added
$279,000 to this increase primarily due to increased fuel costs. The 4.4
percentage point increase in operating supplies as a percent of revenue is
mainly attributable to the Acquired Companies, whose driver base consists of 84
percent of Company drivers, contributing to higher fuel and maintenance costs
for Company owned equipment. The Company's fuel costs would have been lower by
approximately $800,000 had the average fuel price for the second quarter of 1996
remained consistent with the first quarter of 1996.
Depreciation and amortization of capital leases were up $1.7 million, but
decreased as a percentage of revenue in the second quarter of 1996 due to the
acquisition of used assets from Freymiller and the short-term lease of certain
Freymiller assets. This amount as a percentage of revenue is expected to
increase as these assets are replaced with new trailers and tractors. During
1995, the Company changed its estimate of the useful lives and salvage values of
certain revenue equipment. This change had the effect of increasing operating
income for the second quarter of 1995, by approximately $104,000.
Claims and insurance expenses were up $1.2 million, for the second quarter
of 1996 as compared to the same period in 1995, which is due primarily to costs
attributable to the Acquired Companies. However, on a percentage of revenue
basis, these costs were comparable.
General supplies and expenses increased by $1.9 million for the second
quarter of 1996 when compared with the same period in 1995. The general
supplies and expenses of the Acquired Companies accounted for the majority of
this increase as the Predecessor Company had only a slight increase in this
category. The largest components of these expenses of the Acquired Companies
were building and office equipment rents, utilities and office expenses.
Interest expense increased $3.1 million for the quarter ended June 30, 1996
over the same period in 1995. Interest on the Subordinated Notes issued in
November 1995 and the NationsBank Credit Facility, which was used to fund the
acquisition of the Freymiller Assets, are the primary factors for this
change.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Net Income
For the six months ended June 30,1996, the Company had a net loss of
$584,000 compared with net income of $1.9 million for the same period in 1995.
The additional revenue and operating income from the Acquired Companies in the
first six months of 1996 was substantially offset by additional interest costs
incurred on the Subordinated Notes and the NationsBank Credit Facility. The net
loss in 1996 includes an extraordinary item, loss on early retirement of debt of
$230,000, net of taxes of $154,000. These early retirements related to the use
of proceeds from the Company's Subordinated Notes offering in 1995.
9
Revenues
Revenues for the first six months of 1996 improved $57.2 million, or 139
percent, compared with the first six months of 1995. Approximately $53.6
million, or 94 percent of this increase, reflects revenues of the Acquired
Companies. The Predecessor Company had increased revenues of $3.6 million
primarily attributable to increased volume during the six month period ended
June 30, 1996.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1996 to 1995.
SIX MONTHS ENDED
JUNE 30, VARIANCE
------------------ INCREASE
1996 1995 (DECREASE)
-------- -------- ----------
Salaries, wages and fringe benefits 32.7% 30.0% 2.7%
Purchased transportation 24.5 28.4 (3.9)
Operating supplies and expenses 18.8 14.3 4.5
Depreciation and amortization of
capital leases 6.3 7.2 (.9)
Claims and insurance 3.8 4.1 (.3)
Operating taxes and licenses 2.2 1.3 .9
General supplies and expenses 4.4 3.0 1.4
Amortization of intangibles .5 .6 (.1)
Gain on disposal of property and
equipment (.3) (.2) (.1)
---- ---- ----
Operating Ratio 92.9% 88.7% 4.2%
==== ==== ====
Salaries, wages and fringe benefits for the first six months of 1996
increased $19.8 million, or 161 percent, compared with the first six months of
1995 due to the addition of $18.6 million in salaries, wages and fringe benefits
attributable to the Acquired Companies. In addition, the increase is
attributable to corporate salaries, some of which should generate future cost
savings for the Company as a whole due to more competitive prices obtained in
such areas as equipment and parts, fuel, insurance and financing. The 2.7
percentage point increase in salaries, wages and fringe benefits as a percentage
of revenue is attributable primarily to the Acquired Companies, because only 14
percent of their six month average combined driver base consisted of owner
operators, whose costs are reflected in purchased transportation. In contrast,
at June 30, 1995 41 percent of the Predecessor Company's driver base consisted
of owner operators. The Predecessor Company also had increases in wages and
salaries for drivers and terminal personnel due to the increased mileage during
the first six months of 1996 and pay increases.
Purchased transportation costs were up $12.5 million in the first six
months of 1996, but decreased on a percentage of revenue basis by 3.9 percentage
points. The Acquired Companies added $11.0 million to these costs, but their
driver base, which consists of just 14 percent owner operators, helped to lower
purchased transportation costs as a percentage of revenue. The Predecessor
Company showed an increase of $1.5 million in purchased transportation costs in
the 1996 period due to expanded freight opportunities and its continued use of
owner operator drivers.
Operating supplies and expenses for the Company were $12.6 million higher
for the six months ended June 30, 1996 over 1995. Of this increase, $11.8
million is attributable to the Acquired Companies. The Predecessor Company
also added $767,000 to this increase due to increased fuel costs and maintenance
expenses. The 4.5 percentage point increase in operating supplies as a percent
of revenue is mainly attributable to the Acquired Companies, whose driver base
consists of 86 percent of Company drivers, contributing to higher fuel and
maintenance costs for Company owned equipment. The Company's fuel costs would
have been lower by approximately $800,000 had the average fuel price for the
second quarter of 1996 remained consistent with the first quarter of 1996.
Depreciation and amortization of capital leases were up $3.3 million, but
decreased as a percentage of revenue in the first six months of 1996 due to the
acquisition of used assets from Freymiller
10
and the short-term lease of certain Freymiller assets. This amount as a
percentage of revenue is expected to increase as these assets are replaced with
new trailers and tractors. During 1995, the Company changed its estimate of the
useful lives and salvage values of certain revenue equipment. This change had
the effect of increasing operating income for the six months ended June 30,
1995, by approximately $207,000.
Claims and insurance expenses were up $2.0 million for the first half of
1996 as compared to the first half of 1995, which is due primarily to costs
attributable to the Acquired Companies. However, on a percentage of revenue
basis, these costs were comparable.
General supplies and expenses increased by $3.1 million for the first six
months of 1996 when compared with the same period in 1995. The general supplies
and expenses of the Acquired Companies accounted for the majority of this
increase as the Predecessor Company had only a slight increase in this category.
The largest components of these expenses of the Acquired Companies were building
and office equipment rents, utilities and office expenses.
Interest expense increased $6.1 million for the six months ended June 30,
1996 over the same period in 1995. Interest on the Subordinated Notes issued in
November 1995 and the NationsBank Credit Facility, which was used to fund the
acquisition of the Freymiller Assets, are the primary factors for this change.
CONTINGENCIES
Bangerter has been named as a defendant in a lawsuit entitled The Ekotek
----------
Site PRP Committee v. Steven M. Self et al., Civil No. 2:94CV277K (U.S. District
- -------------------------------------------
Court Utah, Central Division), alleging that Bangerter is a potentially
responsible party with respect to the removal and remediation cost of The Ekotek
Site, located in North Salt Lake City, Utah. The suit alleges that hazardous
waste generated by Bangerter, together with substantial volumes of additional
hazardous waste generated by numerous other businesses, were taken to the site
by a waste disposal firm engaged by Bangerter. Bangerter has reached an
agreement in principle to settle the litigation for $25,000 and it is the
opinion of management and counsel that there is no reasonable probability of
additional liability. The Company cannot predict with any certainty that it will
not in the future incur liability with respect to environmental compliance or
liability associated with the contamination of additional sites owned or
operated by the Company and the Operating Companies, sites formerly owned or
operated by the Company and the Operating Companies (including contamination
caused by prior owners and operators of such sites), or off-site disposal of
hazardous material or waste that could have a material adverse effect on the
Company's consolidated financial condition, operations or liquidity.
The Company and the Operating Companies are a party to litigation
incidental to its business, primarily involving claims for personal injury or
property damages incurred in the transportation of freight. The Company is not
aware of any claims or threatened litigation that might have a material adverse
effect on the Company's consolidated financial position, operations or
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30,
1996 was $5.5 million compared with net cash provided by operating activities of
$6.3 million for the six months ended June 30, 1995. The decrease of $11.8
million was primarily attributable to a $10.3 million increase in accounts
receivable during the first six months of 1996, of which $8.7 million was for
the Acquired Companies, and a decrease in net income of $2.5 million. These
decreases were partially offset by an increase in depreciation and amortization
of capital leases of $3.3 million.
Subordinated Notes
In November 1995, AmeriTruck completed a private placement of $100 million
of 12 1/4% Senior Subordinated Notes due 2005 (the "Series A Notes"). The Series
A Notes were exchanged for publicly registered 12 1/4% Senior Subordinated Notes
due 2005, Series B (the "Subordinated Notes") in February 1996. The Subordinated
Notes mature on November 15, 2005, and are unsecured subordinated
11
obligations of the Company. These notes bear interest at the rate of 12.25
percent per annum from November 15, 1995, payable semiannually on May 15 and
November 15 of each year, commencing on May 15, 1996. The Subordinated Notes are
subject to optional redemption on the terms set forth in the Indenture. As of
June 30, 1996, the Company has applied the net proceeds of the Series A Notes
primarily to finance the Acquisitions and prepay debt and capitalized leases.
NationsBank Credit Facility
In February 1996, the Company and the Operating Companies entered into a
Loan Agreement and related documents (collectively, the "NationsBank Credit
Facility") with NationsBank of Texas, N.A. ("NationsBank") pursuant to which
NationsBank has committed, subject to the terms and conditions of the
NationsBank Credit Facility, to provide a $30 million credit facility to the
Company. Borrowings under the NationsBank Credit Facility can be used for
acquisitions, operating capital, capital expenditures, letters of credit and
general corporate purposes. Pursuant to the NationsBank Credit Facility, as
amended, NationsBank has agreed to provide a $30 million revolving credit
facility, with a $7 million sublimit for letters of credit, maturing on February
1, 1998, at which time the revolving credit facility will convert into a term
loan maturing on February 1, 2003. This facility is also subject to a borrowing
base consisting of eligible receivables and eligible revenue equipment.
Currently, the Company's borrowing base exceeds $30 million. Borrowings under
the NationsBank Credit Facility bear interest at a per annum rate equal to
either NationsBank's base rate or the rate of interest offered by NationsBank in
the interbank eurodollar market plus an additional margin ranging from 1.5
percent to 2.0 percent based on the Senior Funded Debt Ratio of the Company. The
Company also pays a letter of credit issuance fee and a quarterly unused
facility fee. Borrowings under the NationsBank Credit Facility were $21.2
million at June 30, 1996 and were primarily used for the purchase of the
Freymiller Assets. Available borrowings were $4.5 million at June 30, 1996 as
there were $4.3 million in letters of credit outstanding.
The Company's obligations under the NationsBank Credit Facility are
collateralized by substantially all assets of the Company and its subsidiaries
and are guaranteed in full by each of the Operating Companies. For purposes of
the Indenture, such borrowings under the NationsBank Credit Facility constitute
Senior Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies.
The NationsBank Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative and negative covenants, including a limitation on the incurrence of
indebtedness and a requirement that the Company maintain a specified Senior
Funded Debt Ratio and Fixed Charge Coverage Ratio.
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies entered into a
Loan and Security Agreement, a Financing Integration Agreement and related
documents (collectively, the "Volvo Credit Facilities") with Volvo Truck Finance
North America, Inc. ("Volvo") pursuant to which Volvo has committed, subject to
the terms and conditions of the Volvo Credit Facilities, to provide (i) a $10
million line of credit facility (the "Volvo Line of Credit") to the Company and
the Operating Companies, and (ii) up to $28 million in purchase money or lease
financing (the "Equipment Financing Facility") in connection with the Operating
Companies' acquisition of new tractors and trailers manufactured by Volvo GM
Heavy Truck Corporation. Borrowings under the Volvo Line of Credit are secured
by certain specified tractors and trailers of the Company and the Operating
Companies (which must have a value equal to at least 1.75 times the outstanding
amount of borrowings under the Volvo Line of Credit) and are guaranteed in full
by each of the Operating Companies. Borrowings under the Volvo Line of Credit
bear interest at the prime rate. The Volvo Line of Credit contains customary
representations and warranties and events of default and requires compliance
with a number of affirmative and negative covenants, including a profitability
requirement and a coverage ratio.
The Equipment Financing Facility is being provided by Volvo in connection
with the Operating Companies' agreement to purchase 400 new trucks manufactured
by Volvo GM Heavy Truck Corporation between March 1, 1996 and June 30, 1997. The
Operating Companies have agreed to utilize such facility for at least the first
200 of the new trucks. The borrowings under the Equipment Financing Facility are
collateralized by the specific trucks being financed and are guaranteed in full
by each of the Operating Companies. Borrowings under this facility bear interest
at the prime rate. At June 30, 1996, borrowings outstanding under the Volvo Line
of Credit and the Equipment Financing Facility were $7.4 million and $5.7
million, respectively.
12
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture, the
borrowings under the Volvo Credit Facilities constitute Senior Indebtedness of
the Company and Guarantor Senior Indebtedness of the Operating Companies.
The Operating Companies began taking delivery of the Volvo trucks in early
May at an average rate of 14 per week, with total deliveries for the second
quarter of 99 trucks. Another 160 trucks are scheduled for delivery during the
second half of 1996. To partially offset these expenditures of approximately
$17 million, the Company intends to sell at least 246 used trucks from the
Operating Companies for approximately $6 million.
Capital Expenditures and Resources
The Company had capital expenditures, net of cash proceeds from
dispositions, of $14.2 million for the six months ended June 30, 1996, excluding
the purchase of the Freymiller Assets, and $3.2 million for the six months ended
June 30, 1995, excluding the Dietz acquisition. These amounts also do not
include capital expenditures financed through capital leases and other debt
which amounted to approximately $5.8 million and $4.5 million for the six months
ended June 30, 1996 and 1995, respectively. The increase in capital expenditures
during the first six months of 1996 was primarily due to the purchase of new
tractors and trailers.
AmeriTruck projects 1996 capital expenditures to increase over 1995 levels.
The Company will purchase approximately 275 new trucks, including the 259 Volvo
trucks, and 465 new trailers during 1996. Over 85 percent of these new tractors
and over 65 percent of these new trailers are planned to replace older
equipment. These equipment purchases and commitments will likely be financed
using a combination of sources including, but not limited to, cash from
operations, leases, debt issuances and other miscellaneous sources. Each
financing decision will be based upon the most appropriate alternative
available. As of June 30, 1996, the Company had taken delivery of 115 new trucks
and 293 new trailers.
In February 1996, the Company, through CMS, purchased (the "Purchase")
certain assets of Freymiller Trucking Inc. ("Freymiller"). Freymiller had been
the subject of a Chapter 11 bankruptcy proceeding in Oklahoma. Pursuant to the
Purchase, CMS purchased certain specific automobiles, computer hardware and
software, furniture and fixtures, rights to the trade name "Freymiller",
existing spare parts, tires and fuel, rights under certain leases, certain
leasehold improvements and shop equipment and installment sales contracts
relating to tractors and trailers sold by Freymiller out of the ordinary course
of business (with all of the foregoing referred to as the "Freymiller Assets").
The Company also negotiated with Freymiller's lenders and lessors to purchase
approximately 185 tractors and 309 trailers previously operated by Freymiller
for approximately $14 million. An additional 80 trailers were leased for a
seven-year period. In exchange for the Freymiller Assets, the Company paid
approximately $2.7 million in cash at closing and assumed approximately $2
million in existing equipment financing. In addition, the Company assumed a
lease for Freymiller's maintenance facility in Oklahoma City and certain routine
executory business contracts. Except as provided above, the Company did not
assume any obligations or liabilities of Freymiller.
In connection with these transactions, the Company purchased real property
in Oklahoma City, Oklahoma from Freymiller's Chairman of the Board, President
and Chief Executive Officer for approximately $1.5 million in cash. The
Freymiller Assets and this real estate will supplement the Company's existing
temperature-controlled operations.
In April 1996, the Company changed the corporate name of CMS to AmeriTruck
Refrigerated Transport, Inc. ("ART"). ART currently conducts the operations not
only of CMS but also those formerly conducted with the Freymiller Assets.
Operating profit margins were negatively impacted by the assimilation of
significant assets from the Freymiller bankruptcy estate, the merger of the
operations of CBS into Scales, and the cost of developing a corporated staff.
13
The Company has signed a letter of intent to purchase the stock of KTL,
Inc. ("KTL") of Largo, Florida. KTL is a carrier of refrigerated and non-
refrigerated products and would significantly increase the Company's market
share in Florida, New Jersey and Indiana. KTL had revenues of $23.6 million and
$6.3 million for the year ended December 31, 1995 and for the quarter ended
March 31, 1996, respectively. KTL operates approximately 140 tractors and 300
trailers and employs approximately 300 persons, of whom 240 are drivers and many
of whom operate as teams. Consummation of this acquisition is subject to the
completion of numerous items including, but not limited to, the negotiation and
execution of the definitive purchase agreement.
In May 1995, W&L acquired Dietz Motor Lines, Inc. for $2.0 million in cash,
which includes payment for non-compete agreements of $400,000 as well as an
amount for certain eligible accounts receivable. This acquisition has been
accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated to the assets acquired and the liabilities assumed based on
their estimated fair values at the date of acquisition. The results of
operations of the acquired company are included in the financial statements from
the date of acquisition.
Opportunistic Acquisitions
The Company will pursue opportunistic acquisitions to broaden its
geographic scope, to increase freight network density and to expand into other
specialized trucking segments. Through acquisitions, the Company believes it can
capture additional market share and increase its driver base without adopting a
growth strategy based on widespread rate discounting and driver recruitment,
which the Company believes would be less successful. The Company believes its
large size relative to many other potential acquirers could afford it greater
access to acquisition financing sources such as banks and capital markets.
AmeriTruck has entered into a revolving credit facility with NationsBank of
Texas, N.A. and a revolving credit facility with Volvo Truck Finance North
America, Inc. As described above, these revolving credit facilities, subject to
the conditions on borrowing contained therein, will give AmeriTruck the ability
to pursue acquisitions that the Company could not otherwise fund through cash
provided by operations. In addition, the Company may finance its acquisitions
through equity issuances, seller financing and other debt financings.
The Company is a holding company with no operations of its own. The
Company's ability to make required interest payments on the Subordinated Notes
depends on its ability to receive funds from the Operating Companies. The
Company, at its discretion, controls the receipt of dividends or other payments
from the Operating Companies.
OTHER MATTERS
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings.
Extended periods of escalating costs or fuel price increases without
compensating freight rate increases would adversely affect the Company's results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Expenses."
The industry as a whole has seen dramatic increases in fuel prices.
According to a Department of Energy survey, reported by the American Trucking
Association, the average price of diesel fuel peaked during the month of April
at 15.7 cents above the December 31, 1995 price. Since April, the average price
has decreased some, but still remains above its year end level. According to the
survey, the average price of diesel fuel for the second quarter of 1996 was 5.0
cents above the first quarter average price. The Company has seen its fuel
prices increase at a rate consistent with the national average.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings
(including this Form 10-Q)or press releases, or officers of the Company make
public oral statements with respect to the Company, that may be considered
forward-looking. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company believes that the
following important factors, among others, could cause the Company's actual
results for its 1996 fiscal year and beyond to differ materially from those
expressed
14
in any forward-looking statements made by, on behalf of, or with respect to, the
Company: inflation and fuel costs; substantial leverage; absence of combined
operating history; dependence on certain customers; cyclicality and other
economic factors; competition; availability of drivers; regulation; claims
exposure; and dependence on key personnel. Each of these risk factors is
discussed in more detail in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and other filings the Company has made with the
Securities and Exchange Commission and are incorporated herein by reference.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to litigation incidental to its business, primarily
involving claims for personal injury or property damages incurred in the
transportation of freight. The Company is not aware of any claims or threatened
litigation that might have a material adverse affect on the Company's
consolidated financial position, operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number Description
-------------- -----------
* 10.1 Loan and Security Agreement, dated February 21,
1996, between Volvo Truck Finance North America,
Inc. ("Volvo") and the Company and certain of its
Subsidiaries
* 10.2 Financing Integration Agreement, dated February
21, 1996, between Volvo and the Company and
certain of its Subsidiaries
* 10.3 Loan Agreement, dated February 1, 1996, between
the Company and NationsBank of Texas, N.A.
* 10.4 Asset Purchase Agreement, dated as of January 5,
1996, between CMS Transportation Services, Inc.
and Freymiller Trucking, Inc., as debtor and
debtor-in-possession
* 10.5 Consulting and Non-Competition Agreement, dated as
of April 1, 1995, between Thompson Bros., Inc. and
Dunbar Associates, Inc.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
* Incorporated by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on
May 3, 1996.
B. Reports on Form 8-K
On May 3, 1996, the Company filed a report on Form 8-K in connection with
certain contracts which may be deemed to be "material contracts" within the
meaning of Item 601 of Regulation S-K.
Items 2, 3, 4, and 5 of Part II were not applicable and have been omitted.
16
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.
AMERITRUCK DISTRIBUTION CORP.
By: /s/ Michael L. Lawrence
-------------------------
Michael L. Lawrence
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth H. Evans, Jr.
-------------------------
Kenneth H. Evans, Jr.
Treasurer and Chief Financial and
Accounting Officer
Date: August 14, 1996
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule