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, 1997
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 Identification No.)
incorporation or organization)
City Center Tower II, Suite 1101, 76102
301 Commerce Street, Fort Worth, Texas (Zip Code)
(Address of principal executive offices)
(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 10
Part II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
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,
----------------- ------------------
1997* 1996* 1997* 1996*
------- ------- -------- -------
Operating revenue $60,287 $53,673 $115,955 $98,322
------- ------- -------- -------
Operating expenses:
Salaries, wages and fringe benefits 20,314 17,685 39,530 32,125
Purchased transportation 14,635 13,889 27,644 24,072
Fuel and fuel taxes 7,453 6,401 14,938 12,015
Operating supplies and expenses 4,016 3,472 7,627 6,474
Depreciation and amortization of capital leases 4,014 3,233 7,732 6,220
Claims and insurance 2,209 2,026 4,527 3,724
Operating taxes and licenses 1,383 1,163 2,666 2,165
General supplies and expenses 2,874 2,148 5,486 3,651
Building and office equipment rents 471 372 933 686
Amortization of intangibles 372 265 665 498
Gain on disposal of property and equipment (106) (68) (60) (255)
Restructuring charge 7,184 - 7,184 -
------- ------- -------- -------
Total operating expenses 64,819 50,586 118,872 91,375
------- ------- -------- -------
Operating income (loss) (4,532) 3,087 (2,917) 6,947
Interest expense 4,778 3,955 9,272 7,643
Amortization of financing fees 147 120 271 235
Other income, net (83) (135) (166) (290)
------- ------- -------- -------
Loss before income taxes and extraordinary items (9,374) (853) (12,294) (641)
Income taxes benefit (2,889) (380) (4,057) (287)
------- ------- -------- -------
Loss before extraordinary items (6,485) (473) (8,237) (354)
Extraordinary items, loss on early retirement of debt,
net of taxes of $120 and $154, respectively (243) - (243) (230)
------- ------- ------- -------
Net loss $(6,728) $ (473) $ (8,480) $ (584)
======= ======= ======== =======
* 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,
1997* 1996*
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ - $ 734
Accounts and notes receivable, net 38,207 29,001
Prepaid expenses 11,513 7,735
Repair parts and supplies 2,109 1,092
Deferred income taxes 1,467 1,467
Assets held for sale 6,650 -
Other current assets 2,081 1,388
-------- --------
Total current assets 62,027 41,417
Property and equipment, net 130,523 103,801
Goodwill, net 58,590 39,399
Other assets 10,319 8,031
-------- --------
Total assets $261,459 $192,648
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 27,314 $ 11,988
Accounts payable and accrued expenses 24,548 13,557
Claims and insurance accruals 2,720 1,684
Other current liabilities 641 593
-------- --------
Total current liabilities 55,223 27,822
Long-term debt 202,468 157,338
Deferred income taxes 4,476 8,571
Other liabilities 6,117 2,741
-------- --------
Total liabilities 268,284 196,472
-------- --------
Commitments and contingencies (Note 5)
Redeemable preferred stock 3,000 -
Stockholders' equity (deficiency):
Common stock; $.01 par value; 4,230
shares and 3,503 shares issued
and outstanding, respectively 42 35
Additional paid-in capital 2,891 898
Loans to stockholders (1,401) (1,880)
Accumulated deficit (11,357) (2,877)
-------- --------
Total stockholders'
deficiency (9,825) (3,824)
-------- --------
Total liabilities and
stockholders' deficiency $261,459 $192,648
======== ========
* Comparisons between periods are affected by acquisitions - See Note 2
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,
-----------------
1997* 1996*
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (8,480) $ (584)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of
capital leases 7,732 6,220
Amortization of intangibles 665 498
Gain on disposal of property and
equipment (60) (255)
Benefit for deferred income taxes (4,057) (287)
Extraordinary items, loss on early
retirement of debt, net of taxes 243 230
Restructuring charge 7,184 -
Restructuring costs paid (1,043) -
Other, net (1,744) (446)
Changes in current assets and
liabilities, net of effects
from acquisitions:
Accounts and notes receivable, net (1,939) (8,588)
Prepaid expenses (232) (1,507)
Repair parts and supplies (503) (25)
Other current assets (32) (7)
Accounts payable and accrued expenses (11) (973)
Claims and insurance accruals (712) 988
Other current liabilities (137) 76
-------- --------
Net cash used in operating activities (3,126) (4,660)
-------- --------
INVESTING ACTIVITIES:
Purchase of Freymiller Assets, net of
liabilities assumed - (18,821)
Payments for acquisitions (17,139) -
Purchase of property and equipment (2,747) (17,388)
Proceeds from sale of property and
equipment 4,257 3,162
Other, net 317 528
-------- --------
Net cash used in investing activities (15,312) (32,519)
-------- --------
FINANCING ACTIVITIES:
Revolving line of credit, net 19,524 28,596
Proceeds from issuance of long-term
debt - 13,365
Repayment of long-term debt (6,525) (15,124)
Proceeds from issuance of redeemable
preferred stock 3,000 -
Proceeds from issuance of common stock 2,000 -
Other, net (295) (874)
-------- --------
Net cash provided by financing
activities 17,704 25,963
-------- --------
Net decrease in cash and cash
equivalents (734) (11,216)
Cash and cash equivalents, beginning of
period 734 15,286
-------- --------
Cash and cash equivalents, end of period $ - $ 4,070
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 9,035 $ 7,650
Income taxes 39 97
Property and equipment financed
through capital lease obligations
and other debt 1,241 5,786
Noncash consideration for acquisitions 1,000 -
* 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 1996 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, 1997 and December 31, 1996, and the
results of operations for the three-month and six-month periods ended June
30, 1997 and 1996, and cash flows for the six-month periods ended June 30,
1997 and 1996 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: W&L Services Corp. ("W&L"),
Thompson Bros., Inc. ("TBI"), J.C. Bangerter & Sons, Inc. ("Bangerter"),
CMS Transportation Services, Inc. and certain related companies, Scales
Transport Corporation and a certain related company ("Scales") and C.B.S.
Express, Inc. ("CBS"). Prior to these 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 controlled approximately 67 percent of the outstanding common
stock of AmeriTruck after the consummation of these acquisitions.
Therefore, these common stockholders of W&L and TBI have been treated as
the acquirer for purposes of accounting for these acquisitions.
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-
Star, Inc. ("Tran-Star") which was owned by Allways Services, Inc. The
purchase price of $2.6 million included $1.6 million in cash and a $1
million note payable.
Tran-Star is a carrier of refrigerated and non-refrigerated products.
Headquartered in Waupaca, Wisconsin, Tran-Star operates primarily between
the upper midwestern U.S. and the northeast and southeast, with terminals
in Etters and Wyalusing Pennsylvania. The Company is currently coordinating
Tran-Star's activities with those of the other carriers within the
refrigerated group. See Notes to Consolidated Financial Statements - Note
3. Restructuring Charge.
In May 1997, AmeriTruck purchased the capital stock of Monfort
Transportation Company ("Monfort") and Lynn Transportation Co., Inc.
("Lynn"), both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase
price of $15 million was paid in cash.
4
Monfort and Lynn operated primarily as in-house carriers for the red-meat
division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. The Company
entered into a Transportation Services Agreement with subsidiaries of
ConAgra. The ConAgra subsidiaries will tender freight from Monfort, Inc.'s
red-meat division, ConAgra Poultry Company's poultry and turkey divisions
and Swift-Ekrich, Inc.'s processed meats division in designated lanes and
minimum annual volumes. The term of this agreement is four years, with
pricing fixed for the first two years and adjusted prices in the third and
fourth years. The Company will coordinate Monfort and Lynn activities with
those of the refrigerated group. See Notes to Consolidated Financial
Statements--Note 3. Restructuring Charge.
The Tran-Star, Monfort and Lynn acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The total purchase price
including cash, note payable, miscellaneous acquisition costs and
liabilities assumed was $42.0 million for Tran-Star and $35.2 million for
Monfort and Lynn. The excess of the purchase price over fair values of the
net assets acquired has been recorded as goodwill. The Tran-Star net
assets acquired were as follows (in thousands):
Accounts receivable, net $ 6,653
Property and equipment, net 25,315
Goodwill 7,007
Other assets 2,981
Long-term debt (28,916)
Other liabilities (10,270)
--------
Net assets acquired $ 2,770
========
The Monfort and Lynn net assets acquired were as follows (in thousands):
Accounts receivable, net $ 3,805
Property and equipment, net 15,138
Goodwill 12,209
Other assets 4,087
Long-term debt (14,201)
Other liabilities (5,669)
--------
Net assets acquired $ 15,369
========
During the third quarter of 1996, Ameritruck purchased all of the
outstanding stock of KTL, Inc ("KTL") for a purchase price of $8.1 million in
cash and 225,000 shares of Class A common stock of AmeriTruck valued at
$900,000.
KTL is a trucking company founded in 1983 which specializes in the
truckload transportation of refrigerated commodities and less-than-truckload
shipments requiring expedited, timed-delivery services. At the time of purchase,
KTL operated approximately 140 tractors and 300 trailers and employed
approximately 300 persons, of whom 240 were drivers and many of whom operated
as two-driver teams.
The KTL acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. The total purchase price including cash, common stock,
miscellaneous acquisition costs and liabilities assumed was $21.9 million. The
excess of the purchase price over the fair values of the net assets acquired has
been recorded as goodwill.
The following unaudited pro forma operating results of the Company for
the six months ended June 30, 1997 and 1996, reflect the Monfort, Lynn and
Tran-Star acquisitions as if they had occurred on January 1, 1996.
Six Months Ended
June 30,
-------------------
1997 1996
--------- --------
(In thousands)
Operating revenue $195,131 $192,472
Operating income (loss) (1,209) 13,249
Income (loss) before extraordinary items (9,150) 1,687
Net income (loss) (9,393) 1,457
Pro forma operating income during 1997 decreased partially as a result of
the restructuring charge of $7.2 million taken during the second quarter of
1997 in connection with these acquisitions and the reorganization of the
refrigerated carrier group.
The profits of the companies that make up the refrigerated carrier group
were negatively impacted by market pressures on pricing. Management
believes that the freight networks of these companies, independently
operated, did not have the critical mass necessary to compete efficiently
in the changed refrigerated markets. To address this issue, the Company is
integrating these operations into one network. The traffic lanes awarded by
ConAgra subsidiaries in the Transportation Services Agreement, representing
approximately $25 million of additional annual revenue in excess of the
amount provided by ConAgra historically, were selected because of their
contribution to an efficient nationwide refrigerated freight network.
Furthermore, ConAgra, which represents more than 50 percent of Monfort's
revenue, is contractually committed to restore business volume and rates
paid Monfort to the approximate levels that existed during the first half
of 1996.
In addition, Tran-Star's operating income declined by $2.5 million as it
experienced deteriorating operating results. Included in operating expenses
for the first half of 1997 were merger related expenses of approximately
$700,000 and increased maintenance expense of approximately $500,000
related to deferral of its normal tractor replacement cycle. The Company
will take delivery of tractors sufficient to replace half of Tran-Star's
fleet in the remaining months of 1997.
These pro forma results have been prepared for comparative purposes only
and include pro forma adjustments for conformed depreciation lives and
salvage values and certain other adjustments including adjustment of the
effective tax rate to the expected rate of AmeriTruck. They are not
necessarily indicative of the results of operations that might have
occurred had the acquisitions actually taken place on January 1, 1996 or of
future results of operations of the consolidated entities.
5
In February 1996, the Company, through CMS Transportation Services,
Inc., purchased certain assets of Freymiller Trucking Inc. ("Freymiller")
in order to supplement its existing temperature-controlled trucking
business. Freymiller had been the subject of a Chapter 11 bankruptcy
proceeding in Oklahoma. 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.
In April 1996, CMS Transportation Services, Inc. changed its corporate
name to "AmeriTruck Refrigerated Transport, Inc." ("ART"), and the
distribution functions previously conducted under the corporate name "CMS
Transportation Services, Inc." were continued as a division of ART. In
addition, in June 1996, the business operations of CBS, a general freight
carrier (which then operated under the name "CBS Express, Inc."), were
transferred to Scales. In December 1996, the distribution functions of the
CMS Transportation division of ART were transferred to CBS and its name was
changed to "CMS Transportation Services, Inc." ("CMS"). The CMS
Transportation distribution business currently operated by CMS is sometimes
referred to below as the "CMS distribution business" and the business
operations previously operated under the name CBS Express, Inc. and
transferred to Scales are sometimes referred to as the "CBS Express
business."
The Company's principal subsidiaries currently are W&L, TBI, Bangerter,
CMS, Scales, ART, KTL, AmeriTruck Logistics Services, Inc. ("ALS", formed
in January 1997 to broker freight), Monfort, Lynn and Tran-Star (the
"Operating Companies"). All significant intercompany accounts and
transactions have been eliminated.
6
3. RESTRUCTURING CHARGE
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company plans to organize into three operating groups to
serve its customers. The AmeriTruck Refrigerated Carrier Group is being
formed to offer nationwide, truckload refrigerated service. This new
company will combine the resources of TBI, Bangerter, ART, Tran-Star,
Monfort and Lynn. The AmeriTruck Specialized Carrier Group is being formed
to service customers with unique needs in transportation and distribution.
This group includes W&L, the largest U.S. hauler of new furniture, CMS,
serving the medical distribution industry, Scales, offering premium,
short-haul dry van service, and ALS a freight property broker. The
AmeriTruck Regional LTL Group offers less-than-truckload, refrigerated and
non-refrigerated service. The lead carrier in this group is KTL, offering
service to and from the Florida market.
In connection with the above reorganization and to eliminate the
duplicate facility and employee costs related to the recently acquired
entities, the Company announced a plan in the second quarter of 1997 to
restructure its refrigerated carrier group. The Company recorded $7.2
million in restructuring costs, which included $2.3 million for employee
termination costs, $4.2 million for duplicate facility costs, including the
impairment of certain long-lived assets and $650,000 of other costs. The
Company may incur additional pre-tax restructuring costs during the second
half of 1997. As of June 30, 1997, the Company has liabilities of $2.4
million related to the restructuring charge. In addition, the Company has
transfered $6.7 million of property and equipment to assets, held for sale.
4. LONG-TERM DEBT
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which
FINOVA has agreed to provide a $60 million credit facility to the Company.
The initial borrowings under the FINOVA Credit Facility were used to
refinance the Company's prior credit facility with NationsBank of Texas,
N.A. Additional borrowings under the FINOVA Credit Facility can be used for
acquisitions, capital expenditures, letters of credit, working capital and
general corporate purposes. Pursuant to the FINOVA Credit Facility, FINOVA
has agreed to provide a $60 million revolving credit facility, with a $10
million sublimit for the issuance of letters of credit, maturing on May 5,
2000 (subject to additional one-year renewal periods at the discretion of
FINOVA). The FINOVA Credit Facility is also subject to a borrowing base
consisting of eligible receivables and eligible revenue equipment.
Currently, the Company's borrowing base supports borrowings of
approximately $54 million. Revolving credit loans under the FINOVA Credit
Facility bear interest at a per annum rate equal to either the prime rate
plus a margin equal to 0.75 percent of the rate of interest offered in the
London interbank market plus a margin equal to 2.75 percent. The Company
also pays a monthly unused facility fee and a monthly collateral monitoring
fee in connection with the FINOVA Credit Facility. Revolving credit loans
under the FINOVA Credit Facility were $44.0 million at June 30, 1997 and
were primarily used for refinancing borrowings under the Company's prior
facility with NationsBank of Texas, N.A. and to fund the 1997 acquisitions.
Available borrowings were $5.6 million at June 30, 1997, as there were $4.3
million in letters of credit outstanding.
The Company's obligations under the FINOVA Credit Facility are
collateralized by substantially all of the unencumbered assets of the
Company and its subsidiaries and are guaranteed in full by each of the
Operating Companies. For purposes of the Indenture, the borrowings under
the FINOVA Credit Facility constitute Senior Indebtedness of the Company
and Guarantor Senior Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and financial covenants, including a limitation on
the incurrence of indebtedness and a requirement that the Company maintain
a specified Current Ratio, Net Worth, Debt Service Coverage Ratio and
Operating Ratio.
7
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. As of June 30, 1997,
the Operating Companies have pledged Collateral which provides for a $9.5
million line of credit. 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 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, 1997, borrowings outstanding under the Volvo Line of Credit
were $9.4 million with available borrowings of $100,000. The outstanding
debt balance under the Equipment Financing Facility was $3.7 million at
June 30, 1997; however, available financing under this facility is less
than $4 million as financing was also obtained through operating leases.
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.
5. CONTINGENCIES
Under the requirements of the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and certain other laws,
the Company is potentially liable for the cost of clean-up of various
contaminated sites identified by the U.S. Environmental Protection Agency
("EPA") and other agencies. 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
sites owned or operated by the Company and its subsidiaries, sites formerly
owned or operated by the Company and its subsidiaries (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.
8
6. OTHER INCOME, NET
Other (income) expenses consist of the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Interest income $ (85) $(135) $(127) $(286)
Miscellaneous, net 2 - (39) (4)
----- ----- ----- -----
$ (83) $(135) $(166) $(290)
===== ===== ===== =====
7. REDEEMABLE PREFERRED AND COMMON STOCK
In conjunction with the 1997 acquisitions of Monfort, Lynn and Tran-Star,
the Company issued 3,000 shares of Series A Redeemable Preferred Stock and
727,272 shares of Common Stock with warrants to certain existing
stockholders, directors and executive officers of the Company. The
Preferred Stock was issued at a $1,000 per share for a total purchase price
of $3.0 million. Dividends on each share of the Preferred Stock accrue
cumulative on a daily basis at a rate of 5 percent per annum on the
liquidation value thereof, provided that the rate will increase to 10% per
annum upon the earlier of the date of a disposition event and November 15,
1998. The dividends are payable in kind on the last day of each fiscal
quarter. The Company will redeem all of the Series A Preferred Stock
outstanding on December 31, 2005 at a liquidation value of $1,000 per
share. The Common Stock, along with detached warrants for 1,500,000 shares
of Common Stock, was issued for $2.75 per share ($.01 par value) for a
total purchase price of $2.0 million. The detached warrants can be
exercised any time prior to May 23, 2007 at $2.00 per share.
8. SUBSEQUENT EVENT
Transamerica Lease Facility
In July 1997, the Company received a commitment letter from Transamerica
Business Credit Corporation ("TBCC") to provide the Company and its
subsidiaries with an arrangement to lease up to 300 new 1998 model tractors
(the "TBCC Lease"). The line under the TBCC Lease will not exceed $22.8
million based upon a per vehicle cost of $76,000, subject to an unused line
fee of one percent if the Company leases all 300 of the new trucks but does
not use the entire line. The lease term is 48 months and is subject to a
terminal rental adjustment clause at the end of the term. The Company will
account for this lease as an operating lease for accounting purposes.
9
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, 1996 include W&L, TBI, Bangerter, the
CMS distribution business and Scales (including the CBS Express business) for
the entire periods and the results of ART, as it relates to the Freymiller
Assets, since February 5, 1996. Results for the three and six months ended June
30, 1997 for the Company include the results of W&L, TBI, Bangerter, the CMS
distribution business, Scales (including the CBS Express business), ART, ALS and
KTL for the entire 1997 periods. The results for Monfort and Lynn have been
included for one month in 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
Net Loss
For the quarter ended June 30,1997, the Company had a net loss of $6.7
million compared with a net loss of $473,000 for the same period in 1996.
Results for the second quarter of 1997 were negatively impacted primarily by a
$7.2 million charge to restructure the Company's refrigerated carrier group and
an increase in interest costs. The net loss in 1997 includes an extraordinary
item, loss on early retirement of debt of $243,000, net of taxes. The loss
related primarily to the write off of the deferred financing costs
with respect to the Company's prior senior credit facility with NationsBank.
Revenues
Second quarter revenues for 1997 improved $6.6 million, compared with the
second quarter of 1996. KTL generated $8.0 million and Monfort and Lynn
generated $5.4 million of revenue in 1997; however, a decline in volumes at ART
partially offset the additional revenue generated by the acquisitions.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1997 to 1996.
THREE MONTHS ENDED
JUNE 30, VARIANCE
------------------ INCREASE
1997 1996 (DECREASE)
--------- ------- ----------
Salaries, wages and fringe benefits 33.7% 32.9% 0.8%
Purchased transportation 24.2 25.9 (1.7)
Fuel and fuel taxes 12.3 11.9 0.4
Operating supplies and expenses 6.7 6.5 0.2
Depreciation and amortization of
capital leases 6.7 6.0 0.7
Claims and insurance 3.7 3.8 (0.1)
Operating taxes and licenses 2.3 2.2 0.1
General supplies and expenses 4.8 4.0 0.8
Building and office equipment rents 0.8 0.7 0.1
Amortization of intangibles 0.6 0.5 0.1
Gain on disposal of property and
equipment (0.2) (0.1) (0.1)
Restructuring charge 11.9 - 11.9
----- ---- ----
Operating Ratio 107.5% 94.3% 13.2%
===== ==== ====
Salaries, wages and fringe benefits for the second quarter of 1997
increased 0.8 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which replaced driver per diems at
three of the Operating Companies as well as employer health insurance premium
10
contributions at another Operating Company. The increase is also due to an
increase in salaries at the corporate location as a result of continued
development of support staff necessary for the acquired companies.
Purchased transportation costs decreased 1.7 percentage points as a percent
of revenue when compared with the second quarter of 1996. The decrease is due
primarily to the acquisition of KTL in the third quarter of 1996, which has a
company-driver work force.
Fuel and fuel taxes during the second quarter of 1997 increased 0.4
percentage points as a percent of revenue. This increase is due to the
acquisition of KTL in the third quarter of 1996, which has a company-driver
work force thereby increasing the percentage of company drivers versus owner
operators in the overall fleet. The impact of this increase from KTL was
partially offset by lower fuel prices during the second quarter of 1997.
Depreciation and amortization of capital leases increased as a percent of
revenue by 0.7 percentage points when compared with the prior year quarter
primarily due to the purchase of new tractors and trailers during 1996. The
Company began taking deliveries of the new Volvo tractors in May 1996. The
increase is also attributable to the purchase of new computer equipment used in
the consolidation of the Company's computer systems.
General supplies and expenses for the second quarter of 1997 increased 0.8
percentage points as a percent of revenue when compared with the same period in
1996. This increase is due to increased professional and consulting fees
resulting from increased driver recruitment and advertising and added costs for
system and mobile communications, which should be partially offset in the future
by improved operating efficiencies.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
recently acquired entities, the Company announced a plan in the second quarter
of 1997 to restructure its refrigerated carrier group. The Company recorded
$7.2 million in restructuring costs, which included $2.3 million for employee
termination costs, $4.2 million for duplicate facility costs, including the
impairment of certain long-lived assets, and $650,000 of other costs. The
Company may incur additional pre-tax restructuring costs during the second half
of 1997. See Notes to Consolidated Financial Statements-Note 3. Restructuring
Charge.
Interest expense increased $823,000 for the quarter ended June 30, 1997
over the same period in 1996. Interest on the revolving lines of credit, which
were used to fund acquisitions, were the primary contributors to this increase.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net Loss
For the six months ended June 30,1997, the Company had a net loss of $8.5
million compared with a net loss of $584,000 for the same period in 1996.
Results for 1997 were negatively impacted primarily by a charge of $7.2 million
to restructure the Company's refrigerated carrier group and an increase in
interest costs. The net loss in both 1997 and 1996 includes extraordinary items,
loss on early retirement of debt, of $243,000 and $230,000, net of taxes. These
losses related to the write off of deferred financing costs in 1997 with respect
to the Company's prior senior credit facility with NationsBank and to early
retirements related to the use of proceeds from the Company's Subordinated Notes
offering in 1995, which were used to retire debt in 1996.
Revenues
Revenues for the first six months of 1997 improved $17.6 million, compared
with the first six months of 1996. This increase is due to 1997 revenue of $15.4
million from the KTL acquisition and $5.4
11
million from the Monfort and Lynn acquisitions. This increase was partially
offset by a decline in volumes at ART.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1997 to 1996.
SIX MONTHS ENDED
JUNE 30, VARIANCE
---------------- INCREASE
1997 1996 (DECREASE)
-------- ------ ----------
Salaries, wages and fringe benefits 34.1% 32.7% 1.4%
Purchased transportation 23.8 24.5 (0.7)
Fuel and fuel taxes 12.9 12.2 0.7
Operating supplies and expenses 6.6 6.6 -
Depreciation and amortization of
capital leases 6.7 6.3 0.4
Claims and insurance 3.9 3.8 0.1
Operating taxes and licenses 2.3 2.2 0.1
General supplies and expenses 4.7 3.7 1.0
Building and office equipment rents 0.8 0.7 0.1
Amortization of intangibles 0.6 0.5 0.1
Gain on disposal of property and
equipment (0.1) (0.3) 0.2
Restructuring charge 6.2 - 6.2
----- ---- ----
Operating Ratio 102.5% 92.9% 9.6%
===== ==== ====
Salaries, wages and fringe benefits for the first six months of 1997
increased 1.4 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wage employer, which replaced driver per
diems at three of the Operating Companies as well as health insurance premium
contributions at another Operating Company. The increase is also due to an
increase in salaries at the corporate location as a result of continued
development of support staff necessary for the acquired companies.
Purchased transportation costs decreased 0.7 percentage points as a percent
of revenue when compared with the first six months of 1996. The decrease is
primarily due to the acquisition of KTL in the third quarter of 1996, which has
a company-driver work force.
Fuel and fuel taxes increased 0.7 percentage points as a percent of revenue
when compared with the first six months of 1996 due to the acquisition of KTL in
the third quarter of 1996, which has a company-driver work force. The increase
was also due to lower miles per gallon as a result of severe weather and
unfavorable fuel prices in the first quarter of 1997. According to a Department
of Energy survey, reported by the American Trucking Association, the average
price of diesel fuel for the first six months of 1997 was approximately two
cents above the average price for the same period in 1996.
Depreciation and amortization of capital leases increased as a percent of
revenue by 0.4 percentage points when compared with the prior year primarily due
to the purchase of new tractors and trailers during 1996. The Company began
taking deliveries of the new Volvo tractors in May 1996. The increase is also
attributable to the purchase of new computer equipment used in the consolidation
of the Company's computer systems.
General supplies and expenses for the first six months of 1997 increased
1.0 percentage points as a percent of revenue when compared with the same period
in 1996. This increase is due to increased professional and consulting fees
resulting from increased driver recruitment and advertising and added costs for
system and mobile communications, which should be partially offset in the future
by improved operating efficiencies.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
recently acquired entities, the Company announced a
12
plan in the second quarter of 1997 to restructure its refrigerated carrier
group. The Company recorded $7.2 million in restructuring costs, which included
$2.3 million for employee termination costs, $4.2 million for duplicate facility
costs, including the impairment of certain long-lived assets, and $650,000 of
other costs. The Company may incur additional pre-tax restructuring costs during
the second half of 1997. See Notes to Consolidated Financial Statements-Note 3.
Restructuring Charge.
Interest expense increased $1.6 million for the six months ended June 30,
1997 over the same period in 1996. Interest on the revolving lines of credit,
which were used to fund acquisitions, were the primary contributors to this
increase.
CONTINGENCIES
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and certain other laws, the Company is
potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency ("EPA") and other
agencies. 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 sites owned or operated by the Company and
its subsidiaries, sites formerly owned or operated by the Company and its
subsidiaries (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,
1997 was $3.1 million compared with $4.7 million for the six months ended June
30, 1996. The decrease of cash used in operations was primarily attributable to
additional cash from the collection of accounts receivable. The increase in cash
from the collection of accounts receivable was partially offset by an increase
in the deferred tax benefit for the first six months of 1997 and cash used for
restructuring in 1997. Management believes that borrowings available under the
credit facilities should be sufficient to cover anticipated future cash needs.
REDEEMABLE PREFERRED AND COMMON STOCK
In May 1997, the Company issued 3,000 Shares of Series A Redeemable
Preferred Stock and 727,272 shares of Common Stock with warrants to certain
existing stockholders, directors and executive officers of the Company. The
issuance was made in conjunction with the 1997 acquisitions and totalled $5
million. See Notes to Consolidated Financial Statements - Note 7. Redeemable
Preferred and Common Stock.
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which FINOVA
has agreed to provide a $60 million credit facility to the Company. The initial
borrowings under the FINOVA Credit Facility were used to refinance the Company's
prior credit facility with NationsBank of Texas, N.A. Additional borrowings
under the FINOVA Credit Facility can be used for acquisitions, capital
expenditures, letters of credit, working capital and general corporate purposes.
Pursuant to the FINOVA Credit Facility, FINOVA has agreed to provide a $60
million revolving credit facility, with a $10 million sublimit for the issuance
of letters of credit, maturing on May 5, 2000 (subject to additional one year
renewal periods at the discretion of FINOVA). The FINOVA Credit Facility is
also subject to a borrowing base consisting of eligible receivables and eligible
revenue equipment. Currently, the Company's borrowing base supports borrowings
of approximately $54 million. Revolving credit loans under the FINOVA Credit
Facility bear interest at a per annum rate equal to either the prime rate plus a
margin equal to 0.75 percent or the rate of interest offered in the London
interbank market plus a margin equal to 2.75 percent. The Company also pays a
monthly unused facility fee and a monthly collateral monitoring fee in
connection with the FINOVA Credit Facility. Revolving credit loans under the
FINOVA Credit Facility were $44.0 million at June 30, 1997 and were primarily
used for refinancing borrowings under the Company's prior facility with
NationsBank of Texas, N.A. and to fund the 1997 acquisitions. Available
borrowings were $5.6 million at June 30, 1997, as there were $4.3 million in
letters of credit outstanding.
13
The Company's obligations under the FINOVA Credit Facility are
collateralized by substantially all of the unencumbered assets of the Company
and its subsidiaries and are guaranteed in full by each of the Operating
Companies. For purposes of the Indenture, the borrowings under the FINOVA
Credit Facility constitute Senior Indebtedness of the Company and Guarantor
Senior Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and financial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Current Ratio, Net Worth, Debt Service Coverage Ratio and Operating
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. As of June 30, 1997, the Operating Companies
have pledged collateral which provides for a $9.5 million line of credit.
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
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, 1997, borrowings outstanding under the Volvo Line of Credit
were $9.4 million with available borrowings of $100,000. The outstanding debt
balance under the Equipment Financing Facility was $3.7 million at June 30,
1997; however, available financing under this facility is less than $4 million
as financing was also obtained through operating leases.
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.
Transamerica Lease Facility
In July 1997, the Company received a commitment letter from Transamerica
Business Credit Corporation ("TBCC") to provide the Company and its subsidiaries
with an arrangement to lease up to 300 new 1998 model tractors (the "TBCC
Lease"). The line under the TBCC Lease will not exceed $22.8 million based upon
a per vehicle cost of $76,000, subject to an unused line fee of one percent if
the Company leases all 300 of the new trucks but does not use the entire line.
The lease term is 48 months and is subject to a terminal rental adjustment
clause at the end of the term. The Company will account for this lease as an
operating lease for accounting purposes.
14
Capital Expenditures and Resources
For the six months ended June 30, 1997, the Company had proceeds from
property and equipment dispositions in excess of capital expenditures of $1.5
million, excluding the 1997 acquisitions of Monfort, Lynn and Tran-Star,
compared with 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. The proceeds from property and equipment dispositions for
the first six months of 1997 were primarily from the sale of tractors, some of
which were financed through debt. These tractors were replaced with new tractors
financed through operating leases.
During 1997, the Company plans to purchase approximately 525 new trucks,
including the remaining Volvo trucks. Approximately 500 of these new tractors
will replace existing tractors. These plans include the new equipment purchases
for the recently acquired companies. 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.
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-Star,
Inc. ("Tran-Star") which was owned by Allways Services, Inc. The purchase price
of $2.6 million included $1.6 million in cash and a $1 million note payable.
Tran-Star is a carrier of refrigerated and non-refrigerated products.
Headquartered in Waupaca, Wisconsin, Tran-Star operates primarily in between the
upper midwestern U.S. and the northeast and southeast, with terminals in Etters
and Wyalusing, Pennsylvania. The Company is currently coordinating Tran-Star's
activities with those of the other Operating Companies.
In May 1997, AmeriTruck purchased the capital stock of Monfort
Transportation Company ("Monfort") and Lynn Transportation Co., Inc. ("Lynn"),
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash.
Monfort and Lynn operated primarily as in-house carriers for the red meat
division of Monfort, Inc., a ConAgra subsidiary, and the poultry and turkey
divisions of ConAgra Poultry Company, a ConAgra subsidiary. The Company entered
into a Transportation Services Agreement with subsidiaries of ConAgra. The
ConAgra subsidiaries will tender freight from Monfort, Inc.'s red meat division,
ConAgra Poultry Company's poultry and turkey divisions and Swift-Ekrich, Inc.'s
processed meats division in designated lanes and minimum annual volumes. The
term of this agreement is four years, with pricing fixed for the first two years
and adjusted prices in the third and fourth years. The Company will coordinate
Monfort and Lynn activities with those of the refrigerated group.
The Tran-Star, Monfort and Lynn acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition. The total purchase price including cash, note
payable, miscellaneous acquisition costs and liabilities assumed was $42.0
million for Tran-Star and $35.2 million for Monfort and Lynn. The excess of the
purchase price over fair values of the net assets acquired has been recorded as
goodwill.
During the third quarter of 1996, AmeriTruck purchased all of the
outstanding stock of KTL, Inc. ("KTL") for a purchase price of $8.1 million in
cash and 225,000 shares of Class A common stock of AmeriTruck valued at
$900,000.
15
KTL is a trucking company founded in 1983 which specializes in the
truckload transportation of refrigerated commodities and less-than-truckload
shipments requiring expedited, timed-delivery services. At the time of
purchase, KTL operated approximately 140 tractors and 300 trailers and employed
approximately 300 persons, of whom 240 were drivers and many of who operated as
two-driver teams.
The KTL acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The total purchase price including cash, common stock,
miscellaneous acquisition costs and liabilities assumed was $21.9 million. The
excess of the purchase price over the fair values of the net assets acquired has
been recorded as goodwill.
In February 1996, the Company, through CMS Transportation Services, Inc.,
purchased certain assets of Freymiller Trucking Inc. ("Freymiller") in order to
supplement its existing temperature-controlled trucking business. Freymiller had
been the subject of a Chapter 11 bankruptcy proceeding in Oklahoma. 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.
In April 1996, CMS Transportation Services, Inc. changed its corporate name
to "AmeriTruck Refrigerated Transport, Inc." ("ART"), and the distribution
functions previously conducted under the corporate name "CMS Transportation
Services, Inc." were continued as a division of ART. In addition, in June 1996,
the business operations of CBS, a general freight carrier (which then operated
under the name "CBS Express, Inc."), were transferred to Scales. In December
1996, the distribution functions of the CMS Transportation division of ART were
transferred to CBS and its name was changed to "CMS Transportation Services,
Inc." ("CMS").
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 revolving credit facilities, the Volvo Line of
Credit and the FINOVA Credit Facility, which will give AmeriTruck the ability to
pursue acquisitions that the Company could not otherwise fund through cash
provided by operations. In addition to revolving credit Facilities, the Company
may finance its acquisitions through equity issuances, seller financing and
other debt financings.
In June, the Company completed the acquisition of Tran-Star and in May the
acquisition of Monfort and Lynn. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for additional information regarding these acquisitions.
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.
16
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 some increases in fuel prices. According
to a Department of Energy survey, reported by the American Trucking Association,
the average price of diesel fuel for the first six months of 1997 was
approximately two cents above the average price for the first six months of
1996. The Company has seen its fuel prices increase at a rate slightly below the
national average due to the Company's ability to buy fuel at volume discounts.
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 within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements in this Form 10-Q include statements concerning future cost savings,
projected levels of capital expenditures and the timing of deliveries of new
trucks and trailers, the Company's financing plans, driver recruitment and
training and the Company's pursuit of opportunistic acquisitions. These forward-
looking statements are based on a number of risks and uncertainties, many of
which are beyond the Company's control. The Company believes that the following
important factors, among others, could cause the Company's actual results for
its 1997 fiscal year and beyond to differ materially from those expressed in any
forward-looking statements made by, on behalf of, or with respect to, the
Company: the adverse impact of inflation and rising fuel costs; the Company's
substantial leverage and its effect on the Company's ability to pay principal
and interest on the Subordinated Notes, to pursue other business opportunities
and to withstand any adverse economic and industry conditions; the risk that the
Company will not be able to integrate the Operating Companies' businesses on an
economic basis or that any anticipated economies of scale or other cost savings
will be realized; the ability of the Company to identify suitable acquisition
candidates, complete acquisitions or successfully integrate any acquired
businesses; competition; the ability of the Company to attract and retain
qualified drivers; and the Company's dependence on key management personnel.
These and other applicable risk factors are discussed in more detail in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
other filings the Company has made with the Securities and Exchange Commission
and are incorporated by reference.
17
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 Stock Purchase Agreement, dated as of April 28,
1997, between the Company and Monfort, Inc., and
ConAgra Poultry Company.
** 10.2 Stock Purchase Agreement, dated as of June 27, 1997
between the Company and Allways Services, Inc. and
TranStar Services, Inc.
10.3 Loan and Security Agreement, dated as of May 5,
1997, between the Company and Finova Capital
Corporation
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 June 6,
1997.
** Incorporated by reference to the Company's current Report on Form
8-K filed with the Securities and Exchange Commission on July 11,
1997.
B. Reports on Form 8-K
On April 8, 1997, the Company filed a report on Form 8-K in connection
with its financial results for 1996, a new financing commitment and the
Company's proposed acquisition of Tran-Star, Inc.; and the Company's
expectations for the first quarter of 1997.
On June 6, 1997, the Company filed a report on Form 8-K in connection
with the acquisition of Monfort and Lynn. On August 6, 1997 the Company
filed an amendment on Form 8-K/A.
Items 2, 3, 4, and 5 of Part II were not applicable and have been
omitted.
18
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, 1997
19
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
10.3 Loan and Security Agreement, dated as of May 5, 1997,
between the Comopany and Finova Capital Corporation
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule