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, 1998
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 (I.R.S. Employer
of 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 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
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,
-------------------------------------------------
1998* 1997* 1998* 1997*
----- ----- ----- -----
Operating revenue $ 75,782 $60,287 $155,288 $115,955
-------- ------- -------- --------
Operating expenses:
Salaries, wages and fringe benefits 28,531 20,314 58,595 39,530
Purchased transportation 16,752 14,635 34,718 27,644
Fuel and fuel taxes 8,558 7,453 17,957 14,938
Operating supplies and expenses 6,067 4,016 12,801 7,627
Depreciation and amortization of capital leases 4,728 4,014 10,057 7,732
Claims and insurance 2,452 2,209 5,493 4,527
Operating taxes and licenses 1,144 1,383 2,798 2,666
General supplies and expenses 3,933 2,874 9,002 5,486
Building and office equipment rents 521 471 1,093 933
Amortization of intangibles 567 372 1,133 665
Gain on disposal of property and equipment (361) (106) (895) (60)
Gain on sale of TBI (12,475) - (12,475) -
Restructuring charge - 7,184 - 7,184
-------- ------- -------- --------
Total operating expenses 60,417 64,819 140,277 118,872
-------- ------- -------- --------
Operating income (loss) 15,365 (4,532) 15,011 (2,917)
Interest expense 5,721 4,778 11,755 9,272
Amortization of financing fees 242 147 531 271
Other income, net (54) (83) (88) (166)
-------- ------- -------- --------
Income (loss) before income taxes
and extraordinary item 9,456 (9,374) 2,813 (12,294)
Income tax provision (benefit) 2,408 (2,889) 216 (4,057)
-------- ------- -------- --------
Income (loss) before extraordinary item 7,048 (6,485) 2,597 (8,237)
Extraordinary item, loss on early retirement of debt,
net of taxes of $120 - (243) - (243)
-------- ------- -------- --------
Net income (loss) $ 7,048 $(6,728) $ 2,597 $ (8,480)
======== ======= ======== ========
* 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,
1998 1997
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21 $ 21
Accounts and notes receivable, net 39,214 49,017
Prepaid expenses 17,358 14,782
Repair parts and supplies 2,285 2,123
Deferred income taxes 3,717 3,717
Other current assets 4,242 5,092
-------- --------
Total current assets 66,837 74,752
Property and equipment, net 102,220 117,774
Goodwill, net 61,747 59,971
Other assets 15,008 11,003
-------- --------
Total assets $245,812 $263,500
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 24,153 $ 22,534
Accounts payable and accrued expenses 26,119 31,735
Claims and insurance accruals 3,815 3,496
Other current liabilities 754 986
-------- --------
Total current liabilities 54,841 58,751
Long-term debt 186,863 203,696
Deferred income taxes 4,655 4,410
Other liabilities 6,100 5,887
-------- --------
Total liabilities 252,459 272,744
-------- --------
Commitments and contingencies (Note 6)
Redeemable preferred stock 3,165 3,091
Stockholders' equity (deficiency):
Common stock; $.01 par value; 4,230 shares
issued and outstanding 42 42
Additional paid-in capital 2,726 2,800
Loans to stockholders (1,401) (1,401)
Accumulated deficit (11,179) (13,776)
-------- --------
Total stockholders' deficiency (9,812) (12,335)
-------- --------
Total liabilities and stockholders' deficiency $245,812 $263,500
======== ========
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,
--------------------
1998* 1997*
----- -----
OPERATING ACTIVITIES:
Net income (loss) $ 2,597 $ (8,480)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization of capital leases 10,057 7,732
Amortization of intangibles 1,133 665
Gain on disposal of property and equipment (13,370) (60)
Provision (benefit) for deferred income taxes 216 (4,057)
Extraordinary item, loss on early retirement of debt, net of taxes - 243
Restructuring charge - 7,184
Restructuring costs paid (258) (1,043)
Other, net (2,856) (1,744)
Changes in current assets and liabilities, net of effects
from acquisitions:
Accounts and notes receivable, net 5,126 (1,939)
Prepaid expenses (2,818) (232)
Repair parts and supplies (207) (503)
Other current assets 871 (32)
Accounts payable and accrued expenses (3,524) (11)
Claims and insurance accruals (126) (712)
Other current liabilities (231) (137)
-------- --------
Net cash used in operating activities (3,390) (3,126)
-------- --------
INVESTING ACTIVITIES:
Net proceeds from sale of TBI 15,576 -
Payments for acquisitions - (17,139)
Purchase of property and equipment (1,506) (2,747)
Proceeds from sale of property and equipment 9,213 4,257
Other, net 323 317
-------- --------
Net cash provided by (used in) investing activities 23,606 (15,312)
-------- --------
FINANCING ACTIVITIES:
Revolving line of credit, net (2,061) 19,524
Repayment of long-term debt (15,703) (6,525)
Proceeds from issuance of redeemable preferred stock - 3,000
Proceeds from issuance of common stock - 2,000
Checks in excess of cash balances (1,416) -
Other, net (1,036) (295)
-------- --------
Net cash provided by (used in) financing activities (20,216) 17,704
-------- --------
Net decrease in cash and cash equivalents - (734)
Cash and cash equivalents, beginning of period 21 734
-------- --------
Cash and cash equivalents, end of period $ 21 $ -
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 11,857 $ 9,035
Income taxes (net of refunds) 57 39
Property and equipment financed through capital lease obligations and other debt 2,425 1,241
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 1997 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, 1998 and December 31, 1997, and the results of operations for the three-
month and six-month periods ended June 30, 1998 and 1997, and cash flows for
the six-month periods ended June 30, 1998 and 1997 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.
As of June 30, 1998, the Company's principal subsidiaries were W&L
Services Corp. ("W&L"), CMS Transportation Services, Inc. ("CMS"), Scales
Transport Corporation ("Scales"), AmeriTruck Refrigerated Transport, Inc.
("ART"), KTL, Inc. ("KTL"), and AmeriTruck Logistics Services, Inc. ("ALS),
(the "Operating Companies"). Effective January 1998, the Company caused the
merger of its wholly-owned subsidiaries, J.C. Bangerter & Sons, Inc.
("Bangerter"), Lynn Transportation Co., Inc. ("Lynn"), Monfort Transportation
Company ("Monfort") and Tran-Star, Inc. ("Tran-Star") into ART, with ART as
the surviving corporation. All significant intercompany accounts and
transactions have been eliminated.
2. ACQUISITIONS
In June 1997, AmeriTruck purchased all the outstanding stock of 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. Prior to
its January 1998 merger into ART, Tran-Star was a carrier of refrigerated and
non-refrigerated products. Headquartered in Waupaca, Wisconsin, Tran-Star
operated primarily between the upper midwestern U.S. and the northeast and
southeast, with terminals in Etters and Wyalusing, Pennsylvania.
In May 1997, AmeriTruck purchased the capital stock of Monfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash. 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 $42.4 million for Tran-Star and $35.8 million for
Monfort and Lynn. The excess of the purchase price over fair values of the
net assets acquired has been recorded as goodwill.
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. In connection
with this acquisition, the Company entered into a Transportation Services
Agreement ("the Original ConAgra Agreement") with subsidiaries of ConAgra.
Pursuant to the Original ConAgra Agreement, ConAgra subsidiaries had agreed
to 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
the Original ConAgra Agreement was four years, with pricing fixed for the
first two years and adjusted prices in the third and fourth years.
In July 1998, the Company entered into an Amended and Restated
Transportation Services Agreement with certain ConAgra subsidiaries (the
"Amended ConAgra Agreement"). The Amended ConAgra Agreement terminated the
Original ConAgra Agreement. The Amended ConAgra Agreement has a term of four
years. The ConAgra subsidiaries and the Company have agreed to use their
respective good faith efforts to generate at least $20 million in annual
freight revenues for the Company under the Amended ConAgra Agreement, subject
to certain conditions, including satisfactory pricing and service
requirements. In connection with the execution and delivery of the Amended
ConAgra Agreement, ConAgra paid the Company $10 million, offset by certain
amounts owed by the Company. After writing off the intangible value assigned
to the Original ConAgra Agreement in purchase accounting and other related
amounts, the Company will recognize a gain of approximately $5 million during
July 1998. Subsequent to entering into the Amended ConAgra Agreement,
seasonally-adjusted volumes tendered by ConAgra have not been impacted.
3. DISPOSITIONS
On May 1, 1998, AmeriTruck sold its Thompson Bros., Inc. subsidiary
("TBI") to Contract Mail Company for $15.5 million in cash. TBI, having
transferred its refrigerated customers, assets and business to ART, is
primarily involved in contract mail carriage. Net proceeds to the Company,
after payment of certain TBI-related debt and related expenses, were
approximately $12.5 million.
The net assets of TBI were approximately $3 million, resulting in a book
gain on sale of $12.5 million. At the time of sale, TBI's revenue
attributable to its contract mail carriage and other remaining businesses was
approximately $13 million on an annualized basis.
4. RESTRUCTURING CHARGE
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company is currently organized into three operating groups
to better serve its customers. The AmeriTruck Refrigerated Carrier Group was
formed to offer regional and nationwide, truckload refrigerated service. This
new group combined the resources of ART, Bangerter, Tran-Star, Monfort, Lynn
and the refrigerated operations of TBI. The AmeriTruck Specialized Carrier
Group was formed to service customers with unique needs in transportation and
distribution. This group includes W&L, the largest interstate hauler of new
furniture in the United States, CMS, serving the medical distribution
industry, Scales, offering regional just-in-time dry van service, and ALS, a
freight 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. The LTL operations of
Lynn in Nevada and Southern California were integrated into this group.
In connection with the above reorganization and to eliminate the
duplicate facility and employee costs related to the 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. As of June 30, 1998,
the Company has remaining liabilities recorded of $175,000 related to the
restructuring charge. During the first six months of 1998, the Company
incurred termination costs which exceeded the estimate recorded in connection
with the 1997 restructuring charge.
5
5. 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.
and to fund the 1997 acquisitions. 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.
In May 1998, the Company used the net proceeds from the sale of TBI to
pay down the FINOVA Credit Facility. The Company also amended the FINOVA
Credit Facility to increase both the total amount of the FINOVA Credit
Facility to $62.5 million and the borrowing base availability thereunder (the
"Second Temporary Overadvance"), in each case for a period not to exceed 120
days, or September 15, 1998. The amendment to the FINOVA Credit Facility
provided for the payment of a $160,000 fee in connection with the Second
Temporary Overadvance. While the Second Temporary Overadvance is outstanding,
all loans bear interest at a per annum rate equal to either the prime rate
plus a margin equal to 1.75 percent or the rate of interest offered in the
London interbank market plus a margin equal to 3.75 percent. The Company also
pays a monthly unused facility fee and a monthly collateral monitoring fee in
connection with the FINOVA Credit Facility. The Company anticipates that when
the Second Temporary Overadvance expires, total availability under the FINOVA
Credit Facility will decrease by approximately $5 million as a result of the
advance rate on the appraised value of equipment declining from 75 percent to
60 percent. This decrease will require a repayment by the Company which,
based on the Company's borrowing base on August 14, 1998 would be
approximately $4 million. This decrease in availability will have an adverse
effect on the Company's liquidity and failure to make this payment would be
an event of default under the FINOVA Credit Facility. The Company intends to
raise additional financing or take other actions to improve its liquidity.
As of June 30, 1998, the Company's borrowing base supported borrowings of
approximately $62.5 million. Revolving credit loans under the
FINOVA Credit Facility were $56.0 million at June 30, 1998. There were also
$4.5 million in letters of credit outstanding at June 30, 1998, leaving $2.0
million available for borrowings.
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 then owned by
the Company 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.
6
("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 was provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured by
Volvo GM Heavy Truck Corporation. 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. Financing for an
additional 150 new trucks for approximately $11.3 million was committed
during 1997, all of which was obtained through operating leases.
At June 30, 1998, borrowings outstanding under the Volvo Line of Credit
were $7.6 million. This amount will likely decrease as a result of the normal
periodic appraisal process and expected declines in the value of collateral.
The outstanding debt balance under the Equipment Financing Facility was $2.0
million at June 30, 1998; however, the remaining financing under this
facility was 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.
6. COMMITMENTS AND CONTINGENCIES
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with
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 Company has leased all 300 trucks under this
agreement, and the line used under the TBCC Lease was approximately $22.8
million. The lease term is 48 months and is subject to a terminal rental
adjustment clause at the end of the term. The Company treated this lease as
an operating lease for accounting purposes. Terms of the arrangement were set
forth in a Master Lease Agreement dated as of August 14, 1997.
Environmental Matters
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.
7
Other
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material to the financial condition, results of operations
or liquidity of the Company.
7. OTHER INCOME, NET
Other income consists of the following (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Interest income $52 $85 $79 $127
Miscellaneous, net 2 (2) 9 39
--- --- --- ----
$54 $83 $88 $166
=== === === ====
8. 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 $1,000 per share for a total purchase price of $3.0
million. Dividends on each share of the Preferred Stock accrue cumulatively
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 percent per annum upon
the earlier of the date of a Disposition Event (as defined) 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
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, 1997 include W&L, TBI, Bangerter, CMS,
Scales, ART, KTL, and ALS for the entire periods. The results for Monfort and
Lynn have been included for one month in 1997. Results for the three and six
months ended June 30, 1998 include W&L, CMS, Scales, ART, KTL and ALS for the
entire periods. Effective January 1998, the Bangerter, Monfort, Lynn and Tran-
Star subsidiaries, were merged into ART, with ART as the surviving corporation.
During 1998, TBI was primarily involved in contract mail carriage, after
transferring its refrigerated customers, assets and business to ART. Results
for the mail carriage operations of TBI have been included through April 1998,
as TBI was sold on May 1, 1998.
In May 1997, the Company entered into a Transportation Services Agreement
("the Original ConAgra Agreement") with subsidiaries of ConAgra. Pursuant to
the Original ConAgra Agreement, ConAgra subsidiaries had agreed to 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.
In July 1998, the Company entered into an Amended and Restated
Transportation Services Agreement with certain ConAgra subsidiaries (the
"Amended ConAgra Agreement"). The Amended ConAgra Agreement terminated the
Original ConAgra Agreement. The Amended ConAgra Agreement has a term of four
years. The ConAgra subsidiaries and the Company have agreed to use their
respective good faith efforts to generate at least $20 million in annual freight
revenues for the Company under the Amended ConAgra Agreement, subject to certain
conditions, including satisfactory pricing and service requirements. In
connection with the execution and delivery of the Amended ConAgra Agreement,
ConAgra paid the Company $10 million, offset by certain amounts owed by the
Company. After writing off the intangible value assigned to the Original ConAgra
agreement in purchase accounting and other related amounts, the Company will
recognize a gain of approximately $5 million during July 1998. Subsequent to
entering into the Amended ConAgra Agreement, seasonally-adjusted volumes
tendered by ConAgra have not been impacted.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
Net Income (Loss)
For the quarter ended June 30, 1998, the Company had net income of $7.0
million compared with a net loss of $6.7 million for the same period in 1997.
Results for the second quarter of 1998 include the gain on sale of TBI of $12.5
million; whereas, the 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. The net loss in 1997 includes an extraordinary item,
loss on early retirement of debt of $243,000, net of taxes. This loss related
primarily to the write off of the deferred financing costs with respect to the
Company's prior senior credit facility with NationsBank.
During 1998, the Company eliminated certain unprofitable business inherited
from the companies acquired in 1997 and downsized its equipment fleet and
workforce. Due to the necessary timing of such actions, the Company eliminated
more revenue in the second quarter of 1998 than overhead expenses, which had a
negative impact on operating results. Results for the second quarter of 1998
also continue to be negatively impacted primarily by costs associated with
transitioning to a common computer system, driver recruitment and training
costs, and increased interest costs.
Revenues
Second quarter revenues for 1998 were $75.8 million, compared with revenues
of $60.3 million for the second quarter of 1997. The increase in revenues,
primarily due to the acquisitions of Monfort, Lynn and Tran-Star, was partially
offset by the sale of TBI.
During the second quarter of 1998, the Original ConAgra Agreement had still
not reached the contractually committed volumes and prices. As a result cash
flow for the second quarter has been negatively impacted.
9
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related variance from 1998 to 1997.
THREE MONTHS ENDED
JUNE 30, VARIANCE
--------------------- INCREASE
1998 1997 (DECREASE)
---- ---- ----------
Salaries, wages and fringe benefits 37.7 % 33.7% 4.0%
Purchased transportation 22.1 24.2 (2.1)
Fuel and fuel taxes 11.3 12.3 (1.0)
Operating supplies and expenses 8.0 6.7 1.3
Depreciation and amortization of capital leases 6.2 6.7 (0.5)
Claims and insurance 3.2 3.7 (0.5)
Operating taxes and licenses 1.5 2.3 (0.8)
General supplies and expenses 5.2 4.8 0.4
Building and office equipment rents 0.7 0.8 (0.1)
Amortization of intangibles 0.8 0.6 0.2
Gain on disposal of property and equipment (0.5) (0.2) (0.3)
Gain on sale of TBI (16.5) - (16.5)
Restructuring charge - 11.9 (11.9)
----- ----- ------
Operating Ratio 79.7% 107.5% (27.8)%
===== ===== ======
Salaries, wages and fringe benefits for the second quarter of 1998
increased 4.0 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which occurred because company
drivers were used more extensively and owner operators were used less
extensively than in the second quarter of 1997. The acquisition of Tran-Star,
which had primarily a company-driver work force, contributed to the increased
usage of company drivers. Company driver costs are included in salaries, wages
and fringe benefits while owner operator costs are included in purchased
transportation. The increase is also due to the Company's elimination of
revenue which progressed faster than the elimination of headcount. While the
Company continues to reduce headcount, separation expenses will preclude any
meaningful decline in salaries and wages during the third quarter of 1998.
Purchased transportation costs decreased 2.1 percentage points as a percent
of revenue when compared with the second quarter of 1997. The decrease is due
primarily to the acquisition of Tran-Star at the end of the second quarter of
1997, which had primarily a company-driver work force. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases, which resulted in increased equipment rents. This
increase in equipment rents is expected to continue as the Company finances new
equipment purchases primarily with operating leases.
Fuel and fuel taxes for the second quarter of 1998 decreased 1.0 percentage
points as a percent of revenue when compared with the second quarter of 1997.
This decrease is primarily due to lower fuel prices during the second quarter of
1998. The decrease was partially offset by a higher percentage of fuel being
purchased by the Company versus owner operators, as a result of the Tran-Star
acquisition adding primarily a company-driver work force.
Operating supplies and expenses increased 1.3 percentage points as a
percent of revenue during the second quarter of 1998. This increase is
primarily due to the acquisitions of Monfort, Lynn and Tran-Star which
contributed to higher outside service costs for trailer positioning and
load/unloading services. Some of these outside services are being transitioned
to company employees.
Depreciation and amortization of capital leases decreased 0.5 percentage
points as a percent of revenue when compared with the second quarter of 1997.
This decrease is due to the acquisition of new tractors through operating
leases.
10
Claims and insurance expenses for the second quarter of 1998 decreased 0.5
percentage points as a percentage of revenue when compared with the second
quarter of 1997. This decrease is primarily due to a more favorable claims
experience as well as cost savings in purchasing insurance on a combined basis.
Operating taxes and licenses for the second quarter of 1998 decreased 0.8
percentage points as a percent of revenue when compared with the second quarter
of 1997 primarily due to a decrease in fuel taxes. Lower fleet licensing expense
also contributed to this decrease.
General supplies and expenses for the second quarter of 1998 increased 0.4
percentage points as a percent of revenue when compared with the same period in
1997. The increase is primarily attributable to added costs for system and
mobile communications, which the Company anticipates should be partially offset
in the future by improved operating efficiencies, although no assurances can be
made in this regard. This increase is also due to increased driver recruitment
and training costs, primarily attributable to increased driver turnover.
During the second quarter of 1998, TBI was sold to Contract Mail Company
for $15.5 million in cash. TBI, having transferred its refrigerated customers,
assets and business to ART, is primarily involved in contract mail carriage. Net
proceeds to the Company, after payment of certain TBI-related debt and related
expenses, were approximately $12.5 million. The net assets of TBI were
approximately $3 million, resulting in a book gain on sale of $12.5 million. At
the time of sale, TBI's revenue attributable to its contract mail carriage and
other remaining businesses was approximately $13 million on an annualized basis.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
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. See Notes to Consolidated
Financial StatementsNote 4. Restructuring Charge. During the second quarter of
1998, the Company incurred termination costs which exceeded the estimate
recorded in connection with the 1997 restructuring charge.
Interest expense increased $943,000 for the quarter ended June 30, 1998
over the same period in 1997. 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, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Net Income (Loss)
For the six months ended June 30,1998, the Company had net income of $2.6
million compared with a net loss of $8.5 million for the same period in 1997.
Results for the first six months of 1998 include the gain on sale of TBI of
$12.5 million; whereas, the results for the first six months of 1997 were
negatively impacted primarily by a $7.2 million charge to restructure the
Company's refrigerated carrier group. The net loss in 1997 includes an
extraordinary item, loss on early retirement of debt of $243,000, net of taxes.
This loss related primarily to the write off of the deferred financing costs
with respect to the Company's prior senior credit facility with NationsBank.
During 1998, the Company eliminated certain unprofitable business inherited
from the companies acquired in 1997 and downsized its equipment fleet and
workforce. Due to the necessary timing of such actions, the Company eliminated
more revenue in the first six months of 1998 than overhead expenses, which had a
negative impact on operating results. Results for the first six months of 1998
also continue to be negatively impacted primarily by costs associated with
transitioning to a common computer system, driver recruitment and training
costs, and increased interest costs.
11
Revenues
Revenues for the first six months of 1998 were $155.3 million, compared
with revenues of $116.0 million for the first six months of 1997. The increase
in revenues, primarily due to the acquisitions of Monfort, Lynn and Tran-Star,
was partially offset by the sale of TBI.
During the first six months of 1998, the Original ConAgra Agreement had
still not reached the contractually committed volumes and prices. As a result
cash flow for the first six months has been negatively impacted.
Expenses
The following table sets forth operating expenses as a percentage of
revenue and the related
variance from 1998 to 1997.
SIX MONTHS ENDED
JUNE 30, VARIANCE
------------------ INCREASE
1998 1997 (DECREASE)
---- ---- ---------
Salaries, wages and fringe benefits 37.7% 34.1% 3.6%
Purchased transportation 22.4 23.8 (1.4)
Fuel and fuel taxes 11.6 12.9 (1.3)
Operating supplies and expenses 8.2 6.6 1.6
Depreciation and amortization of capital leases 6.5 6.7 (0.2)
Claims and insurance 3.5 3.9 (0.4)
Operating taxes and licenses 1.8 2.3 (0.5)
General supplies and expenses 5.8 4.7 1.1
Building and office equipment rents 0.7 0.8 (0.1)
Amortization of intangibles 0.7 0.6 0.1
Gain on disposal of property and equipment (0.6) (0.1) (0.5)
Gain on sale of TBI (8.0) - (8.0)
Restructuring charge - 6.2 (6.2)
---- ----- ------
Operating Ratio 90.3% 102.5% (12.2)%
==== ===== ======
Salaries, wages and fringe benefits for the first six months of 1998
increased 3.6 percentage points as a percent of revenue. This increase is
primarily due to an increase in driver wages, which occurred because company
drivers were used more extensively and owner operators were used less
extensively than in the first six months of 1997. The acquisition of Tran-Star,
which had primarily a company-driver work force, contributed to the increased
usage of company drivers. Company driver costs are included in salaries, wages
and fringe benefits while owner operator costs are included in purchased
transportation. The increase is also due to the Company's elimination of
revenue which progressed faster
12
than the elimination of headcount. While the Company continues to reduce
headcount, separation expenses will preclude any meaningful decline in salaries
and wages during the third quarter of 1998.
Purchased transportation costs decreased 1.4 percentage points as a percent
of revenue when compared with the first six months of 1997. The decrease is due
primarily to the acquisition of Tran-Star at the end of the second quarter of
1997, which had primarily a company-driver work force. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases, which resulted in increased equipment rents. This
increase in equipment rents is expected to continue as the Company finances new
equipment purchases primarily with operating leases.
Fuel and fuel taxes decreased 1.3 percentage points as a percent of revenue
when compared with the first six months of 1997. This decrease is primarily due
to lower fuel prices during the first six months of 1998. The decrease was
partially offset by a higher percentage of fuel being purchased by the Company
versus owner operators, as a result of the Tran-Star acquisition adding
primarily a company-driver work force.
Operating supplies and expenses increased 1.6 percentage points as a
percent of revenue when compared with the first six months of 1997. This
increase is primarily due to the acquisitions of Monfort, Lynn and Tran-Star
which contributed to higher outside service costs for trailer positioning and
load/unloading services. Some of these outside services are being transitioned
to company employees.
Depreciation and amortization of capital leases decreased 0.2 percentage
points as a percent of revenue when compared with the first six months of 1997.
This decrease is due to the acquisition of new tractors through operating
leases. This decrease is partially offset by depreciation expense attributable
to the purchase of new computer equipment used in the consolidation of the
Company's computer systems.
Claims and insurance expenses for the six months of 1998 decreased 0.4
percentage points as a percent of revenue when compared with the six months of
1997. This decrease is primarily due to a more favorable claims experience as
well as cost savings in purchasing insurance on a combined basis.
Operating taxes and licenses for the first six months of 1998 decreased 0.5
percentage points as a percent of revenue when compared with the first six
months of 1997 primarily due to a decrease in fuel taxes. Lower fleet licensing
expense also contributed to this decrease.
General supplies and expenses for the first six months of 1998 increased
1.1 percentage points as a percent of revenue when compared with the same period
in 1997. The increase is primarily attributable to added costs for system and
mobile communications, which the Company anticipates should be partially offset
in the future by improved operating efficiencies, although no assurances can be
made in this regard. This increase is also due to increased driver recruitment
and training costs, primarily attributable to increased driver turnover.
During the second quarter of 1998, TBI was sold to Contract Mail Company
for $15.5 million in cash. TBI, having transferred its refrigerated customers,
assets and business to ART, is primarily involved in contract mail carriage. Net
proceeds to the Company, after payment of certain TBI-related debt and related
expenses, were approximately $12.5 million. The net assets of TBI were
approximately $3 million, resulting in a book gain on sale of $12.5 million. At
the time of sale, TBI's revenue attributable to its contract mail carriage and
other remaining businesses was approximately $13 million on an annualized basis.
In connection with AmeriTruck's plans to organize into three operating
groups and to eliminate the duplicate facility and employee costs related to the
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. See Notes to Consolidated
Financial StatementsNote 4. Restructuring Charge. During the first six months of
1998, the Company incurred termination costs which exceeded the estimate
recorded in connection with the 1997 restructuring charge.
13
Interest expense increased $2.5 million for the six months ended June 30,
1998 over the same period in 1997. 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 is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material to the financial condition, results of operations or
liquidity of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended June 30,
1998 and 1997 was $3.4 million and $3.1 million, respectively. The increase in
cash used in operating activities of $264,000 was primarily attributable to the
decrease in the net income from operations, excluding the impact for
depreciation and amortization, the gain on sale of TBI in 1998, the
restructuring charge recorded in 1997 and the related deferred taxes, and a
change from December to June in the timing of license plate purchases for
equipment.
During the first six months of 1998, the Original ConAgra Agreement had still
not reached the contractually committed volumes and prices. As a result cash
flow for the first six months has been negatively impacted.
On May 1, 1998, AmeriTruck sold TBI to Contract Mail Company for $15.5
million in cash. TBI, having transferred its refrigerated customers, assets and
business to ART, is primarily involved in contract mail carriage. Net proceeds
to the Company, after payment of certain TBI-related debt and related expenses,
were approximately $12.5 million. The net assets of TBI were approximately $3
million, resulting in a book gain on sale of $12.5 million. At the time of sale,
TBI's revenue attributable to its contract mail carriage and other remaining
businesses was approximately $13 million on an annualized basis.
The Company's current business plan indicates that it will need additional
financing to pay down the temporary extension of credit by FINOVA and carry out
its current business strategy. Accordingly, the Company
14
intends to raise additional financing in 1998, which may include a refinancing
of the FINOVA Credit Facility. In the event that the Company does not raise
additional financing, sell excess or nonstrategic assets or renegotiate the
terms of existing debt agreements, the Company may be in default of one or more
of its debt agreements. Management believes that borrowings available under its
credit facilities, additional equity, additional financing, asset sales and/or
renegotiation of terms of existing debt agreements 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 gross proceeds
which totaled $5 million. See Notes to Consolidated Financial Statements-Note 8.
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. and to fund the 1997
acquisitions. 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.
In May 1998, the Company used the net proceeds from the sale of TBI to pay
down the FINOVA Credit Facility. The Company also amended the FINOVA Credit
Facility to increase both the total amount of the FINOVA Credit Facility to
$62.5 million and the borrowing base availability thereunder (the "Second
Temporary Overadvance"), in each case for a period not to exceed 120 days, or
September 15, 1998. The amendment to the FINOVA Credit Facility provided for the
payment of a $160,000 fee in connection with the Second Temporary Overadvance.
While the Second Temporary Overadvance is outstanding, all loans bear interest
at a per annum rate equal to either the prime rate plus a margin equal to 1.75
percent or the rate of interest offered in the London interbank market plus a
margin equal to 3.75 percent. The Company also pays a monthly unused facility
fee and a monthly collateral monitoring fee in connection with the FINOVA Credit
Facility. The Company anticipates that when the Second Temporary Overadvance
expires, total availability under the FINOVA Credit Facility will decrease by
approximately $5 million as a result of the advance rate on the appraised value
of equipment declining from 75 percent to 60 percent. This decrease will require
a repayment by the Company which, based on the Company's borrowing base on
August 14, 1998 would be approximately $4 million. This decrease in
availability will have an adverse effect on the Company's liquidity and failure
to make this payment would be an event of default under the FINOVA Credit
Facility. As discussed above, the Company intends to raise additional financing
or take other actions to improve its liquidity.
As of June 30, 1998, the Company's borrowing base supported borrowings of
approximately $62.5 million. Revolving credit loans under the FINOVA Credit
Facility were $56.0 million at June 30, 1998. There were also $4.5 million in
letters of credit outstanding at June 30, 1998, leaving $2.0 million available
for borrowings.
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.
15
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies then owned by the
Company 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 was provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured by
Volvo GM Heavy Truck Corporation. 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. Financing for an additional 150 new
trucks for approximately $11.3 million was committed during 1997, all of which
was obtained through operating leases.
At June 30, 1998, borrowings outstanding under the Volvo Line of Credit
were $7.6 million. This amount will likely decrease as a result of the normal
periodic appraisal process and expected declines in the value of collateral. The
outstanding debt balance under the Equipment Financing Facility was $2.0 million
at June 30, 1998; however, the remaining financing under this facility was
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 August 1997, the Company entered into a lease agreement with
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 Company has leased all 300 trucks under this agreement, and
the line used under the TBCC Lease was approximately $22.8 million. The lease
term is 48 months and is subject to a terminal rental adjustment clause at the
end of the term. The Company treated this lease as an operating lease for
accounting purposes. Terms of the arrangement were set forth in a Master Lease
Agreement dated as of August 14, 1997.
Capital Expenditures and Resources
The Company had proceeds from property and equipment dispositions in excess
of capital expenditures of $7.7 million for the six months ended June 30, 1998
compared with $1.5 million for the six months ended June 30, 1997. During the
first six months of 1998 and 1997, the Company's acquisition of new tractors and
trailers to replace older equipment were primarily financed through operating
leases.
16
During the second half of 1998 and the first half of 1999, the Company
plans to purchase approximately 350 to 400 new trucks, to replace existing
tractors. While final arrangements have not been made, these equipment purchases
and commitments will likely be financed primarily with operating leases.
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. Prior to its January 1998 merger into ART, Tran-Star was a carrier of
refrigerated and non-refrigerated products. Headquartered in Waupaca,
Wisconsin, Tran-Star operated primarily in between the upper midwestern U.S. and
the northeast and southeast, with terminals in Etters and Wyalusing,
Pennsylvania.
In May 1997, AmeriTruck purchased the capital stock of Monfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash. 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 $42.4 million for Tran-Star and $35.8 million for Monfort and Lynn.
The excess of the purchase price over fair values of the net assets acquired has
been recorded as goodwill.
17
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. According to a Department of Energy survey, reported by the
American Trucking Association, the average price of diesel fuel for the six
months of 1998 was $1.07 compared with $1.23 for the six months of 1997. The
Company's fuel prices are slightly below the national average due to the
Company's ability to buy fuel at volume discounts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Expenses."
Year 2000
The Company is in the process of evaluating its primary accounting and
operational systems for the Year 2000 problem. During 1997, the Company began
consolidating the accounting and operational processing of several operating
companies onto a centralized set of applications and hardware located at
Electronic Data Systems Corporation ("EDS"). An internal study is currently
under way to determine the full scope and related costs of the Year 2000 problem
of these consolidated systems as well as other systems used by the Company. As a
part of the internal study, the Company will also address evaluation of key
vendors and customers to determine the impact, if any, on the Company's
business. Remediation or replacement of critical systems will begin prior to the
study being completed at the end of 1998. Full compliance is expected by the end
of March 1999. The Company currently does not believe that the Year 2000 problem
will have a material impact on the Company's financial condition or results of
operations, although the ultimate impact could be material depending on the
results of the aforementioned internal study.
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 and equity plans, the Company's
ability to meet its future cash needs from borrowings under its credit
facilities, from cash generated from operations, asset dispositions, and future
equity issuances, the Company's Amended ConAgra Agreement with subsidiaries of
ConAgra, driver recruitment and training, and the Company's pursuit of
opportunistic acquisitions and the anticipated effects on the Company of any
Year 2000 problems. 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 1998 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 Company's ability to obtain
additional equity financing or raise additional cash through asset sales, 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 and the Company's ability to incur additional
financing or equity to fund its operations, 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.
18
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, 1997 and
other filings the Company has made with the Securities and Exchange Commission
and are incorporated by reference.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
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 May 1, 1998,
between Contract Mail Company and AmeriTruck
Distribution Corp.
10.4 Fifth Amendment to Loan and Security Agreement, dated as
of May 14, 1998, between the Company and FINOVA Capital
Corporation.
10.5 Sixth Amendment to Loan and Security Agreement, dated as
of June 30, 1998, between the Company and FINOVA Capital
Corporation.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
B. Reports on Form 8-K
During the second quarter of 1998, there were no reports filed on Form
8-K.
Items 2, 3, 4 and 5 of Part II were not applicable and have been
omitted.
20
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, 1998
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
10.1 Stock Purchase Agreement, dated as of May 1, 1998,
between Contract Mail Company and AmeriTruck
Distribution Corp.
10.4 Fifth Amendment to Loan and Security Agreement,
dated as of May 14, 1998, between the Company
and FINOVA Capital Corporation
10.5 Sixth Amendment to Loan and Security Agreement,
dated as of June 30, 1998, between the Company
and FINOVA Capital Corporation
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule