SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997 Commission file number: 000-23095
Jevic Transportation, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2373402
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Creek Road, Delanco, NJ 08075
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 461-7111
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On March 19, 1998, the aggregate market value of the Registrant's Common Equity
(including Common Stock and Class A Common Stock), no par value, held by
nonaffiliates of the Registrant was approximately $76,019,068.
On March 19, 1998, 10,658,200 shares of the Registrant's Common Equity, no par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the Commission in
connection with the Annual Meeting of Shareholders scheduled to be held on May
15, 1998 are incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. Business
Overview
Jevic is a motor carrier that combines the high revenue yield
characteristics of a typical LTL carrier with the operating flexibility and low
fixed costs of a truckload carrier. Jevic utilizes a simplified in-route
delivery system in which over 70% of the Company's shipments are delivered to
their destinations directly from line-haul trailers, eliminating the need for an
expensive network of labor-intensive breakbulk terminals, which most LTL
carriers use to distribute shipments. Jevic's revenue per terminal for 1997 was
approximately $32.0 million. The Company serves shippers throughout the eastern
half of the United States and in selected markets in the remainder of the
continental United States and Canada through its origination facilities located
in the metropolitan areas of Atlanta, Boston, Charlotte, Chicago, Houston and
Philadelphia. From 1995 to 1997, the Company's operating revenues and operating
income grew at compound annual rates of 23.1% and 59.7% respectively.
Jevic's Breakbulk-Free system utilizes a simplified network of terminals,
which serve as regional origination points for initial consolidation of freight
on a trailer. The Company strategically combines smaller shipments (typically
handled by LTL carriers) with larger shipments (typically handled by truckload
carriers) in a sequence which permits direct unloading at each shipment's
destination, with no need to rehandle individual shipments at one or more
breakbulk terminals. Typical LTL carriers have to reload shipments into local
trucks for final delivery, whereas, in most cases, Jevic's operating system
avoids further rehandling at the destination facility. This generally results in
less damage to freight and faster transit times for less than full truckload
shipments. Jevic's flexible operating system minimizes rehandling of freight and
provides a broad range of transportation services.
Service
Jevic seeks to customize its service offerings to meet its customers'
evolving requirements for greater speed and reliability. By regularly expanding
the services it provides, the Company increases the types of shipments it can
efficiently handle from existing customers and is able to attract and serve new
customers.
Fast Delivery Times. The Company provides next day and, in many cases, next
morning service along regional lanes of up to 500 miles. As an example, Jevic
offers freight delivery from metropolitan Philadelphia to metropolitan Boston by
noon on the next business day. In addition, Jevic offers delivery from
metropolitan Atlanta to New England by the morning of the second day after
pickup, and from the Northeast to metropolitan Chicago in two days.
Wide Range of Shipment Sizes. Jevic provides its customers with the
flexibility to handle shipments of a range of sizes and weights not typically
provided by standard LTL or truckload carriers, which enhances the Company's
ability to become a core carrier to its customers. Many of the Company's
customers require transportation of multiple shipments ranging from as little as
50 pounds to over 40,000 pounds. While a standard truckload carrier would charge
a customer the full truckload rate for each shipment weighing over 10,000 pounds
even if it does not fill a trailer, the Company can efficiently handle the
customer's partial truckload shipments, charging the customer less than a full
truckload rate, and then integrating smaller shipments from the same customer or
other customers in the same region to fill the rest of the trailer. This allows
the customer to save
money on the truckload portion of the shipment and the Company to increase
freight density and shipments per pickup, thereby minimizing incremental costs
and improving operating efficiencies.
Specialized Services - Heated and Expedited Service Options. The Company
offers a heated service for customers whose freight must be protected from
freezing during the winter months, principally customers in the chemical
industry. Jevic's heated trailers allow the Company to provide significant
flexibility to customers, such as pickups and deliveries of heated service
shipments on any day of the week. The Company's heated service enables the
Company to attract business from new customers and then expand the services it
provides for those customers to encompass their regular shipments as well as
their heated service shipments. In addition, by providing this heated service,
Jevic is able to enhance revenues from mid-October to mid-April, a period in
which freight volumes are typically lower than at other times during the year.
Jevic believes that there is no significant competition for its heated service
in the LTL market and that it purchases more integrated diesel trailer heaters
than any LTL carrier. In addition, Jevic offers expedited delivery service at
competitive prices on a regional and inter-regional basis by integrating these
premium rated deliveries with standard service deliveries, thereby increasing
revenue per mile.
Breakbulk-Free Operating Model
Jevic utilizes a simplified network of terminals, which serve as regional
origination points for initial consolidation of freight on a trailer. Shipments
of various sizes are typically picked up "same day" from customers and the
Company combines smaller shipments (typically handled by LTL carriers) with
larger shipments (typically handled by truckload carriers) onto a line-haul
trailer in a sequence which permits the direct unloading of each shipment at its
final destination. This simplifies the delivery process by reducing the number
of facilities needed to effect delivery. The Company's in-route delivery system
bypasses intermediate breakbulk terminals and, in most cases, destination
terminals.
LTL carriers typically rehandle freight at one or more breakbulk terminals
and reload the freight at a destination terminal into a local truck for delivery
to the final destination. Breakbulk-Free operations, in contrast, do not require
an extensive network of "hub and spoke" operating terminals. As a result, Jevic
avoids the fixed costs of operating and maintaining a large network of breakbulk
terminals and a large staff of freight handlers.
Jevic's Breakbulk-Free system accommodates a wider range of shipment sizes,
as determined by weight, than most LTL carriers, and can provide more rapid
transit times in many cases. By minimizing rehandling, Jevic's system reduces
damage to shipments and associated costs. The Breakbulk-Free system also
enhances the Company's asset utilization. To further increase asset utilization
and shorten transit times, Jevic has integrated the use of twin 28-foot
trailers, or pups, into its existing fleet of 48-foot and 53-foot trailers. The
pups are separated without rehandling of freight, and deliveries are made from
the two pups to different destinations at the same time. Deliveries via pup
trailers can effectively double the number of deliveries per day compared to a
single 48- or 53-foot trailer.
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Marketing and Customers
Jevic's sales force utilizes a consultative approach to develop customized
logistics-based solutions to meet its customers' total transportation and
distribution needs. These solutions are designed to reduce the customer's total
transportation costs, inventory carrying costs, handling costs, loss and damage
claims and information processing costs. The Company's customer-focused
approach, in which Jevic provides information and problem-solving as well as
transportation, helps expand the Company's customer base and forge long-term
relationships with customers.
The Company targets prospective customers whose logistics needs are not
being met and develops solutions for those needs. Once a customer begins to use
Jevic for certain of its shipping needs, the Company offers the customer
additional transportation services to develop the account while increasing its
pickup, lane and delivery density.
Jevic develops new geographic markets in existing or new lanes and regions
and monitors existing lanes for lane balance in both directions. The Company
addresses unbalanced lanes by creating new sales territories in the specific
areas that require additional freight as an origination point. Sales territories
are designed to minimize the distance between pickups and increase fleet
utilization, and seasoned sales personnel are recruited and hired for each
territory. Potential customers within the new territory are identified through
telephone interviews and a final list of top potential accounts are selected as
a starting point for the sales process.
At December 31, 1997, the Company had a direct sales staff of 84 employees.
The sales force is comprised of experienced motor carrier representatives who
have been recruited for territories geographically located to maximize both
pickup and lane density. The Company's sales personnel have knowledge of the
local market in which they operate and receive specialized training in order to
learn the Jevic system, including the disciplined sales criteria used in the
customer selection process. Many sales personnel work from their homes, which
are typically located in the region of an existing or planned Company facility.
The sales force is divided among three regions covering the Northeast,
South/Southeast and Midwest. The Company's National Accounts Department
coordinates the marketing efforts for customers with multiple shipping locations
across the country.
At December 31, 1997, the Company's customer base included over 8,000
active accounts. The Company transports general commodities, including chemical
commodities used in manufacturing, petroleum, non-durable goods, paper products,
rubber and plastics.
In 1997, Jevic's largest 20, 10 and five customers accounted for
approximately 24.4%, 18.4% and 13.0% of the Company's operating revenues,
respectively. During the same year, the Company's largest customer accounted for
approximately 4.3% of operating revenues. Because approximately 44% of the
Company's revenues from its top 200 customers in 1997 had standard industrial
classification codes in the chemicals industry, the Company believes that a
significant amount of its business is generated from transporting chemicals,
including various materials which are subject to environmental and safety
regulations.
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Regional Facility Operations
Jevic currently operates through six regional facilities. The Company's
principal regional facility and headquarters are located in metropolitan
Philadelphia, and its other facilities are located in metropolitan Atlanta,
Boston, Charlotte, Chicago and Houston. Jevic's regional facilities are
strategically located to permit the Company to provide high quality service and
minimize freight rehandling to reduce costs. The Company uses its regional
facilities as origination points for initial consolidation of freight onto the
trailer for delivery in-route to the customer. Jevic does not use regional
facilities as breakbulk terminals. Over 70% of the Company's LTL tonnage is
routed directly from the originating terminal to the customer's destination. The
remaining freight is unloaded at a Company terminal for final local delivery to
the destination, typically in a situation where a specific piece of equipment,
such as a liftgate, is required in the unloading process but is not available on
the trailer or where the customer requires a specific delivery time.
Each regional facility is responsible for the pickup and delivery of
freight for its own service area. Primary responsibility for customer service
resides at the facility level. Facility employees trace freight movement between
facilities on the Company's automated tracing system and respond to customer
requests for delivery information. Jevic believes that its policy of maintaining
primary accountability to customers at the facility level fosters better
relationships, results in improved customer service and enhances its ability to
meet customers' needs.
Jevic's centralized Line-Haul Department is responsible for directing the
system wide movement of revenue equipment from its origin to destination. The
Company continuously monitors the usage and location of its revenue equipment
and seeks to maximize utilization of all revenue equipment. Dispatchers are
responsible for tracking all drivers and revenue equipment until trailers are
emptied in order to assure timely delivery of shipments. Dispatchers then direct
the reloading of the trailers for deliveries either in the same region or to
another region serviced by the Company.
On a daily basis, the Company's senior executives and facility management
personnel review the prior day's freight shipment and activity reports to
monitor the Company's performance. The daily freight shipment report identifies
shippers, destinations, shipment size and shipment routing. The daily activity
report includes data such as regional bill counts, driver and tractor
availability, load counts, freight damage and loss and accidents. The Company
uses scheduled runs, and schedules additional runs as necessary, to meet its
delivery time schedules.
The Company's growth plans include construction of new, substantially
larger facilities in metropolitan Boston and Chicago and adding selected
regional facilities in new regions when supported by customer demand.
Technology
The Company believes that its use of proven technologies enhances the
Company's efficiency and provides competitive service advantages. Through this
technology, the Company provides better and more timely information to its
customers, improves its operating efficiency and controls and more effectively
leverages its resources.
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Satellite Communications. The Company has installed the QUALCOMM OmniTRACS
satellite-based communications system ("OmniTRACS System") throughout its fleet.
Although more common to the truckload segment, satellite-based communications
systems are not used by most LTL carriers. Operating continuously, the OmniTRACS
System assists the Company's dispatchers in load planning and enables them to
monitor the movement of freight and simplifies the location of equipment. The
OmniTRACS System also permits timely and efficient communication of critical
operating data, such as shipment orders, loading instructions, routing, safety,
maintenance, billing, tracing and delivery information. For example, dispatchers
assign loads by entering the required information into the system. Drivers then
access the previously-planned pickup from the system and acquire all the
necessary customer, order and routing information through their on-board
OmniTRACS display unit, thus eliminating waiting time and inefficient dependence
on truckstop and roadside telephones. Before installation of the OmniTRACS
system, Jevic typically lost one hour or more of productive time per driver per
day while the driver stopped to wait for and use a telephone.
Enterprise Wide Computing. The Company's NCR 3555 UNIX platform works in
conjunction with a Novell/NT network consisting of over a dozen file servers,
provides connectivity with all Company facilities and produces operational
reports for all end users at the Company's headquarters. In 1998, the Company
plans to add a Sequent NUMA-Q 2000 computer architecture in order to provide
increased enterprise computing and additional disaster recovery capabilities.
Relational database technology (RDBMS) is expected to be employed to provide
flexibility and consistency of data. The Company is developing enhancements to
its core transportation application with custom-designed software.
Document Imaging. The Company uses an optical imaging system to scan
documents such as bills of lading and delivery receipts onto compact disks.
Images are available across all networks to reduce clerical and management time
required to enter and retrieve information. This process enhances the
availability and increases the utilization of data, especially that which
pertains directly to customer service. The Company is currently adding
additional storage and system functionality which will increase image retention,
eliminate many manual duties and be expandable to meet future requirements.
Bar Coding. In 1998, the Company plans to install a comprehensive freight
locator and cross docking system. The bar coding system is designed to enhance
the Company's freight tracking capability and reduce cargo claims and also to
improve operational efficiency through the placement of a bar code on every
shipment which is readable by drivers and facility personnel using a hand-held
wireless scanner.
Drivers
A key element contributing to the Company's growth has been its driver
force. As a former driver, Harry Muhlschlegel, the Company's co-founder and
Chief Executive Officer, has continually emphasized the importance of a stable,
high quality driver force. The Company has implemented policies and programs to
maintain a high level of driver quality and job satisfaction. In 1997, the
average annual total wages paid to drivers who worked full time during the year
was over $56,000, not including health insurance and other related benefits
provided by the Company. Jevic's line-haul drivers are typically able to return
home once a week and are provided with late model tractors with
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modern features to provide driver comfort. Although the industry experiences
driver shortages from time to time, Jevic has been successful in maintaining an
adequate number of qualified drivers. The Company's annual driver turnover rate
was 18.0% in 1997. Among drivers who have worked for the Company for more than
one year, the turnover rate through December 31, 1997 was 5.1%. As of December
31, 1997, 70% of the Company's drivers had worked for the Company for more than
one year, and 59% of them had worked for the Company for more than two years.
At December 31, 1997, Jevic employed 984 Company drivers. In addition, 123
owner-operator drivers provided services to the Company. The Company believes
that its proven ability to recruit and retain dedicated, skilled drivers is a
key factor in the Company's continued growth and success. The Company's
recruiting and selection methods are designed to attract the best drivers, which
contributes to customer satisfaction and reduced claims and insurance expense as
a percentage of revenues. Using these methods, the Company has been able to more
effectively recruit, hire and retain a reliable, stable driver workforce.
Jevic's policy is to recruit drivers who reside along the Company's primary
lanes of traffic, which enables them to return home more often and reduces the
number of off-route miles. The Company hires drivers based upon driving records
and experience, and requires all drivers to be no less than 25 years of age with
at least three years of experience. New hires are required to undergo a two-week
orientation program designed to introduce them to Jevic's operating strategy.
The Company meets with new drivers within the first 90 days of employment and
periodically thereafter to carefully evaluate performance, assist with
compatibility with Jevic's operating structure and discuss any current concerns.
The Company believes that its stringent selection criteria for drivers, and
its initial and regular refresher training courses for drivers, have been an
important factor in improving the Company's safety record. Drivers are eligible
for bonuses ranging from $500 to $2,500 annually for safe and courteous driving,
depending on seniority within the Company.
Owner-Operators
In 1996, the Company initiated an owner-operator program. At December 31,
1997, the Company had contracts with 123 owner-operators which require the
contractor to furnish a tractor and a driver exclusively to transport, load and
unload goods carried by the Company. Owner-operators are subject to the same
recruitment criteria as employee drivers and undergo the same orientation and
training programs. The owner-operators are compensated at a contracted rate per
mile and per pickup and delivery made in-route. The owner-operator program
provides the Company with an alternative method of obtaining additional revenue
equipment with no capital investment, improving return on assets. It also
provides access to an additional pool of drivers in response to the intense
industry competition for qualified drivers and, to a lesser degree, serves to
reduce the Company's direct exposure to fuel price fluctuations. The Company
intends to continue to increase its use of owner-operators.
Revenue Equipment and Maintenance
At December 31, 1997, the Company operated 937 tractors, including 658 road
and regional tractors and 279 local tractors. The Company's policy is to use new
road tractors for up to 500,000
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miles, after which they are generally traded in or sold. Based on current
tractor mileage levels, this translates to approximately three years for
tractors used in interregional operations and approximately five years for
tractors used in regional or local operations. The major operating systems of
the Company's tractors are covered by manufacturers' warranties for between
250,000 to 750,000 miles. Most of the Company's tractors are covered by
agreements under which the Company has the right to resell the tractors to the
vendor at a defined price. All owner-operators' tractors are required to pass
DOT inspection before use in the Company's fleet.
At December 31, 1997, the Company operated a fleet of 1,786 trailers,
including 317 53-foot trailers, 1,317 48-foot trailers, and 152 28-foot "pup"
trailers. Trailers are generally traded after 10 years. However, in furtherance
of its program to add heated services capability to its trailer fleet on an
accelerated schedule, in 1997 the Company traded in certain non-heated trailers
which were less than 10 years old. At December 31, 1997, 53.1% of the Company's
trailers were equipped with integrated heating capability.
The Company has rigid specifications for all tractor and engine components
and has selected, among others, Freightliner tractors and Cummins engines as its
standard equipment. The Cummins electronic diesel engines control speed and
decrease fuel consumption. All tractors have modern features designed to enhance
performance and provide driver comfort.
In order to enhance its Breakbulk-Free operating model, Jevic uses twin
28-foot trailers, or pups. The Company derives several advantages through the
selective use of pup trailers. The use of twin pups permits more freight to be
hauled with one tractor than could be hauled if one larger trailer were used.
The pups are separated without rehandling of freight, and deliveries are made
from the two pups to different destinations at the same time, providing a
significant improvement in delivery times. Deliveries via pup trailers can
effectively double the number of deliveries per day compared to a single 48-foot
or 53-foot trailer. Jevic also uses pups to effect deliveries in regions where
the delivery density is high enough to require it, but where pickup density has
not developed to the point of opening a new regional facility to originate
shipments out of the region.
The Company believes that its heated service is better than that offered by
other motor carriers in several respects. The Company's trailers have a
permanently installed heating system integrated in an insulated trailer body. In
addition, the Company's trailers are designed so that the air is heated and
circulated inside the trailer by passing over a heat exchanger, with no exposure
to any sparks or flame. This provides increased safety for both the driver and
the cargo. In contrast, other companies which offer protective service
alternatively may preheat the cargo and/or cover it with a blanket or place a
portable heater in the trailer, which heats the cargo unevenly and ineffectively
and does not provide the same safety features of the Company's heated trailers.
In addition, competing carriers generally provide much more restrictive
protective services, refusing to transport shipments requiring protection from
freezing in extremely cold weather or over a weekend.
The Company's primary maintenance facility is located near its New Jersey
headquarters and main regional facility. In addition, routine and preventative
maintenance checks and repairs on all revenue equipment are performed at all of
the Company's regional facilities. Through regular maintenance of its revenue
equipment, Jevic minimizes equipment downtime and enhances the equipment's
operating performance.
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Safety and Risk Management
The Company is committed to a high degree of safety in all of its
operations, and utilizes a self-directed, team approach to risk management,
building in loss control at the earliest stages. Employees are provided with the
equipment and training required to do their jobs safely and efficiently. Drivers
are retrained for risk management on a periodic basis and are provided with
cameras to film accident scenes as soon as an incident occurs.
In 1997, insurance and claims as a percentage of operating revenues was
2.1%, which the Company believes is low in comparison to the trucking industry
as a whole. This performance is the result of careful driver recruiting,
extensive driver training and the emphasis on a safety-conscious culture
throughout the Company.
The Company is self-insured for cargo claims up to $5,000 per occurrence.
The Company self-insures for bodily injury claims for up to $20,000 per
occurrence. Since 1993 the Company has self-insured for workers' compensation
claims of up to $250,000 per occurrence in order to capitalize on its favorable
claims history. During the past four years the Company received only 11 claims
exceeding $50,000, of which only two exceeded $100,000. This led to an increase
in the Company's discount from standard insurance premium rates from 38% in 1992
to 81% in 1997.
Employees
At December 31, 1997, the Company had 1,937 employees in the following
categories:
Category No. of Employees
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Drivers .................................................... 984
Executive and Administrative ............................... 571
Dockworkers ................................................ 201
Mechanics .................................................. 97
Sales and Marketing ........................................ 84
None of Jevic's employees are represented by a collective bargaining unit.
At December 31, 1997, the Company had 123 owner-operator drivers under contract
in addition to its employee drivers, and employed 85 part-time employees.
Management believes that relations with its employees and owner-operators are
good.
The Company's executive officers provide strategic direction and emphasize
and monitor continuous operating improvement, allowing operating management to
concentrate on producing and delivering competitive products and to respond
quickly to market conditions.
Fuel Availability and Cost
The motor carrier transportation industry is dependent upon the
availability of diesel fuel. Increases in fuel prices or fuel taxes, shortages
of fuel or rationing of petroleum products could have a material, adverse effect
on the operations and profitability of the Company. As a result of its
relationships with major fuel suppliers, the Company has not experienced
difficulties in maintaining
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a consistent and ample supply of fuel, but fuel is one of the Company's most
substantial operating expenses. In order to reduce the Company's vulnerability
to rapid increases in the price of fuel, the Company enters into purchase
contracts with fuel suppliers from time to time for a portion of its estimated
fuel requirements at guaranteed prices. The Company is a party to agreements
with three fuel suppliers to purchase approximately 37% of its estimated fuel
needs through December 1998 at fixed prices. Although these arrangements help
reduce the Company's vulnerability to rapid increases in the price of fuel, the
Company will not benefit from a decrease in the price of fuel to the extent of
its commitment to purchase fuel under these contracts.
Competition
The trucking portion of the transportation industry is highly competitive
and fragmented. Jevic competes with regional, inter-regional and national LTL
carriers of varying sizes and, to a lesser extent, with truckload carriers, air
freight carriers and railroads, a number of which have greater financial
resources, operate more revenue equipment and have larger freight capacity than
the Company. Also, in certain regions, the Company faces competition from local
carriers. The Company's principal competitors are Roadway Express, Inc., Yellow
Corp., Consolidated Freightways Corp., Con-Way Transportation Services and
Arkansas Best Corp.
The Company believes that the principal competitive factors in its business
are service, pricing and the availability and configuration of equipment that
meets a variety of customers' needs. The Company also competes with other motor
carriers for the services of drivers. The Company believes that it is able to
compete effectively in its markets by providing consistently high quality and
timely-service at competitive prices.
The Company believes that there are substantial barriers to entry which
restrict the ability of competitors to adopt a Breakbulk-Free operating model.
Small LTL carriers typically lack the necessary critical mass, freight density
and capital, while large LTL carriers typically have work rules and labor
practices that lack the flexibility which a Breakbulk-Free system requires.
Truckload carriers lack a system to accommodate both multiple pick-ups and
multiple deliveries and would require a substantial capital investment to build
the necessary terminals. Additionally, the Breakbulk-Free operating model
requires high quality drivers and sophisticated operating systems and
management, which the Company has developed internally over an extended period
of years.
Regulation
Interstate and intrastate motor carriage has been substantially deregulated
as a result of the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, the Federal Aviation Administration
Authorization Act of 1994 and the ICC Termination Act of 1995. Carriers can now
readily enter the trucking industry and rates and services are largely free of
regulatory controls. However, interstate motor carriers remain subject to
certain regulatory controls imposed by agencies within the United States
Department of Transportation ("DOT"), such as the Federal Highway Administration
and the Surface Transportation Board.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimension of equipment are
also subject to federal and state regulations. Since 1989, DOT regulations have
imposed mandatory drug testing of drivers, and more recent DOT
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regulations have imposed certain tests for alcohol levels in drivers and other
safety personnel. To date, the DOT's national commercial driver's license and
drug testing and alcohol testing requirements have not adversely affected the
availability to the Company of qualified drivers.
The Federal Aviation Administration Authorization Act of 1994, which became
effective on January 1, 1995, essentially deregulated intrastate transportation
by motor carriers. This Act prohibits individual states from regulating entry,
pricing or service levels. However, the states retained the right to continue to
require certification of carriers, but this certification is based only upon two
primary fitness criteria: safety and insurance.
The Company's operations are subject to various environmental laws and
regulations dealing with, among other things, the transportation, storage,
presence, use, disposal and handling of hazardous materials, discharge of
stormwater and underground fuel storage tanks. All of the Company's drivers are
trained in the handling and transportation of hazardous substances and are
required to have a hazardous materials endorsement on their drivers license. The
Company believes it is in compliance with applicable environmental laws and
regulations.
The transportation industry is subject to regulatory and legislative
changes that can affect the economics of the industry by requiring changes in
operating practices or influencing the demand for and the costs of providing
services to shippers. From time to time, various legislative proposals are
introduced to increase federal, state, or local taxes, including taxes on motor
fuels. The Company cannot predict whether, or in what form, any increase in such
taxes applicable to the Company will be enacted.
Executive Officers of the Company
The executive officers of the Company are:
Name Age Position
---- --- --------
Harry J. Muhlschlegel 51 Chairman of the Board and Chief Executive
Officer
Karen B. Muhlschlegel 51 Vice President, Secretary and Director
Paul J. Karvois 43 President, Chief Operating Officer and
Director
Brian J. Fitzpatrick 38 Senior Vice President and Chief Financial
Officer
William F. English 46 Senior Vice President - Operations
Joseph A. Librizzi 49 Senior Vice President - Marketing and
Sales
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Harry J. Muhlschlegel has over 28 years of experience in the trucking
industry. He co-founded Jevic along with his wife, Karen Muhlschlegel, in 1981
and has served as its Chairman of the Board and Chief Executive Officer since
its inception. Until March 1997, he also served as the Company's President.
Karen B. Muhlschlegel has over 28 years of experience in the trucking
industry. She co-founded Jevic along with her husband, Harry Muhlschlegel, in
1981 and has served as a Vice President, Secretary and a director of the Company
since its inception.
Paul J. Karvois became Jevic's President and Chief Operating Officer in
March 1997 and he was elected as a director in August 1997. He joined the
Company in January 1992 as Director of Insurance. Later in 1992, he created the
Company's risk management group and became Director of Risk Management. Mr.
Karvois was promoted to the position of Senior Vice President - Marketing and
Sales in December 1993. Prior to joining the Company, Mr. Karvois had 21 years
of marketing, sales and operations experience in the trucking industry, serving
in a variety of positions with truckload and LTL carriers.
Brian J. Fitzpatrick joined Jevic in September 1993 as Senior Vice
President - Finance in order to create the Company's financial and
administrative division. He was elected to the office of Chief Financial Officer
in February 1995, in which capacity he is additionally responsible for
developing overall financial strategies for the Company. Prior to joining the
Company, Mr. Fitzpatrick had 12 years of commercial banking experience.
William F. English joined Jevic in August 1988 as Senior Vice President -
Operations. Prior to joining the Company, Mr. English had 17 years of
operations, financial and marketing experience in the transportation industry,
including positions with national LTL and truckload carriers.
Joseph A. Librizzi joined Jevic in April 1997 as Senior Vice President -
Marketing and Sales. Prior to joining the Company, Mr. Librizzi had more than 26
years of experience in the transportation industry. From 1996 until he joined
the Company, Mr. Librizzi served as a Vice President of G.O.D. responsible for
new market development. From 1992 until 1996, he served as an officer of
Carretta LTR, Inc., first as Vice President of LTL Sales and later as the
company's President.
Item 2. Properties
The Company owns its headquarters and main regional facility located in
Delanco, New Jersey, near Philadelphia. The Company also owns its Houston
regional facility and leases regional facilities in Atlanta, Charlotte, Chicago
and New England. The Company is currently constructing new facilities in
metropolitan Boston and Chicago which will replace its current leased facilities
in those regions upon completion of construction, scheduled for the third
quarter of 1998.
-11-
Owned Facilities
Square Footage
------------------------------------------
Terminal
# of and
Location Acres Doors Office Maintenance
-------- ----- ----- -------- -----------
600 Creek Road, Delanco, NJ (Phila. Metro)....... 36.0 108 155,900 17,400
700 Creek Road, Delanco, NJ (Phila. Metro) (1)... 19.5 -- 24,000 --
Charlotte........................................ 11.7 47 34,750 6,400
Houston.......................................... 6.5 44 15,870 3,920
Leased Facilities
Square Footage
------------------------------------------
Terminal
# of and Lease
Location Acres Doors Office Maintenance Expiration
-------- ----- ----- -------- ----------- ----------
Atlanta.......................................... 18.0 74 34,400 7,056 April 1999
Chicago.......................................... 12.3 82 56,900 11,600 May 1999
New England-1.................................... 4.1 22 8,700 -- Month to month
New England-2.................................... -- 16 4,000 -- Month to month
Willingboro, NJ.................................. 5.5 -- -- 24,000 December 2013
- ----------
(1) This facility is an office only.
Item 3. Legal Proceedings
The Company is routinely a party to litigation incidental to its business,
primarily involving claims for workers' compensation or for personal injury and
property damage incurred in the transportation of freight. Management believes
that the outcome of such actions will not have a material adverse effect on the
Company's financial position or results of operations. The Company maintains
insurance which covers liability amounts in excess of deductibles.
Item 4. Submission of Matters to a Vote of Security Holders
By unanimous written consent of the Company's shareholders effective
October 3, 1997, the Company's shareholders approved the restatement and
amendment of the Company's Certificate of Incorporation to (i) increase the
number of shares of authorized capital stock of the Company from 1,500 to
60,000,000, including 50,000 shares of Common Equity, divided into 40,000,000
shares of Common Stock and 10,000,000 shares of Class A Common Stock, and
10,000,000 shares of Preferred Stock, (ii) effect a 34,291-for-one split of the
issued and outstanding shares of the Company's Common Stock and Class A Common
Stock, (iii) further define the relative voting powers, preferences,
limitations, restrictions and other special or relative rights of the Company's
Common Stock and Class A Common Stock, (iv) provide for a classified Board of
Directors consisting of a number of directors to be fixed from time to time by
the Board, and, further, to
-12-
provide that directs shall not be liable to the Company or its shareholders for
damages under the circumstances set forth under the New Jersey Business
Corporation Act, (v) provide that actions to be taken by the shareholders of the
Company shall be taken only at an annual or special meeting or by unanimous
written consent and (vi) provide that certain provisions of the Company's
Restated Certificate of Incorporation may be amended only by a supermajority
vote, unless approved in advance by the Company's Board of Directors. The
Company's shareholders also approved the amendment and restatement of the
Company's By-laws.
By unanimous written consent of the Company's shareholders effective
October 6, 1997, the Company's shareholders elected Gordon R. Bowker and Samuel
H. Jones, Jr. as Class I directors, with terms expiring at the Company's annual
meeting in 1998, Paul J. Karvois and Karen B. Muhlschlegel as Class II
directors, with terms expiring at the Company's annual meeting in 1999, and
Harry J. Muhlschlegel as a Class III director, with a term expiring at the
Company's annual meeting in 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company completed its initial public offering of common stock on
October 7, 1997, and its common stock is traded on the Nasdaq National Market
under the symbol "JEVC."
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices per share for the Company's common stock, as reported on
the Nasdaq National Market:
Fiscal 1997 High Low
----------- ---- ---
Fourth Quarter (commencing October 7, 1997)(1) $18 7/8 $15 3/8
- ----------
(1) The date the Company's Common Stock commenced trading.
As of March 19, 1998, there were 40 holders of record of the Company's
common stock and an estimated number of beneficial owners of the common stock of
approximately 1,600.
The Company has not declared or paid any cash dividends or distributions on
its capital stock. The Company currently intends to retain any future earnings
to fund operations and the continued development of its business and, therefore,
does not anticipate paying any cash dividends on its Common Equity in the
foreseeable future. Payment of dividends on the Common Equity is restricted
under the Company's bank credit facility. Future cash dividends, if any, will be
determined by the Board of Directors, and will be based upon the Company's
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors.
-13-
Item 6. Selected Financial Data
The following selected financial and operating data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing elsewhere herein.
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(In thousands, except per share and certain operating data)
INCOME STATEMENT DATA:
Operating revenues .................................... $190,821 $154,799 $125,973 $119,299 $90,161
-------- -------- -------- -------- -------
Operating expenses:
Salaries, wages and benefits ..................... 95,739 81,215 67,541 58,276 46,429
Supplies and other expenses ...................... 35,983 32,824 30,290 30,553 25,065
Purchased transportation ......................... 18,913 10,761 5,608 4,019 2,480
Depreciation and amortization .................... 11,465 8,732 6,445 4,395 3,249
Operating taxes and licenses ..................... 9,066 8,722 7,767 7,369 6,286
Insurance and claims ............................. 4,071 3,325 2,612 3,141 2,792
(Gain) loss on sale of equipment ................. 145 (170) (340) (191) (164)
-------- -------- -------- -------- -------
175,382 145,409 119,923 107,562 86,137
-------- -------- -------- -------- -------
Operating income ............................ 15,439 9,390 6,050 11,737 4,024
Interest expense, net ................................. 2,836 2,966 1,773 1,080 1,012
Other income, net ..................................... (401) (200) (153) (106) (144)
-------- -------- -------- -------- -------
Income before income taxes ............................ 13,004 6,624 4,430 10,763 3,156
Income taxes (1) ...................................... 10,586 429 191 351 323
-------- -------- -------- -------- -------
Net income (1) ........................................ $ 2,418 $ 6,195 $ 4,239 $ 10,412 $ 2,833
======== ======== ======== ======== =======
Basic net income per share ....................... $ 0.31 $ 0.90 $ 0.62 $ 1.52 $ 0.41
======== ======== ======== ======== =======
Diluted net income per share ..................... $ 0.30 $ 0.88 $ 0.62 $ 1.52 $ 0.41
======== ======== ======== ======== =======
Pro forma data (2):
Income before income taxes ....................... $ 13,004
Income taxes ..................................... 5,202
--------
Net income ....................................... $ 7,802
========
Basic net income per share .................. $ 0.94
========
Diluted net income per share ................ $ 0.92
========
-14-
OPERATING DATA:
Total shipments (000s) ................................ 685 586 453 370 269
Total miles (000s) .................................... 91,527 75,795 65,599 65,855 57,924
Average operating revenue:
Per mile ......................................... $ 2.08 $ 2.04 $ 1.92 $ 1.81 $ 1.56
Per tractor per week ............................. $ 3,807 $ 3,764 $ 3,539 $ 3,553 $ 3,085
Number of tractors at end of year:
Company .......................................... 937 776 740 685 626
Owner-operator ................................... 123 63 -- -- --
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(In thousands)
BALANCE SHEET DATA:
Working capital (deficit) ............................. $13,852 $(5,917) $(2,727) $ 1,336 $ (188)
Property and equipment, net ........................... 77,894 58,967 46,958 31,204 20,541
Total assets .......................................... 113,368 82,355 66,427 49,037 32,943
Long-term debt, less current maturities ............... 15,679 28,855 25,734 14,554 11,965
Shareholders' equity .................................. 65,537 24,071 18,236 17,702 8,246
- -------------
(1) Prior to the Company's initial public offering in October 1997, the Company
was an S Corporation and, accordingly, was not subject to corporate income
taxes, except for certain states during certain periods. In connection with
the offering, the Company terminated its S Corporation status and recorded
a one-time, income tax provision of $8,459,000 in the fourth quarter of
1997 related to the increase in the net deferred tax liability. See Note 7
of "Notes to Consolidated Financial Statements."
(2) See Note 2 of "Notes to Consolidated Financial Statements."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Jevic was founded in 1981, after the deregulation of the trucking industry,
and has developed an operating system which combines the high revenue yield
characteristics of a typical LTL carrier with the operating flexibility and low
fixed costs of a truckload carrier. Most other motor carriers have continued to
specialize as either truckload, moving one shipment at a time, or as
less-than-truckload, moving multiple small shipments through networks of up to
500 terminals.
-15-
The Company's system uses a small number of regional facilities which serve
as origination points for consolidation of both small and large shipments. The
shipments are then loaded onto line-haul trailers in a sequence which permits
direct unloading at each shipment's destination, eliminating the need to
rehandle individual shipments at one or more breakbulk terminals. Management
focuses on adjusting freight mix to maximize asset utilization. The Company
maintains a high percentage of variable costs in order to minimize the impact of
short term swings in demand.
Because of the distinct nature of Jevic's operating system, the Company
believes that profitability measures and expense ratios traditionally used to
evaluate truckload or less-than-truckload carriers are not meaningful. Jevic's
results of operations for the last three years were impacted by several factors.
Jevic has been increasing the percentage of its shipments transported by
owner-operators, who supply their own tractor and bear all associated expenses
in return for a contracted rate. As a result, purchased transportation has
increased as a percentage of operating revenues, offset by a reduction, as a
percentage of operating revenues, in all other operating expense categories. A
portion of the increase in owner-operator transportation results from the
Company replacing high cost, outside line-haul purchased transportation with
less costly owner-operators. Additionally, Jevic has shifted from a policy of
leasing tractors to purchasing them. As a result, depreciation and interest
expense has increased as a percentage of operating revenues while lease expense
(included in supplies and other expenses) has decreased.
Results of Operations
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in the Company's consolidated
statements of income:
Year Ended December 31,
-------------------------------
1997 1996 1995
----- ----- -----
Operating revenues ............................. 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits .............. 50.2 52.5 53.6
Supplies and other expenses ............... 18.8 21.2 24.0
Purchased transportation .................. 9.9 7.0 4.5
Depreciation and amortization ............. 6.0 5.6 5.1
Operating taxes and licenses .............. 4.8 5.6 6.2
Insurance and claims ...................... 2.1 2.1 2.1
(Gain) loss on sale of equipment .......... 0.1 (0.1) (0.3)
----- ----- -----
91.9 93.9 95.2
----- ----- -----
Operating income .......................... 8.1 6.1 4.8
Interest expense, net ..................... 1.5 1.9 1.4
Other income, net ......................... (0.2) (0.1) (0.1)
----- ----- -----
Income before income taxes ................ 6.8% 4.3% 6.8%
===== ===== =====
-16-
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating Revenues. Operating revenues increased 23.3% in 1997 to $190.8
million from $154.8 million in 1996. The increase resulted primarily from a
16.9% increase in total shipments. An additional factor in the increase was the
increase in average revenue per shipment, which resulted primarily from an
increase in the average shipment size. The Company's average tractor fleet grew
21.9% in 1997 compared to 1996 and improved utilization led to a slight increase
in revenue per tractor per week to $3,807 in 1997 from $3,764 in 1996.
Operating Expenses. Operating expenses increased 20.6% to $175.4 million in
1997 from $145.4 million in 1996. Operating expenses as a percentage of
operating revenues decreased to 91.9% in 1997 from 93.9% in 1996. This increase
in operating expenses was primarily due to increased revenues, as the majority
of the Company's operating expenses tend to be variable in nature. The
percentage decrease was primarily the result of the Company's increased use of
owner-operators in addition to increased tractor utilization.
Salaries, wages and benefits increased 17.9% to $95.7 million in 1997 from
$81.2 million in 1996. As a percentage of operating revenues, salaries, wages
and benefits decreased to 50.2% in 1997 from 52.5% in 1996. This percentage
decrease was primarily due to the Company's increased use of owner-operators in
1997.
Supplies and other expenses, which primarily consist of operating leases,
fuel, tolls, tires, parts and bad debt expense, increased 9.8% to $36.0 million
in 1997 from $32.8 million in 1996. As a percentage of operating revenues,
supplies and other expenses decreased to 18.8% in 1997 from 21.2% in 1996. This
percentage decrease was due to the Company's continuing shift toward the
purchase of revenue equipment rather than leasing such equipment under operating
leases, the Company's increased use of owner-operators and decreased fuel prices
in 1997.
Purchased transportation increased 75.0% to $18.9 million in 1997 from
$10.8 million in 1996. As a percentage of operating revenues, purchased
transportation increased to 9.9% in 1997 from 7.0% in 1996. The increase was
primarily due to the increased use of owner-operators to supplement the
Company's fleet and as a substitute for higher cost, outside line-haul
transportation. As a percentage of total purchased transportation expense,
owner-operator expense increased to 60.4% in 1997 from 21.5% in 1996.
Depreciation and amortization expense increased 32.2% to $11.5 million in
1997 from $8.7 million in 1996. As a percentage of operating revenues,
depreciation and amortization increased to 6.0% in 1997 from 5.6% in 1996. The
increase was primarily attributable to the Company's continuing shift toward the
purchase of additional and replacement revenue equipment rather than leasing
such equipment under operating leases.
Operating taxes and licenses increased 4.6% to $9.1 million in 1997 from
$8.7 million in 1996. As a percentage of operating revenues, operating taxes and
licenses decreased to 4.8% in 1997 from 5.6% in 1996. This percentage decrease
was primarily attributable the Company's increased use of owner-operators, who
pay their own fuel taxes and licenses.
-17-
Insurance and claims increased 24.2% to $4.1 million in 1997 from $3.3
million in 1996. As a percentage of operating revenues, insurance and claims
remained flat at 2.1%.
Interest Expenses. Interest expense decreased 6.7% to $2.8 million in 1997
from $3.0 million in 1996. As a percentage of operating revenues, interest
expense decreased to 1.5% in 1997 from 1.9% in 1996. The decrease in interest
expense was primarily attributable to the repayment of long-term debt with a
portion of the proceeds of the Company's initial public offering.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating Revenues. Operating revenues increased 22.9% in 1996 to $154.8
million from $126.0 million in 1995. The increase resulted from a 29.4% growth
in total shipments. The Company's average tractor fleet grew 15.6% in 1996, and
improved utilization led to an increase in revenue per tractor per week of 6.4%
in 1996 to $3,764 from $3,539 in 1995.
Operating Expenses. Operating expenses increased 21.3% to $145.4 million in
1996 from $119.9 million in 1995. Operating expenses as a percentage of
operating revenues decreased to 93.9% in 1996 from 95.2% in 1995. The increase
in operating expenses is primarily due to increased revenues, as the majority of
the Company's operating expenses are variable in nature. The percentage decrease
was primarily the result of decreased equipment rent in 1996, partially offset
by increased purchased transportation expense. Increased tractor utilization,
which resulted in increased revenues per mile, also contributed to the overall
decrease in operating ratio in 1996 compared to 1995.
Salaries, wages and benefits increased 20.3% to $81.2 million in 1996 from
$67.5 million in 1995. As a percentage of operating revenues, salaries, wages
and benefits decreased to 52.5% in 1996 from 53.6% in 1995. This percentage
decrease was primarily due to a decrease in medical insurance expense resulting
from decreased claims and increased employee co-pay percentages. As a percentage
of operating revenues, non-driver wages increased due to the addition of new
staff and management positions in 1996. This increase was offset by a decrease
in driver wages as a percentage of operating revenues, resulting from the use of
owner-operators, which commenced in 1996.
Supplies and other expenses increased 8.3% to $32.8 million in 1996 from
$30.3 million in 1995. As a percentage of operating revenues, supplies and other
expenses decreased to 21.2% in 1996 from 24.0% in 1995. This percentage decrease
was primarily due to the Company's shift toward the purchase of revenue
equipment financed with debt rather than leasing such equipment under operating
leases, and, to a lesser extent, the Company's use of owner-operators in 1996.
The decrease was partially offset by an increase in bad debt expense as a
percent of operating revenues from 0.1% in 1995 to 0.4% in 1996. The bad debt
expense recognized in 1995 was unusually low due to a higher rate of collection
of past due accounts than the Company historically experienced.
Purchased transportation increased 92.9% to $10.8 million in 1996 from $5.6
million in 1995. As a percentage of operating revenues, purchased transportation
increased to 7.0% in 1996 from 4.5% in 1995. The increase was due to using more
outside line-haul transportation and more local cartage transportation for fleet
support in the Midwest. In addition, inefficiencies resulting from a difficult
freight market and adverse weather conditions in early 1996 were only partially
-18-
offset by the Company's decision to use owner-operators that year. As a
percentage of total purchased transportation expense, owner-operator expense was
21.5% in 1996.
Depreciation and amortization expense increased 35.9% to $8.7 million in
1996 from $6.4 million in 1995. As a percentage of operating revenues,
depreciation and amortization expense increased to 5.6% in 1996 from 5.1% in
1995. The increase was primarily attributed to the Company's continuing shift
toward the purchase of additional and replacement revenue equipment with debt
financing rather than leasing such equipment under operating leases.
Operating taxes and licenses increased 11.5% to $8.7 million in 1996 from
$7.8 million in 1995. As a percentage of operating revenues, operating taxes and
licenses decreased to 5.6% in 1996 from 6.2% in 1995. This percentage decrease
was primarily attributed to the use of owner-operators in 1996.
Insurance and claims increased 26.9% to $3.3 million in 1996 from $2.6
million in 1995. As a percentage of operating revenues, insurance and claims
remained flat at 2.1%. Higher cargo losses due to the adverse weather conditions
in early 1996 were partially offset by decreased insurance premiums later in
1996.
Interest Expense. Interest expense increased 66.7% to $3.0 million in 1996
from $1.8 million in 1995. As a percentage of operating revenues, interest
expense increased to 1.9% in 1996 from 1.4% in 1995. The increase was due to
increased debt levels in 1996 resulting primarily from revenue equipment
purchases being financed with debt rather than operating leases, partially
offset by slightly lower average interest rates in 1996.
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been funds
provided by operations, capital and operating equipment leases and bank
borrowings. The Company completed an initial public offering of its Common Stock
effective October 7, 1997. The Company generated net proceeds of $52.1 million
from the offering, the majority of which was used to repay long-term debt. Net
cash provided by operating activities was approximately $18.4 million and $15.5
million in 1997 and 1996, respectively. The increase in net cash provided by
operating activities is primarily attributable to an increase in deferred income
taxes related to the one-time, non-cash provision, partially offset by increased
accounts receivable, prepaid expenses, and decreased accounts payable.
Capital expenditures, net of trade-in allowances, totaled approximately
$31.6 million and $20.7 million during 1997 and 1996, respectively. The 1997
capital expenditures were comprised of $25.3 million of revenue equipment, $3.1
million of facilities and $3.2 million of other equipment. Of the $20.7 million
of capital expenditures in 1996, $17.2 million represented revenue equipment,
$1.5 million represented facilities and $2.0 million represented other
equipment.
The Company has budgeted for total capital expenditures of $38.0 million in
1998. This budget includes $10.8 million to purchase new tractors and $3.8
million to purchase new trailers. In addition, the Company plans to spend
approximately $18.0 million on real estate projects in 1998. Projects for 1998
currently underway include the construction of regional facilities in
metropolitan Boston and Chicago. The Company also plans to purchase $5.4 million
of other equipment, primarily technology, during 1998. The Company's cash and
-19-
cash equivalents, combined with cash flows from operations and bank borrowings,
will provide the primary funding for the Company's planned capital expenditures.
The Company generally purchases new line-haul tractors and replaces them
after three years. Regional and local tractors are generally replaced after five
years, depending on levels of use. The Company generated cash proceeds from
sales of used tractors of $460,000 and $108,000 in 1997 and 1996, respectively.
Most of the Company's tractors are covered by agreements under which the Company
has the right to resell the tractors to the vendor at defined prices. There is
no assurance that the Company will be able to generate consistent cash proceeds
on sales of used tractors or obtain favorable trade-in terms in the future.
Net cash provided by financing activities was approximately $17.6 million
and $6.3 million in 1997 and 1996, respectively. The increase was primarily due
to the $52.1 million of net offering proceeds, offset by repayments of long-term
debt and distributions to S corporation shareholders. At December 31, 1997,
total borrowings under long-term debt totaled $17.7 million, maturing through
2007, and obligations relating to operating leases totaled $10.1 million through
2013, of which $1.8 million related to a facility lease with the Company's
founders.
Net distributions to the Company's founders, primarily related to taxed but
undistributed S Corporation earnings, were $12.7 million in 1997. The Board
determined that these distributions were reasonable and appropriate in light of
the shareholders' investment in and ownership risks associated with the Company
prior to such distributions. In 1996, the shareholders made net contributions to
the Company of $390,000, primarily related to the repayment of excess tax
distributions made by the Company in 1995.
Jevic is a party to a $25 million credit facility with CoreStates Bank,
N.A. The credit facility includes a $7 million working capital revolving line of
credit, with borrowings limited to 80% of the Company's eligible accounts
receivable, as defined, and an $18 million term loan facility used to purchase
or refinance revenue equipment. At December 31, 1997, there was $3.6 million
outstanding under the term loan facility and $400,000 of outstanding standby
letters of credit under the revolver. The term loans are secured by a first
priority, perfected security interest in the revenue equipment purchased or
refinanced. The rate of interest on both the term loans and the revolving credit
loans is, at the Company's election, either the Bank's prime rate, a rate based
on the London Interbank Offered Rate (LIBOR) or a fixed rate quoted by the Bank
to Jevic on the date of a borrowing. The revolving line of credit expires in
June 1999. Term loans outstanding under the facility vary as to their maturity
(from five to eight years from the date of each loan) depending on the type of
revenue equipment financed. The maturities of the Company's term loans range
from September 2003 to May 2004. The credit facility contains covenants which
restrict the Company's ability to make business acquisitions and pay dividends
on its capital stock, including the Common Stock, among other things.
On December 31, 1997, Jevic Transportation Services, Inc. ("JTS"), a
freight brokerage company owned by the Muhlschlegels was merged into the
Company. JTS had gross revenues of approximately $2.8 million and $1.2 million
for 1997 and 1996, respectively, and a net loss of approximately $35,000 for
1997 and net income of approximately $34,000 for 1996. The Muhlschlegels
received $125,000 from the Company in 1998 in exchange for their JTS stock in
-20-
the merger, which is equal to their capital investment in JTS. The merger was
accounted for as a combination of companies under common control.
The Company believes that its cash and cash equivalents, funds generated
from operations and available borrowings under its current or future credit
facilities will be sufficient to fund the Company's activities at least through
1998.
While the Company intends to selectively pursue acquisitions of companies
that are complementary with its operations, the Company currently does not have
any commitments or agreements for any business acquisition and is not in active
negotiations regarding any such acquisition.
Inflation
The Company does not believe that inflation has had a material impact on
its results of operations for the past three years.
Seasonality
In the trucking industry, revenues generally follow a seasonal pattern as
customers reduce shipments during and after the winter holiday season. In
addition, highway transportation can be adversely affected depending upon the
severity of the weather in various sections of the country during the winter
months. The Company's operating expenses have historically been higher in winter
months, due primarily to decreased fuel efficiency and increased maintenance
costs for revenue equipment in colder weather. Accordingly, the Company's
results of operations may fluctuate to reflect such seasonality.
Year 2000 Costs
Many computer systems were not designed to handle dates beyond the year
1999, and, therefore, computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is in the
process of upgrading its primary computer platform in order to provide increased
enterprise computing and additional disaster recovery capabilities. This new
system will be Year 2000 compliant. Management is in the process of determining
whether all of the Company's other computer systems are Year 2000 compliant.
Management does not expect the costs associated with any required conversions of
such other systems to ensure Year 2000 compliance to be significant. In the
event that any of the Company's significant vendors or customers do not
successfully achieve Year 2000 compliance on a timely basis, the Company's
business or operations could be adversely affected.
Item 8. Financial Statements
The Company's consolidated financial statements appear at pages F-1 through
F-14, as set forth in Item 14.
-21-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors, appearing under the caption "Election of
Directors" in the Company's Proxy Statement (the "Proxy Statement") to be filed
with the Securities and Exchange Commission in connection with the Annual
Meeting of Shareholders scheduled to be held on May 15, 1998, information
concerning executive officers, appearing under the caption "Item 1. Business
Executive Officers of the Company" in Part I of this Form 10-K, and information
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement are incorporated herein by reference in response to this
Item 10.
Item 11. Executive Compensation
The information contained in the section titled "Executive Compensation" in
the Proxy Statement, with respect to executive compensation, and the information
contained in the section entitled "Director Compensation" with respect to
director compensation, are incorporated herein by reference in response to this
Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section titled "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement, with respect
to security ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this Item 12.
Item 13. Certain Relationships and Related Transactions
The information contained in the section titled "Certain Relationships and
Transactions" of the Proxy Statement, with respect to certain relationships and
related transactions, is incorporated herein by reference in response to this
Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to Consolidated
Financial Statements are filed as part of this Form 10-K, commencing on
page F-1.
-22-
(2) Schedules
The following consolidated financial statement schedule of the Company is filed
as part of this Form 10-K on page F-15:
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits
Exhibit No. Description
- ----------- -----------
* 3.1 Articles of Incorporation of the Company (Exhibit 3.1 to the
Company's Form S-1 Registration Statement, No. 333-33469 (the "1997
Registration Statement")).
* 3.2 By-laws of the Company (Exhibit 3.2 to the 1997 Registration
Statement).
+10.1 1997 Incentive Plan.
+*10.2 1994 Stock Option Plan (Exhibit 10.2 to the 1997 Registration
Statement).
10.3 Employee Stock Purchase Plan.
+*10.4 401(k) Profit Sharing Plan (Exhibit 10.4 to the 1997 Registration
Statement).
10.5 Supplemental Executive Retirement Plan.
*10.6 Promissory Note, dated April 14, 1997, made by Karen B.
Muhlschlegel, as Trustee of the Karen B. Muhlschlegel 1996 Grantor
Annuity Trust, in favor of the Company in the principal amount of
$218,772 (Exhibit 10.8 to the 1997 Registration Statement).
*10.7 Promissory Note, dated April 14, 1997, made by Harry J.
Muhlschlegel, as Trustee of the Harry J. Muhlschlegel 1996 Grantor
Annuity Trust, in favor of the Company in the principal amount of
$219,293 (Exhibit 10.9 to the 1997 Registration Statement).
*10.8 Lease Agreement made and entered into as of April 12, 1995 among
Harry J. Muhlschlegel and Karen Muhlschlegel and the Company
(Exhibit 10.10 to the 1997 Registration Statement).
10.9 Amendment to Lease Agreement made and entered into as of September
15, 1997 among Harry J. Muhlschlegel and Karen Muhlschlegel and the
Company.
10.10 Real Estate Sale Agreement made and entered into as of November 7,
1997 among Harry J. Muhlschlegel and Karen Muhlschlegel and the
Company.
-23-
*10.11 Lease Agreement between James F. Lomma, as Landlord, and the
Company, as Tenant, dated June 1, 1995, as amended (Exhibit 10.12
to the 1997 Registration Statement).
*10.12 Commercial Lease Agreement made and effective March 1, 1997 by and
between 864 Realty Trust and the Company (Exhibit 10.13 to the 1997
Registration Statement).
*10.13 Lease Agreement made and entered into the 7th day of March, 1996 by
and between Little Brownie Properties Inc. and the Company (Exhibit
10.14 to the 1997 Registration Statement).
*10.14 Agreement of Lease made and entered into between Dongary
Investments, Ltd. and the Company dated March 31, 1994 (Exhibit
10.15 to the 1997 Registration Statement).
*10.15 Credit Agreement, dated June 28, 1996, between the Company and
CoreStates Bank, N.A. (Exhibit 10.16 to the 1997 Registration
Statement).
*10.16 Security Agreement, dated as of June 28, 1996, by and between the
Company and CoreStates Bank, N.A. (Exhibit 10.17 to the 1997
Registration Statement).
*10.17 Promissory Note, dated October 31, 1995, made by the Company in
favor of MetLife Capital Financial Corporation (Exhibit 10.18 to
the 1997 Registration Statement).
*10.18 Mortgage Security Agreement, Assignment of Leases and Rents and
Fixture Filing, made as of October 31, 1995, by the Company in
favor of MetLife Capital Financial Corporation (Exhibit 10.19 to
the 1997 Registration Statement).
*10.19 Tax Indemnity Agreement (Exhibit 10.20 to the 1997 Registration
Statement).
*10.20 Administrative Services Agreement, dated as of January 1, 1996
between the Company and Jevic Transportation Systems, Inc. (Exhibit
10.21 to the 1997 Registration Statement).
21 Subsidiaries of Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
- ----------
* Incorporated by reference.
+ Management contract or compensatory plan or arrangement.
-24-
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Financial Statement Schedule:
II. Valuation and Qualifying Accounts.............................. F-15
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jevic Transportation, Inc.:
We have audited the accompanying consolidated balance sheets of Jevic
Transportation, Inc. (a New Jersey corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jevic Transportation, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA.
February 9, 1998
F-2
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
DECEMBER 31,
----------------------
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 7,185 $ 2,403
Accounts receivable, less allowance for doubtful
accounts of $1,527 and $999, respectively ........... 21,792 17,123
Prepaid expenses and other .............................. 3,172 2,335
Deferred income taxes ................................... 1,862 174
--------- ---------
Total current assets ................................ 34,011 22,035
PROPERTY AND EQUIPMENT, net ................................ 77,894 58,967
OTHER ASSETS ............................................... 1,463 1,353
--------- ---------
$ 113,368 $ 82,355
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ....................... $ 1,976 $ 9,422
Current portion of capital lease obligations ............ -- 1,260
Accounts payable ........................................ 6,313 7,365
Accrued salaries, wages and benefits .................... 2,178 2,226
Other accrued expenses .................................. 3,375 2,995
Claims and insurance reserves ........................... 3,917 3,385
Accrued income taxes .................................... 648 54
Deferred freight revenues ............................... 1,752 1,245
--------- ---------
Total current liabilities ........................... 20,159 27,952
--------- ---------
LONG-TERM DEBT ............................................. 15,679 28,855
--------- ---------
DEFERRED INCOME TAXES ...................................... 11,782 984
--------- ---------
OTHER LIABILITIES .......................................... 211 493
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, 10,000,000 shares
authorized; none issued and outstanding ............. -- --
Common Stock, no par value, 40,000,000 shares
authorized; 4,918,656 issued and outstanding in 1997 -- --
Class A Common Stock, no par value, 10,000,000 shares
authorized; 5,739,544 and 6,858,200 shares issued and
outstanding, respectively ........................... -- --
Additional paid-in capital .............................. 71,816 1,128
Retained earnings (accumulated deficit) ................. (6,279) 22,943
--------- ---------
Total shareholders' equity .......................... 65,537 24,071
--------- ---------
$ 113,368 $ 82,355
========= =========
The accompanying notes are an integral part of these statements.
F-3
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
--------- --------- ---------
OPERATING REVENUES ................................................. $ 190,821 $ 154,799 $ 125,973
--------- --------- ---------
OPERATING EXPENSES:
Salaries, wages and benefits .................................... 95,739 81,215 67,541
Supplies and other expenses ..................................... 35,983 32,824 30,290
Purchased transportation ........................................ 18,913 10,761 5,608
Depreciation and amortization ................................... 11,465 8,732 6,445
Operating taxes and licenses .................................... 9,066 8,722 7,767
Insurance and claims ............................................ 4,071 3,325 2,612
(Gain) loss on sales of equipment ............................... 145 (170) (340)
--------- --------- ---------
175,382 145,409 119,923
--------- --------- ---------
Operating income .......................................... 15,439 9,390 6,050
INTEREST EXPENSE, net .............................................. 2,836 2,966 1,773
OTHER, net ......................................................... (401) (200) (153)
--------- --------- ---------
Income before income taxes ................................ 13,004 6,624 4,430
INCOME TAXES ....................................................... 10,586 429 191
--------- --------- ---------
NET INCOME ......................................................... $ 2,418 $ 6,195 $ 4,239
========= ========= =========
Basic net income per share ......................................... $ 0.31 $ 0.90 $ 0.62
========= ========= =========
Diluted net income per share ....................................... $ 0.30 $ 0.88 $ 0.62
========= ========= =========
PRO FORMA DATA (UNAUDITED) (Note 2):
Income before income taxes ...................................... $ 13,004
Pro forma income taxes........................................... 5,202
---------
Pro forma net income............................................. $ 7,802
=========
Pro forma basic net income per share ............................ $ 0.94
=========
Pro forma diluted net income per share .......................... $ 0.92
=========
The accompanying notes are an integral part of these statements.
F-4
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share amounts)
RETAINED
NUMBER OF SHARES EARNINGS
------------------------
CLASS A ADDITIONAL (ACCUMULATED
COMMON COMMON PAID-IN CAPITAL DEFICIT) TOTAL
--------- ---------- --------------- ------------ ----------
Balance, December 31, 1994 ............................ 6,858,200 -- $ 1,014 $ 16,688 $ 17,702
Net income ......................................... -- -- -- 4,239 4,239
Deemed dividend to shareholders on purchase
of facility....................................... -- -- -- (681) (681)
Net distributions to shareholders .................. -- -- -- (3,024) (3,024)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 ............................ 6,858,200 -- 1,014 17,222 18,236
Net income ......................................... -- -- -- 6,195 6,195
Contribution of capital ............................ -- -- 114 -- 114
Net distributions to shareholders .................. -- -- -- (474) (474)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 ............................ 6,858,200 -- 1,128 22,943 24,071
Net income ......................................... -- -- -- 2,418 2,418
Conversion of Class A Common Stock to
Common Stock ..................................... (1,118,656) 1,118,656 -- -- --
Net proceeds from issuance of Common Stock ......... -- 3,800,000 52,109 -- 52,109
Termination of S corporation status ................ -- -- 18,579 (18,579) --
Deemed dividend to shareholders on purchase
of facility ...................................... -- -- -- (406) (406)
Net distributions to S Corporation
shareholders ..................................... -- -- -- (12,655) (12,655)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ............................ 5,739,544 4,918,656 $ 71,816 $ (6,279) $ 65,537
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements ...
F-5
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
OPERATING ACTIVITIES:
Net income............................................... $ 2,418 $ 6,195 $ 4,239
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 11,465 8,732 6,445
(Gain) loss on sales of equipment.................. 145 (170) (340)
Provision for doubtful accounts.................... 937 629 84
Deferred income tax provision...................... 9,359 224 185
Changes in operating assets and liabilities --
Increase in accounts receivable................ (5,260) (3,272) (1,735)
(Increase) decrease in prepaid
expenses and other.......................... (837) 245 (454)
Increase in other assets....................... (109) (934) (221)
Increase (decrease) in accounts
payable..................................... (1,389) 721 1,749
Increase (decrease) in accrued salaries, wages
and benefits................................ (55) 761 349
Increase in other accrued expenses............ 91 1,667 594
Increase in claims and insurance
reserves.................................... 532 619 878
Increase (decrease) in accrued income
taxes....................................... 594 54 (138)
Increase in deferred freight
revenues.................................... 507 25 180
-------- -------- --------
Net cash provided by operating
activities............................... 18,398 15,496 11,815
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sales of equipment......................... 460 108 742
Purchases of property and equipment...................... (31,649) (20,679) (17,740)
-------- -------- --------
Net cash used in investing
activities............................... (31,189) (20,571) (16,998)
-------- -------- --------
FINANCING ACTIVITIES:
Payments of long-term debt............................... (36,160) (9,210) (6,430)
Proceeds from issuance of long-term debt................. 15,539 16,110 14,687
Proceeds from issuance of capital stock.................. 52,109 -- --
Payments of capital lease obligations.................... (1,260) (958) (753)
Net contributions from (distributions to)
shareholders......................................... (12,655) 390 (3,774)
-------- -------- --------
Net cash provided by financing
activities............................... 17,573 6,332 3,730
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................................. 4,782 1,257 (1,453)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR..................................................... 2,403 1,146 2,599
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 7,185 $ 2,403 $ 1,146
======== ======== ========
The accompanying notes are an integral part of these statements.
F-6
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Jevic Transportation, Inc. (the "Company") is a motor carrier engaged in
interregional and regional transportation of general commodity freight in the
United States. The Company completed an initial public offering of its Common
Stock effective October 7, 1997. The Company sold 3,800,000 shares in the
offering, generating net proceeds of approximately $52,109,000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and improvements are
capitalized, while maintenance and repairs that do not improve or extend the
life of assets are charged to expense as incurred. Gain or loss on retirement or
disposal of assets is included in income. For like-kind exchanges, any excess of
the trade-in allowance over the net book value of the traded asset is deferred
in the basis of the new asset.
Depreciation and amortization are provided using the straight-line method over
the following estimated useful lives:
Revenue equipment 3 to 10 years (10% to 20% salvage value)
Furniture and fixtures and other equipment 5 to 10 years
Building and improvements 20 to 35 years
Leasehold improvements lease term
TIRES
The cost of original tires on revenue equipment is included in and depreciated
as part of the total revenue equipment cost. Replacement tires are charged to
expense when placed in service.
OTHER ASSETS
At December 31, 1997 and 1996, other assets include $678,000 and $507,000,
respectively, of cash surrender value related primarily to a $3,000,000 life
insurance policy on the Company's Chief Executive Officer, net of loans of
$121,000.
F-7
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the Emerging Issues Task Force
of the Financial Accounting Standards Board Issue 91-9, "Revenue and Expense
Recognition in Freight Services in Process." Although the Company moves freight
under contractual arrangements with its shippers, revenue is recognized on the
delivery date and billing generally occurs on the pick-up date. At December 31,
1997 and 1996, the Company had deferred freight revenues of $1,752,000 and
$1,245,000, respectively.
CLAIMS AND INSURANCE RESERVES
Claims and insurance reserves reflect the estimated cost of claims for cargo
loss and damage, bodily injury and property damage, collision, workers'
compensation and group health (see Note 11). The related costs are charged to
insurance and claims expense except for workers' compensation and group health,
which are charged to salaries, wages and benefits.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those assets and
liabilities are expected to be recovered or settled. The Company accounts for
certain income and expense items for financial reporting purposes differently
than for income tax purposes. The principal differences relate to the use of
accelerated tax depreciation for income tax purposes and certain financial
statement reserves that are not currently deductible for income tax purposes.
The Company was subject to taxation under Subchapter "S" of the Internal Revenue
Code from 1990 until the termination of its S Corporation status concurrent with
its initial public offering. Accordingly, prior to the offering, no provision
was made for federal or certain state income taxes and the Company's
shareholders were taxed directly on their proportionate share of the Company's
taxable income. In connection with the offering, the Company terminated its S
Corporation status and is subject to federal and state income taxes. The Company
recorded a one-time non-cash charge of $8,459,000 for the increase in the
Company's net deferred tax liability resulting from the S Corporation
termination (see Note 7).
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This statement established new standards for computing and presenting
earnings per share and requires the restatement of prior year amounts. The
Company adopted SFAS No. 128 effective December 31, 1997.
Basic net income per share is calculated by dividing net income by the weighted
average number of shares of Common Stock outstanding for the period. Diluted net
income per share is calculated by dividing net income by the weighted average
number of shares of Common Stock outstanding for the period, adjusted for the
dilutive effect of Common Stock equivalents, which consist of stock options,
using the treasury stock method. The table below sets forth the reconciliation
of the numerators and denominators of the basic and diluted net income per share
computations (in thousands, except per share amounts):
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- -------------------------------- -------------------------------
Per Per Per
Net Share Net Share Net Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- ------ -------- ------- ------- ------- ------- ------- --------
Basic net income per share $ 2,418 7,754 $ 0.31 $ 6,195 6,858 $ 0.90 $ 4,239 6,858 $ 0.62
Effect of dilutive
securities -- 193 (0.01) -- 143 (0.02) -- -- --
------- ------ ------- ------- ------- ------- ------- ------- --------
Diluted net income per
share $ 2,418 7,947 $ 0.30 $ 6,195 7,001 $ 0.88 $ 4,239 6,858 $ 0.62
======= ====== ======= ======= ======= ======= ======= ======= ========
The Company's weighted average shares of Common Stock outstanding include Class
A Common Stock for all periods presented and Common Stock from the effective
date of the Company's initial public offering.
For the year ended December 31, 1995, 685,820 Common Stock options were excluded
from the diluted computation because they were not dilutive.
F-8
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial reporting.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1997, 1996 and 1995, the Company paid interest
of $3,291,000, $3,120,000 and $1,886,000, respectively, and income taxes of
$726,000, $234,000 and $425,000, respectively.
In March 1995 and November 1997, the Company purchased operating facilities
from its shareholders (see Note 10). In December 1995, the Company recorded a
receivable of $750,000 from its shareholders related to income taxes, which was
repaid in 1996 (see Note 10).
The Company accounts for equipment purchases that involve trade-ins as like-kind
exchanges. Accordingly, for the year ended December 31, 1997 and 1996, purchases
of property and equipment are presented net of trade-in allowances of $3,904,000
and $7,188,000, respectively.
2. PRO FORMA DATA (UNAUDITED)
Immediately preceding the Company's initial public offering, the Company
terminated its status as an S Corporation and became subject to federal and
state income taxes. Accordingly, for informational purposes, the accompanying
statement of income for the year ended December 31, 1997 includes a pro forma
adjustment to reflect the income taxes that would have been recorded had the
Company been a C Corporation for the entire year, based on the tax laws in
effect during the period. Pro forma income taxes do not include the one-time
income tax provision of $8,459,000 related to the recognition of an increase in
the net deferred tax liability that was recorded by the Company upon terminating
its S Corporation status.
Pro forma basic and diluted net income per share is computed in accordance with
SFAS No. 128 (see Note 1) after giving effect to the weighted average number of
shares that would be required to be sold at the initial public offering price of
$15.00 per share, less underwriting discounts and commissions and estimated
offering expenses to fund the $10,000,000 of estimated S Corporation
distributions in October 1997.
3. RISKS AND UNCERTAINTIES
The Company's operations involve a number of risks and uncertainties. Factors
that could affect the Company's future operating results and cause actual
results to vary materially from expectations include, but are not limited to,
general economic factors, availability of employee drivers and owner-operators,
capital requirements, competition, unionization, fuel, seasonality, claims and
insurance costs, difficulty in managing growth, regulation, environmental
hazards and dependence on key personnel.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade accounts receivable. The Company does not
require collateral or other securities to support customer receivables. A
significant portion of the Company's operating revenues is derived from sales to
customers in the chemical industry, and the majority of the Company's operating
revenues are derived from sales to customers located in the Northeast. However,
no single customer accounts for more than 10% of the Company's operating
revenues.
4. PROPERTY AND EQUIPMENT
DECEMBER 31,
-----------------------
1997 1996
-------- --------
(in thousands)
Revenue equipment..................................... $ 81,107 $60,214
Furniture and fixtures and other equipment............ 12,125 9,689
Land, building and improvements....................... 13,294 9,001
Leasehold improvements................................ 785 2,531
Construction in progress.............................. 411 104
-------- -------
107,722 81,539
Less - Accumulated depreciation and amortization...... (29,828) (22,572)
-------- -------
$ 77,894 $58,967
======== =======
F-9
At December 31, 1996, total property and equipment under capital leases was
$4,122,000, with accumulated amortization of $2,639,000.
5. LINE OF CREDIT
The Company has a $7,000,000 unsecured revolving line of credit with a bank.
Each draw on the line bears interest at a fixed rate, as defined, or at a rate
based on prime or LIBOR, as selected by the Company. Interest on the line is
payable monthly, and the line extends through June 1999. There were no
borrowings on the line during 1997 and 1996. At December 31, 1997, $6,600,000
was available under the line as $400,000 in stand-by letters of credit were
outstanding. In addition, the Company has $575,000 of stand-by letters of credit
outstanding with another bank.
The line is cross-defaulted with certain long-term debt and the equipment line
(see Note 6). The corresponding loan agreement requires the Company to maintain
certain financial and nonfinancial covenants, as defined, the most restrictive
of which limits the payment of dividends to 50% of the Company's net income, as
defined.
6. LONG-TERM DEBT
DECEMBER 31,
----------------------
1997 1996
------- -------
(in thousands)
Various installment notes, monthly principal payments plus interest at rates
ranging from 6.2% to 8.0%, collateralized by revenue and other equipment,
due through June 2007........................................................ $ 8,627 $25,090
Term notes with bank, monthly principal payments plus interest at rates ranging
from 7.9% to 8.1%, collateralized by revenue equipment, due through May
2004........................................................................ 3,602 7,685
Mortgage note, monthly payments of principal and interest of
$45,000, final balloon payment of $4,628,000 due October
2005, interest at 8.4%, collateralized by facility........................... 5,426 5,502
------- -------
17,655 38,277
Less - Current portion.......................................................... (1,976) (9,422)
------- -------
$15,679 $28,855
======= =======
Aggregate maturities of long-term debt at December 31, 1997, are as follows:
1998..................................................................................... $ 1,976
1999..................................................................................... 1,928
2000..................................................................................... 1,976
2001..................................................................................... 2,056
2002..................................................................................... 1,470
Thereafter............................................................................... 8,249
-------
$17,655
=======
The Company has an $18,000,000 equipment line with a bank for purchases of
revenue equipment. Upon the funding of the equipment purchases, the related
borrowings under the line are converted to a term note bearing interest at a
fixed rate, as defined, or at a rate based on prime or LIBOR, as selected by the
Company. At December 31, 1997, $14,398,000 was available under the equipment
line. The equipment line and certain term notes are cross-defaulted with the
revolving line of credit (see Note 5).
F-10
7. INCOME TAXES
The components of the income tax provision are as follows (in thousands):
Year Ended December 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Current:
Federal $ 767 $ -- $ --
State and local 460 205 6
---------------- ---------------- ----------------
1,227 205 6
Deferred 900 224 185
Change in tax status 8,459 -- --
---------------- ---------------- ----------------
$ 10,586 $ 429 $ 191
================ ================ ================
The provision for income taxes for the year ended December 31, 1997, consists of
federal and state income taxes subsequent to the Company's initial public
offering, certain state income taxes prior to the offering and a one-time tax
provision of $8,459,000 related to the recognition of the increase in the net
deferred tax liability recorded by the Company upon terminating its S
Corporation status. For the years ended December 31, 1996 and 1995, the
provision for income taxes consisted of certain state and local income taxes.
The statement of income for the year ended December 31, 1997 includes a pro
forma adjustment for the income taxes which would have been recorded if the
Company had been a C Corporation for the entire period, based on tax laws in
effect during the respective period. The reconciliation of the federal statutory
income tax rate and the pro forma effective income tax rate is as follows for
the year ended December 31, 1997:
Federal statutory rate 35.0%
State and local income taxes, net of federal benefit 3.1%
Other 1.9%
----------
40.0%
==========
The tax effect of temporary differences that give rise to deferred income taxes
at December 31, 1997 are as follows (in thousands):
Insurance reserves $ 1,442
Allowance for bad debts 590
Other accruals and reserves 130
Property and equipment (11,782)
Prepaid expenses (300)
----------
$ (9,920)
==========
8. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution 401(k) profit-sharing plan for all
eligible employees. Employer contributions to the plan are based on matching
employee contributions and an annual discretionary contribution determined by
the shareholders. The Company's total contributions for the years ended December
31, 1997, 1996 and 1995, were $650,000, $551,000 and $443,000, respectively.
On January 1, 1998, the Company adopted an employee stock purchase plan under
the provisions of Section 423 of the Internal Revenue Code. The plan provides
eligible employees of the Company with an opportunity to purchase shares of the
Company's Common Stock at 85% of fair market value, as defined. The Company has
reserved 300,000 shares of Common Stock for issuance pursuant to this plan.
9. STOCK OPTION PLANS
In 1994, the Company adopted the 1994 Stock Option Plan (the "Option Plan") that
permits the grant of options to purchase shares of the Company's Common Stock.
The Option Plan allows the granting of incentive and nonqualified stock options
to employees, directors and consultants at exercise prices not less than the
fair market value of the Company's Common Stock on the date of grant. The option
grants and related vesting periods are determined by the Board of Directors.
F-11
In December 1994, the Company granted options to purchase 685,820 shares of
Common Stock to key employees, under the Option Plan, at an exercise price of
$8.49 per share, representing fair market value on the grant date, as determined
by the Board of Directors. The options originally vested in December 2004. In
connection with the Company's initial public offering, the vesting was
accelerated to a five-year period commencing on October 7, 1997. No additional
options were granted under this plan, nor were any options exercised or
canceled. As of December 31, 1997, no options were exercisable and no additional
shares were available for future grant under the Option Plan.
In 1997, the Company adopted the 1997 Incentive Plan (the "Incentive Plan") that
permits the grant of options to purchase a total of 1,500,000 shares of the
Company's Common Stock. The Incentive Plan allows the granting of incentive and
nonqualified stock options to employees, directors and consultants at terms
determined by the Board of Directors. Concurrent with the Company's initial
public offering, the Company granted options to purchase 735,300 shares of
Common Stock at $15 per share. These options vest ratably over a 5-year period.
At December 31, 1997, 733,800 options granted under the Incentive Plan were
outstanding as 1,500 were canceled due to employee termination. At December 31,
1997, no options were exercisable and an additional 766,200 options were
available for future grant under the Incentive Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting For
Stock Issued to Employees," and the related interpretations in accounting for
its stock options plans. In 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation." Had compensation cost for the Company's stock option
plans been determined based upon the fair value of the options at the date of
grant, as prescribed under SFAS No. 123, the Company's net income and net income
per share would have been reduced to the following pro forma amounts:
Year Ended December 31,
------------------------------------------
1997 1996 1995
----------- ----------- ----------
(in thousands, except per share data)
Net income:
As reported $ 2,418 $ 6,195 $ 4,239
Pro forma 2,228 6,195 4,239
Basic income per share:
As reported 0.31 0.90 0.62
Pro forma 0.29 0.90 0.62
Diluted income per share:
As reported 0.30 0.88 0.62
Pro forma 0.28 0.88 0.62
The fair value of the options granted is estimated using the Black-Scholes
option pricing model with the following assumptions; dividend yield of 0.0%,
volatility of 40% subsequent to the initial public offering, risk-free interest
rate of 6.015%, and an expected life of 7 years. The pro forma amounts are not
representative of the pro forma effect in future years because pro forma
compensation expense does not consider option grants made prior to 1995 and the
Company anticipates future grants.
10. RELATED-PARTY TRANSACTIONS
Through March 1995, the Company leased an operating facility from its
shareholders for $38,080 per month. Effective March 31, 1995, the Company
purchased this facility from its shareholders for $5,542,000. The Company
assumed the shareholders' mortgage debt of $4,402,000 and issued a note to its
shareholders for $1,140,000 in consideration for the facility. As required by
generally accepted accounting principles, the Company recorded the purchased
facility at the shareholders' historical carrying value as of the purchase date,
with the excess consideration of $681,000 recorded as a dividend. The Company
continued to lease two facilities from its shareholders (see Note 11). In
November 1997, the Company purchased one of these facilities for $1,978,000 in
cash. The Company recorded the facility at the shareholders' historical carrying
value of $1,323,000 and recognized a deferred tax asset of $249,000 in the
transfer. The excess consideration of $406,000 was recorded as a dividend.
The Company periodically made distributions to its shareholders to fund
their estimated personal tax liabilities. Overpayments in 1995 of approximately
$750,000, were repaid by the shareholders in 1996. In 1997, the Company loaned
approximately $438,000 to two trusts controlled by the Company's principal
shareholders in exchange for 5.83% notes due in October 1998. The notes are
collateralized by the Company Common Stock held by the trusts, and are included
in prepaid expenses and other in the accompanying consolidated balance sheets.
F-12
In February 1996, Jevic Transportation Services, Inc. ("JTS"), a freight
brokerage company owned by the Company's principal shareholders, began
operations. The Company entered into an agreement with JTS in August 1997, under
which the Company provided certain administrative services to JTS in
consideration of the reimbursement by JTS of the Company's costs of providing
such services. JTS was merged into the Company effective December 31, 1997, at
which time the agreement was terminated. The Company received $160,000 from JTS
in 1997 pursuant to the agreement. For the years ended December 31, 1997 and
1996, the Company recorded sales of $383,000 and $218,000, respectively, to JTS
and incurred purchased transportation expenses of $483,000 and $47,000,
respectively, with JTS. JTS had gross revenues of approximately $2,800,000 and
$1,200,000 and net (loss) income of approximately $(35,000) and $34,000 for the
years ended December 31, 1997 and 1996, respectively. The principal shareholders
received $125,000 from the Company in exchange for their JTS stock in the
merger, which is equal to their capital investment in JTS, and equivalent to
both the fair value and carrying value of JTS. The merger has been accounted for
as a combination of companies under common control. However, the consolidated
statements of income have not been restated as the impact would not be material.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space, maintenance facilities and certain revenue
equipment under capital and operating leases expiring on various dates through
2013. The Company also leases an operating facility from its shareholders (see
Note 10). The lease payment on this facility is $9,520 per month through
December 2013.
At December 31, 1997, the Company is liable under terms of noncancelable leases
for the following future minimum lease commitments:
RELATED OPERATING
PARTY OTHER TOTAL
-------- --------- ---------
(in thousands)
1998 $ 114 $ 3,707 $ 3,821
1999 114 2,222 2,336
2000 114 1,152 1,266
2001 114 605 719
2002 114 605 719
Thereafter 1,256 -- 1,256
-------- --------- ---------
Total minimum lease payments........................ $ 1,826 $ 8,291 $ 10,117
======== ========= =========
Rent expense for all operating leases was $4,200,000, $5,234,000 and $6,873,000,
for the years ended December 31, 1997, 1996 and 1995, respectively, of which
$310,000, $376,000 and $425,000, respectively, was on related-party leases.
The Company's risk retention amounts per occurrence are as follows:
Workers' compensation.......................................... $250,000
Liability - bodily injury and property damage.................. 20,000
Employee medical and hospitalization........................... 75,000
Cargo loss and damage.......................................... 5,000
Collision...................................................... 25,000
The Company has excess primary coverage on a per-claim and aggregate basis
beyond the deductible levels and also maintains umbrella policies to supplement
the primary liability coverage.
The liabilities for self-insured retention are included in claims and insurance
reserves based on claims incurred, with liabilities for unsettled claims and
claims incurred but not yet reported being estimated based on management's
evaluation of the nature and severity of individual claims and the Company's
past claims experience. Actual results may vary from management's estimates.
The Company's outstanding letters of credit at December 31, 1997 totaled
$975,000 to cover workers' compensation insurance claims.
The Company is involved in certain legal actions arising in the ordinary course
of business. Management believes that the outcome of such actions will not have
a material adverse effect on the Company's financial position or results of
operations.
From time to time the Company enters into agreements with fuel suppliers to
purchase a portion of its estimated fuel requirements at fixed prices. The
Company is a party to agreements with three fuel suppliers to purchase
approximately 37% of its estimated fuel needs through December 1998 at fixed
prices. Although these arrangements help reduce the Company's vulnerability to
rapid increases in the price of fuel, the Company will not benefit from fuel
price decreases to the extent of its commitments to purchase fuel under these
contracts.
F-13
12. RECAPITALIZATION AND RECLASSIFICATION
In connection with the initial public offering, on August 12, 1997, the
Company's Certificate of Incorporation was amended to reclassify the Common
Stock into two series: Class A Common Stock, no par value, 300 shares
authorized, and Common Stock, no par value, 1,200 shares authorized. In
addition, all outstanding shares were reclassified as Class A Common Stock.
Holders of the Class A Common Stock are entitled to two votes per share and
holders of Common Stock are entitled to one vote per share. Each share of Class
A Common Stock is convertible into one share of Common Stock.
On October 6, 1997, the Company's Certificate of Incorporation was amended to,
among other things, authorize 10,000,000 shares of no par value Preferred Stock,
10,000,000 shares of no par value Class A Common Stock and 40,000,000 shares of
no par value Common Stock, and to effect a 34,291-for-one split of the Common
Stock and Class A Common Stock. The reclassification, increases in authorized
shares and stock split have been retroactively reflected in the accompanying
consolidated financial statements.
F-14
JEVIC TRANSPORTATION, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Allowance for Doubtful Accounts
Beginning Ending
Balance Provisions Deductions Balance
--------- ---------- ---------- -------
Balance, December 31, 1997............ $ 999 $ 937 $ (409) $ 1,527
Balance, December 31, 1996............ 814 629 (444) 999
Balance, December 31, 1995............ 1,153 84 (423) 814
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on the 30th day of March, 1998.
JEVIC TRANSPORTATION, INC.
By: /s/ Harry J. Muhlschlegel
-------------------------------
Harry J. Muhlschlegel
Chief Executive Officer
By: /s/ Brian J. Fitzpatrick
-------------------------------
Brian J. Fitzpatrick
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on March 30, 1998, in the
capacities indicated:
Signature Title
--------- -----
/s/ Harry J. Muhlschlegel Chief Executive Officer and Chairman of
- ----------------------------- the Board (principal executive officer)
Harry J. Muhlschlegel
/s/ Karen B. Muhlschlegel Vice President, Secretary and Director
- -----------------------------
Karen B. Muhlschlegel
/s/ Paul J. Karvois President, Chief Operating Officer and
- ----------------------------- Director
Paul J. Karvois
/s/ Brian Fitzpatrick Senior Vice President and
- ----------------------------- Chief Financial Officer
Brian Fitzpatrick
/s/ Gordon R. Bowker Director
- -----------------------------
Gordon R. Bowker
/s/ Samuel H. Jones, Jr. Director
- -----------------------------
Samuel H. Jones, Jr.