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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
---------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 0-24576
AASCHE TRANSPORTATION SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3964954
- --------------------------------------------- -----------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
10214 NORTH MOUNT VERNON ROAD
SHANNON, ILLINOIS 61078
(Address of Principal Executive Offices)
815-864-2421
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date 4,626,130 SHARES OF PAR
VALUE $.0001 COMMON STOCK -----------------------
- -------------------------
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
AASCHE TRANSPORTATION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1998 1997
------------ -----------
(Unaudited)
ASSETS
Current assets:
Trade receivables, net $14,951 $ 5,449
Prepaid expenses and other current assets 7,699 2,691
------------ -----------
Total current assets 22,650 8,140
Property and equipment, at cost 50,595 32,931
Less accumulated depreciation and amortization (11,789) (13,755)
------------ -----------
Net property and equipment 38,806 19,176
------------ -----------
Excess of cost over net assets acquired, net 11,956 7,340
Debt issuance cost, net 972 -
Other assets 4,355 851
------------ -----------
TOTAL ASSETS $78,739 $35,507
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,529 $ 312
Accounts payable 2,887 788
Accrued liabilities 2,898 1,234
Guaranteed obligation of Employee Stock Ownership Plan 156 203
Line of credit - 3,817
Current maturities of long-term debt with unrelated parties 4,051 2,752
Current maturities of long-term debt with related party 995 995
Current maturities of capital lease obligations with unrelated parties 2,592 2,696
Current maturities of capital lease obligations with related parties 288 669
------------ -----------
Total current liabilities 15,396 13,466
Line of credit 11,888 -
Long-term debt with unrelated parties, less current maturities 16,886 3,745
Long-term debt with related party, less current maturities 715 1,550
Capital lease obligations with unrelated parties, less current maturities 4,673 2,787
Capital lease obligations with related parties, less current maturities - 144
Minority interest 546 -
Subordinated debt 12,766 -
Deferred income taxes 1,006 1,006
Other 572 -
------------ -----------
Total liabilities 64,448 22,698
Stockholders' equity:
Common stock, $.0001 par value, 10,000,000 shares authorized,
4,626,130 and 4,539,735 shares issued and outstanding - -
Additional paid-in capital 17,758 16,565
Guarantee of Employee Stock Ownership Plan obligation (156) (203)
Accumulated deficit (3,311) (3,553)
------------ -----------
Total stockholders' equity 14,291 12,809
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $78,739 $35,507
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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AASCHE TRANSPORTATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
---- ---- ---- ----
NET REVENUES $ 29,462 $ 15,658 $ 80,761 $ 49,769
OPERATING EXPENSES:
Salaries, wages and benefits 11,453 5,775 30,359 17,643
Fuel 3,425 2,562 9,841 8,385
Purchased transportation 6,295 2,782 16,853 8,396
Supplies and maintenance 2,824 1,734 7,990 4,932
Depreciation and amortization 1,643 1,207 5,152 3,848
Taxes and licenses 474 391 1,272 1,273
Insurance 886 513 2,261 1,506
Communications and utilities 365 198 987 622
Gain on disposition of equipment (409) (519) (457) (583)
Other 604 474 1,183 1,486
--------- --------- --------- ---------
Total operating expenses 27,560 15,117 75,441 47,508
--------- --------- --------- ---------
OPERATING INCOME 1,902 541 5,320 2,261
OTHER (EXPENSES) INCOME:
Interest expense (1,408) (558) (3,633) (1,731)
Warrant accretion expense (214) - (572) -
Debt issuance cost (76) - (203) -
Amortization of debt discount (72) - (192) -
Minority interest expense (17) - (46) -
Other 112 25 296 41
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX PROVISION 227 8 970 571
INCOME TAX PROVISION (219) (5) (728) (371)
--------- --------- --------- ---------
NET INCOME $ 8 $ 3 $ 242 $ 200
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
BASIC $0.00 $0.00 $0.05 $0.05
========= ========= ========= =========
DILUTED $0.00 $0.00 $0.05 $0.05
========= ========= ========= =========
Weighted average common shares outstanding 4,626,130 4,535,328 4,580,014 4,184,237
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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AASCHE TRANSPORTATION SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
Guarantee
of Employee
Common Stock Stock
-------------- Ownership
$.0001 Par Value Additional Plan Total
-------------------------- Paid-In ("ESOP") Accumulated Stockholders'
Shares Amount Capital Obligation Deficit Equity
-------------------------- ----------- ---------- ----------- ------------
Balance at December 31, 1997 4,539,735 $ - $ 16,565 $ (203) $ (3,553) $ 12,809
Exercise of stock options and warrants 86,395 - 392 - - 392
Warrants granted in connection
with STS acquisition - - 801 - - 801
Reduction in Guarantee of
ESOP obligation - - - 47 - 47
Net income - - - - 242 242
------------ ---------- ----------- --------- --------- -----------
Balance at September 30, 1998 4,626,130 $ - $ 17,758 $ (156) $ (3,311) $ 14,291
============ ========== =========== ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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AASCHE TRANSPORTATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 242 $ 200
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 5,152 3,848
Gain on disposition of equipment (457) (583)
Other 1,013 -
Changes in other current operating items:
Trade receivables (9,502) 1,110
Prepaid expenses and other assets (5,647) (1,316)
Accounts payable 2,099 (1,337)
Accrued liabilities 1,664 32
-------- -------
Net cash (used in) provided by operating activities (5,436) 1,954
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Revenue equipment (3,789) (700)
Building, office equipment and other (554) (118)
Proceeds from the sale of equipment 9,637 5,593
Purchase of Specialty Transportation Services, Inc. (31,817) -
-------- -------
Net cash (used in) provided by investing activities (26,523) 4,775
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt with unrelated parties 18,090 -
Borrowings of subordinated debt 13,375 -
Minority interest 500 -
Debt issuance cost (1,175) -
Net borrowings (repayments) on lines of credit 8,071 (1,025)
Principal payments on long-term debt with unrelated parties (3,738) (3,536)
Principal payments on long-term debt with related party (747) (870)
Principal payments on capital leases with unrelated parties (3,478) (2,422)
Principal payments on capital leases with related parties (548) (481)
Issuance of common stock - 1,996
Proceeds from exercise of options and warrants 392 -
-------- -------
Net cash provided by (used in) financing activities 30,742 (6,338)
-------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,217) 391
CASH AND CASH EQUIVALENTS (CASH OVERDRAFT):
Beginning of period (312) (349)
-------- -------
End of period $(1,529) $ 42
======== =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid $ 3,677 $1,774
======== =======
Income taxes paid $ 399 $ -
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
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AASCHE TRANSPORTATION SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(in thousands, except per share and share data)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes these disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for fair presentation for the periods
presented have been reflected and are of a normal recurring nature. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto for the three years
ended December 31, 1997, as filed with the Securities and Exchange Commission as
part of the Company's Annual Report on Form 10-K. Results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the year.
NOTE 2 - ACQUISITION OF THE MUNICIPAL SOLID WASTE HAULING DIVISION OF JACK GRAY
TRANSPORT, INC.
On January 30, 1998, the Company purchased the net assets of the municipal solid
waste transport division of Jack Gray Transport, Inc. (the "Waste Transport
Business") for $30,200 in cash. The Waste Transport Business is operated through
Specialty Transportation Services, Inc. ("STS"), a newly formed subsidiary of
the Company, headquartered in Portage, Indiana. The Company also issued 825,000
options to purchase the Company's common stock at prices ranging from $3.94 to
$4.88 to key employees of STS. In conjunction with the acquisition, the Company
recorded $4,828 in cost in excess of net assets acquired. The acquisition was
accounted for as a purchase and accordingly, the 1998 consolidated statement of
income includes the results of STS from the date of its acquisition.
The acquisition by STS was financed with an $18,000 senior bank credit facility,
$13,375 of subordinated debt, $2,125 of which was issued to related parties
(primarily directors), and $500 of common stock in exchange for a 10% ownership
interest in STS. In connection with the issuance of the subordinated debt,
947,500 warrants to acquire the Company's common stock at prices ranging from
$3.49 to $4.63 per share were issued to various investors, including related
parties (primarily directors), and warrants to acquire an additional 10% of STS
common stock were issued.
In addition, if the internal rate of return ("IRR") of an $8,000 subordinated
debt investment is less than 24%, STS is required to issue warrants to purchase
up to an additional 30% of STS common stock for a nominal cost. The Company has
the right to call all, but not less than all, of these warrants or the
underlying common stock, if previously converted, upon 30 days notice after all,
but not less than all, of the $8,000 of subordinated debt issued has been paid
in full by the Company for the greater of fair market value or a 24% IRR. The
Company has the right to call the warrants, or underlying common stock, if
previously converted, any time up to 5 years from the date of the acquisition.
Commencing February 1, 2003, the warrants or underlying common stock, if
previously converted, can be put to STS for cash, an increase in the
subordinated debt, or shares in the Company's common stock at the greater of
fair market value or a 24% IRR on its investment. The $500 common stock
investment in STS can be put to STS after February 1, 2003 for the fair market
value of the common stock. Upon certain events, both the subordinated debt
warrants and the common stock in STS can be put to STS for cash, an increase in
the subordinated debt, or shares in the Company's common stock at an earlier
date.
STS transports municipal solid and special waste under contracts ranging from
five to twenty years with municipalities and large national waste service
companies, including Waste Management, Browning-Ferris and Republic Waste
Industries. Under the exclusive waste transfer contracts, STS transports solid
and special waste from transfer stations to landfill sites owned by either the
municipality or a waste services company. Subsequent to
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the acquisition, STS has expanded its operations to include the transportation
of bulk commodities for the scrap recycling, environmental, construction and
manufacturing industries.
The former executive vice president of Jack Gray Transport, Inc. who organized
the waste transport division of Jack Gray Transport, Inc. in 1983, has entered
into a five year employment agreement to serve as the President of STS. This
former executive vice-president has served as a member of the Company's Board of
Directors since July 1996 and a vice president of the Company since January
1998.
STS operates as a stand-alone business unit separate from the Company's existing
temperature-controlled operations.
The following unaudited pro forma statements of operations data are based on
certain amounts derived from the unaudited statements of operations of the Waste
Transport Business for the nine months ended September 30, 1998 and 1997, and
assumes in each case, that the acquisition of the net assets of the Waste
Transport Business occurred on January 1, 1997. The pro forma statements are not
necessarily indicative of the results of operations which would have occurred
had the acquisition taken place on January 1, 1997 or of future results of the
consolidated operations of STS and the Company.
Nine Months Ended September 30,
-------------------------------
1998 1997
--------- ----------
Net revenues $ 84,195 $ 75,334
Net income (loss) 240 (236)
Net income (loss) per common share:
Basic 0.05 (0.06)
Diluted 0.05 (0.06)
On July 23, 1998, STS acquired all of the capital stock of Dump Truck Services,
Inc. ("DTS") from an individual and the president of STS for $1.4 million in
cash. DTS transports dry bulk commodities in dump vehicles in the northeastern
United States.
NOTE 3 - COMMON SHARE DATA
Basic income per share is computed using the weighted average number of shares
outstanding. On a diluted basis, the weighted average number of shares
outstanding is adjusted for the incremental shares attributed to outstanding
options and warrants, when the effect of such items are dilutive.
Effective December 15, 1997, the Company adopted SFAS No. 128, "Earnings per
Share". Accordingly, all references in these financial statements to earnings
per share, diluted earnings per share and related weighted average shares have
been restated to reflect this adoption. Diluted weighted average shares
outstanding for the three months ended September 30, 1998 and 1997 in connection
with options and warrants amount to 559,075 shares and 37,726 shares,
respectively. Diluted weighted average shares outstanding for the nine months
ended September 30, 1998 and 1997 in connection with options and warrants amount
to 568,638 shares and 75,321 shares, respectively.
NOTE 4 - BANK LINES OF CREDIT
In June 1998, the Company entered into a new bank line of credit that extended
the due date to April 30, 2000. In October 1998, one of the bank lines of credit
was amended to increase the total borrowing limit to $24 million based on a
percentage of eligible trade receivables.
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NOTE 5 - RECENT ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which changes the way public companies
report information about operating segments. The Company will adopt SFAS No. 131
at the end of fiscal 1998. This statement, which is based on the management
approach to segment reporting, establishes requirements to report selected
segment information quarterly and to report entity-wide disclosures about
products and services, major customers and the major countries in which the
Company holds assets and reports revenues.
Management believes that the adoption of this new standard will not have a
material impact on the Company's financial position or results of operation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors.
On January 30, 1998, the Company purchased the net assets of the Waste Transport
Business ("STS Acquisition") for $30,200 in cash. The Waste Transport Business
is operated through STS, a newly formed subsidiary of the Company. The
acquisition was accounted for as a purchase and accordingly, the 1998
consolidated statement of income includes the results of STS from the date of
its acquisition. The results of operations discussed below are not necessarily
comparable between periods because the results from operations for the nine
months ended September 30, 1997 do not include STS and the results from
operations for the nine months ended September 30, 1998 only include STS since
the date of its acquisition.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 WITH THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1997.
Net revenues increased $31.0 million, or 62.3%, to $80.8 million in 1998, from
$49.8 million in 1997, largely due to the STS Acquisition. During the first nine
months of 1998, the Company increased its revenue producing power units by 396
units. Without giving effect to the additional net revenues contributed by the
STS Acquisition, the Company's net revenues decreased by $3.9 million, or 7.9%,
due to having less tractors in service in its temperature-controlled operations.
Total miles increased 18.0 million, or 40.7%, to 62.2 million in 1998 from 44.2
million in 1997, largely due to the STS Acquisition. Average miles per tractor
decreased 5.4% to 82,332 miles in 1998 from 87,058 miles in 1997. Average
revenue per tractor increased 9.0% to $106,827 in 1998 from $97,970 in 1997. The
decrease in average miles per tractor and the increase in average revenue per
tractor are attributable to the shorter length of haul in the Waste Transport
Business. Without giving effect to the STS Acquisition, the Company's total
miles decreased by 5.6 million, or 12.7%, due to having less tractors in service
in its temperature-controlled operations. Competition for drivers is intense
within the trucking industry and the Company occasionally experiences difficulty
in its temperature -controlled operations attracting and retaining qualified
drivers and owner-operators which results in the temporary idling of revenue
equipment.
The Company's operating ratio (operating expenses divided by operating revenues)
decreased 2.1%, to 93.4% in 1998 from 95.5% in 1997. The decrease in the
operating ratio is largely due to a lower operating ratio in the Waste Transport
Business. Without giving effect to the STS Acquisition, the Company's operating
ratio decreased 0.8%, to 94.7% in 1998 from 95.5% in 1997. Total operating
expenses increased $27.9 million, or 58.8%, to $75.4 million in 1998, compared
to $47.5 million in 1997, largely due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's total operating expenses decreased
by $4.1 million, or 8.6%, due primarily to having less tractors in service in
its temperature-controlled operations and decreased fuel prices.
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Salaries, wages and benefits increased $12.7 million, or 72.1%, to $30.4 million
in 1998 compared to $17.6 million in 1997, due to the STS Acquisition and
increases in overall compensation of drivers that were needed to enhance
recruitment and retention. Without giving effect to the STS Acquisition, the
Company's salaries, wages and benefits increased by $0.2 million, or 0.9%,
largely due to increases in overall compensation of drivers that were needed to
enhance driver recruitment and retention which more than offset having less
personnel to service the fewer tractors in service in its temperature-controlled
operations.
Fuel expenses increased $1.5 million, or 17.4%, to $9.8 million in 1998 compared
to $8.4 million in 1997, largely due to the effect of the STS Acquisition, which
more than offset decreased fuel prices. Without giving effect to the STS
Acquisition, the Company's fuel expense decreased by $1.9 million or 22.9%,
largely due to the decrease in the number of tractors in service in its
temperature-controlled operations and decreased fuel prices.
Purchased transportation expense increased $8.5 million, or 100.7%, to $16.9
million in 1998 compared to $8.4 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
purchased transportation expense increased by $0.5 million, or 5.4%, due to an
increase in contractor operated units.
Supplies and maintenance expenses increased $3.1 million, or 62.0%, to $8.0
million in 1998 compared to $4.9 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
supplies and maintenance expense decreased by $1.4 million, or 27.8%, due to a
decrease in company-owned units in service in its temperature-controlled
operations.
Depreciation and amortization expense increased $1.3 million, or 33.9%, to $5.2
million in 1998 compared to $3.8 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
depreciation and amortization expense decreased by $0.6 million or 16.3%, due to
a decrease in company-owned units in service in its temperature-controlled
operations.
Insurance expense increased $0.8 million, or 50.1%, to $2.3 million in 1998
compared to $1.5 million in 1997, due to the STS Acquisition.
Interest expense increased $1.9 million, or 109.9%, to $3.6 million in 1998
compared to $1.7 million in 1997, due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's interest expense decreased $0.6
million, due to lower levels of debt. Outstanding debt and capital lease
obligations aggregated $55.0 million at September 30, 1998 compared with $19.4
million at December 31, 1997.
Warrant accretion expense of $572 in 1998 represents the accretion of STS
warrants.
Debt issuance cost of $203 in 1998 represents the amortization of debt issuance
costs in connection with the STS Acquisition.
Amortization of debt discount of $192 in 1998 represents the amortization of
debt discount in connection with the STS Acquisition.
Minority interest expense of $46 in 1998 represents the increase in minority
interest in connection with the STS Acquisition.
The effective income tax rates of 75.1% and 65.0% in 1998 and 1997,
respectively, are higher than the federal statutory rate due primarily to the
non-deductibility of certain expenses.
COMPARISON OF THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998 WITH THE THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1997.
Net revenues increased $13.8 million, or 88.2%, to $29.5 million in 1998, from
$15.7 million in 1997, largely due to the STS Acquisition. During the three
months ended September 30, 1998, the Company increased its revenue producing
power units by 43 units. Without giving effect to the additional net revenues
contributed by the STS Acquisition, the Company's net revenues decreased by $1.1
million, or 7.2%, due to having less tractors in service in its
temperature-controlled operations.
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Total miles increased 8.9 million, or 64.5%, to 22.7 million in 1998 from 13.8
million in 1997, largely due to the STS Acquisition. Average miles per tractor
decreased 2.6% to 27,483 miles in 1998 from 28,203 miles in 1997. Average
revenue per tractor increased 11.8% to $35,638 in 1998 from $31,890 in 1997. The
decrease in average miles per tractor and the increase in average revenue per
tractor are attributable to the shorter length of haul in the Waste Transport
Business. Without giving effect to the STS Acquisition, the Company's total
miles decreased by 1.6 million, or 11.8%, due to having less tractors in service
in its temperature-controlled operations. Competition for drivers is intense
within the trucking industry and the Company occasionally experiences difficulty
in its temperature-controlled operations attracting and retaining qualified
drivers and owner-operators which results in the temporary idling of revenue
equipment.
The Company's operating ratio (operating expenses divided by operating revenues)
decreased 3.0%, to 93.5% in 1998 from 96.5% in 1997. Without giving effect to
the STS Acquisition, the Company's operating ratio decreased 2.1%, to 94.4% in
1998 from 96.5% in 1997. Total operating expenses increased $12.4 million, or
82.3%, to $27.6 million in 1998, compared to $15.1 million in 1997, largely due
to the STS Acquisition. Without giving effect to the STS Acquisition, the
Company's total operating expenses decreased by $1.4 million, or 9.3%, due
primarily to having less tractors in service in its temperature-controlled
operations and decreased fuel prices.
Salaries, wages and benefits increased $5.7 million, or 98.3%, to $11.5 million
in 1998 compared to $5.8 million in 1997, due to the STS Acquisition and
increases in overall compensation of drivers that were needed to enhance
recruitment and retention. Without giving effect to the STS Acquisition, the
Company's salaries, wages and benefits increased by $0.2 million, or 3.6%,
largely due to increases in overall compensation of drivers that were needed to
enhance driver recruitment and retention, which more than offset having less
personnel to service the fewer tractors in service in its temperature-controlled
operations.
Fuel expenses increased $0.9 million, or 33.7%, to $3.4 million in 1998 compared
to $2.6 million in 1997, largely due to the effect of the STS Acquisition, which
more than offset decreased fuel prices. Without giving effect to the STS
Acquisition, the Company's fuel expense decreased by $0.6 million or 23.4%,
largely due to the decrease in the number of tractors in service in its
temperature-controlled operations and decreased fuel prices.
Purchased transportation expense increased $3.5 million, or 126.3%, to $6.3
million in 1998 compared to $2.8 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
purchased transportation expense increased by $0.1 million, or 2.3%, due to an
increase in contractor operated units.
Supplies and maintenance expenses increased $1.1 million, or 62.9%, to $2.8
million in 1998 compared to $1.7 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
supplies and maintenance expense decreased by $0.8 million, or 45.3%, due to a
decrease in company-owned units in service in its temperature-controlled
operations.
Depreciation and amortization expense increased $0.4 million, or 36.1%, to $1.6
million in 1998 compared to $1.2 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
depreciation and amortization expense decreased by $0.3 million or 23.2%, due to
a decrease in company-owned units in service in its temperature-controlled
operations.
Insurance expense increased $0.4 million, or 72.7%, to $0.9 million in 1998
compared to $0.5 million in 1997, due to the STS Acquisition.
Interest expense increased $0.9 million, or 152.3%, to $1.4 million in 1998
compared to $0.6 million in 1997, due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's interest expense decreased $0.2
million, due to lower levels of debt. Outstanding debt and capital lease
obligations aggregated $55.0 million at September 30, 1998 compared with $19.4
million at December 31, 1997.
Warrant accretion expense of $214 in 1998 represents the accretion of STS
warrants.
Debt issuance cost of $76 in 1998 represents the amortization of debt issuance
costs in connection with the STS Acquisition.
Amortization of debt discount of $72 in 1998 represents the amortization of debt
discount in connection with the STS acquisition.
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Minority interest expense of $17 in 1998 represents the increase in minority
interest in connection with the STS Acquisition.
The effective income tax rates of 96.5% and 62.5% in 1998 and 1997,
respectively, are higher than the federal statutory rate due primarily to the
non-deductibility of certain expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had net working capital of $7.3 million. The
Company historically has funded its working capital requirements through a
combination of operating profits, short turnover in trade receivables, effective
cash management practices and borrowing under its revolving bank line of credit.
The Company had two revolving bank lines of credit with a total borrowing limit
of $12.0 million based on a percentage of eligible trade receivables, $11.9
million of which was borrowed against these lines of credit at September 30,
1998, and approximately $0.1 million was available. In June 1998, the Company
entered into a new bank line of credit that extended the due date to April 30,
2000. In October 1998, one of the bank lines of credit was amended to increase
the total borrowing limit to $24 million based on a percentage of eligible trade
receivables.
The Company's growth and the significant investment in its modern fleet of
tractors and trailers have been financed substantially through long-term debt
and capital lease obligations collateralized by the equipment. The Company's
outstanding debt and capital lease obligations, including current maturities,
aggregated $55.0 million and $19.4 million at September 30, 1998 and December
31, 1997, respectively. The debt to equity ratio (calculated excluding payables
and other liabilities) was 3.85:1 at September 30, 1998 and 1.51:1 at December
31, 1997. During 1998, the Company increased its owned fleet size by 396
tractors and 562 trailers.
The Company believes that available cash, cash flow from future operations, and
borrowings available under its lines of credit will be sufficient to meet its
current working capital needs. As the Company continues to facilitate its
planned future growth, the Company's capital needs may require additional
borrowings or an equity infusion.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements relating to future financial
results or business expectations. Business plans may change as circumstances
warrant. Actual results may differ materially as a result of factors over which
the company has no control. Such factors include, but are not limited to:
general economic conditions, availability of drivers, labor costs, interest
rates, competition and governmental regulations. These risk factors and
additional information are included in the Company's reports on file with the
Securities and Exchange Commission.
SEASONALITY
The Company's temperature-controlled segment results of operations show a
seasonal pattern because certain of the frozen food companies serviced by the
Company generally reduce shipments during the summer season. During the winter
months, the Company has at times experienced delays in meeting its pickup and
delivery schedules as a result of severe weather conditions. In addition, the
Company's operating expenses have historically been higher in the winter months
due to decreased fuel efficiency and increased maintenance costs in colder
weather. Accordingly, such factors cause fluctuations in results of operations.
The foliage business of Asche Transfer experiences seasonal fluctuations in
volume during certain periods of the year.
YEAR 2000
The Company has determined that it will need to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers and large customers to
ensure that those parties have appropriate plans to remediate Year 2000 issues
where their systems interface with the Company's systems or otherwise impact its
operations. The Company is addressing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their computer
systems.
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The Company's comprehensive Year 2000 initiative is being managed by a team of
internal staff. The team's activities are designed to ensure that there is no
material adverse effect on the Company's core business operations and that
transactions with customers and suppliers are fully supported. The Company is
well under way with these efforts, which are scheduled to be completed in early
1999. While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be converted
on a timely basis and will not have a material adverse effect on the Company.
The cost of the Year 2000 initiative is not expected to be material to the
Company's results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK SENSITIVE
INSTRUMENTS
The Company currently does not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.
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PART II
AASCHE TRANSPORTATION SERVICES, INC.
(A DELAWARE CORPORATION)
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Stock Purchase Agreement dated as of July 23, 1998
among Specialty Transportation Services, Inc., Michael
Sizemore and Gary I. Goldberg.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the calendar quarter
ended September 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Aasche Transportation Services, Inc.
Date November 11 , 1998 BY: s/Leon M. Monachos
------------------- -----------------------------------------
Leon M. Monachos, Chief Financial Officer
Date November 11 , 1998 BY: s/Larry L. Asche
------------------- -----------------------------------------
Larry L. Asche, Chairman and
Chief Executive Officer
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