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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, 1997
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[ ] 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.
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(Exact name of Registrant as specified in its charter)
DELAWARE 36-3964954
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation 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 4,539,735 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,
1997 1996
------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 42 $ -
Trade receivables, less allowance for doubtful accounts of $71 5,572 6,682
Prepaid expenses and other current assets 3,386 2,033
---------- ----------
Total current assets 9,000 8,715
Property and equipment, at cost 36,034 43,901
Less accumulated depreciation and amortization (14,311) (14,349)
---------- ----------
Net property and equipment 21,723 29,552
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Excess of cost over net assets acquired, less accumulated
amortization of $659 and $448 7,411 7,622
Deferred income taxes 3,022 3,022
Other assets 378 415
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TOTAL ASSETS $ 41,534 $ 49,326
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ - $ 349
Accounts payable 962 2,299
Accrued liabilities 2,244 2,366
Guaranteed obligation of Employee Stock Ownership Plan 203 244
Line of credit 4,217 5,242
Current maturities of long-term debt with unrelated parties 2,888 4,922
Current maturities of long-term debt with related party 995 995
Current maturities of capital lease obligations with unrelated parties 2,417 2,596
Current maturities of capital lease obligations with related parties 1,149 1,303
---------- ----------
Total current liabilities 15,075 20,316
Long-term debt with unrelated parties, less current maturities 4,265 5,767
Long-term debt with related party, less current maturities 1,675 2,545
Capital lease obligations with unrelated parties, less current maturities 3,920 6,163
Capital lease obligations with related parties, less current maturities - 327
Deferred income taxes 3,677 3,677
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Total liabilities 28,612 38,795
Stockholders' equity:
Common stock, $.0001 par value, 10,000,000 shares authorized,
4,539,735 and 3,953,077 shares issued and outstanding - -
Additional paid-in capital 16,594 14,598
Guarantee of Employee Stock Ownership Plan obligation (203) (244)
Accumulated deficit (3,469) (3,823)
---------- ----------
Total stockholders' equity 12,922 10,531
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 41,534 $ 49,326
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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AASCHE TRANSPORTATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
NET REVENUES $ 15,658 $ 19,881 $ 49,769 $ 58,970
OPERATING EXPENSES:
Salaries, wages and benefits 5,775 6,400 17,643 19,638
Fuel 2,562 3,406 8,385 9,702
Purchased transportation 2,782 3,396 8,396 8,932
Supplies and maintenance 1,734 1,490 4,932 5,102
Depreciation and amortization 1,207 2,013 3,848 6,139
Taxes and licenses 391 704 1,273 1,536
Insurance 513 627 1,506 2,157
Communications and utilities 198 215 622 615
Gain on disposition of equipment (519) (124) (583) (56)
Litigation settlement - - - 150
Polar Express restructuring - - - 490
Severance - - - 42
Other 474 741 1,486 1,692
--------- ----------- ---------- ---------
Total operating expenses 15,117 18,868 47,508 56,139
--------- ----------- ---------- ---------
OPERATING INCOME 541 1,013 2,261 2,831
OTHER (EXPENSES) INCOME:
Interest expense (558) (830) (1,731) (2,666)
Other 25 48 41 106
--------- ----------- ---------- ---------
INCOME BEFORE INCOME TAX PROVISION 8 231 571 271
INCOME TAX PROVISION (3) (96) (217) (111)
--------- ----------- ---------- ---------
NET INCOME $ 5 $ 135 $ 354 $ 160
========= =========== ========== =========
NET INCOME PER COMMON SHARE $ 0.00 $ 0.03 $ 0.09 $ 0.04
========= =========== ========== =========
Weighted average common and
common equivalent shares outstanding 4,573,054 4,001,069 4,259,558 3,963,287
========= =========== ========== =========
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
Common Stock of Employee
------------------- Stock
$.0001 Par Value Additional Ownership
------------------- Paid-In Plan Accumulated
Shares Amount Capital Obligation Deficit
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Balance at December 31, 1996 3,953,077 $ - $ 14,598 $ (244) $ (3,823)
Exercise of Series A warrants 41,100 - 100 - -
Common stock issued for options exercised 5,000 - 18 - -
Common stock issued in private placement 540,558 - 1,878 - -
Reduction in Guarantee of Employee
Stock Ownership Plan obligation - - - 41 -
Net income - - - - 354
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Balance at September 30, 1997 4,539,735 $ - $ 16,594 $ (203) $ (3,469)
=====================================================================
Total
Stockholders'
Equity
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Balance at December 31, 1996 $ 10,531
Exercise of Series A warrants 100
Common stock issued for options exercised 18
Common stock issued in private placement 1,878
Reduction in Guarantee of Employee
Stock Ownership Plan obligation 41
Net income 354
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Balance at September 30, 1997 $ 12,922
============
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,
---------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 354 $ 160
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,848 6,139
Gain on disposition of equipment (583) (56)
Deferred income taxes - 153
Changes in other current operating items:
Trade receivables 1,110 (1,297)
Prepaid expenses and other assets (1,316) (463)
Accounts payable (1,337) 480
Accrued liabilities (122) (234)
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Net cash provided by operating activities 1,954 4,882
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Revenue equipment (700) (322)
Building, office equipment and other (118) (628)
Proceeds from the sale of equipment 5,593 1,485
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Net cash provided by investing activities 4,775 535
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on line of credit (1,025) 1,873
Borrowings on long-term debt and capital leases - 800
Principal payments on long-term debt with unrelated parties (3,536) (4,880)
Principal payments on long-term debt with related party (870) (747)
Principal payments on capital leases with unrelated parties (2,422) (2,418)
Principal payments on capital leases with related parties (481) (618)
Issuance of common stock 1,996 156
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Net cash used in financing activities (6,338) (5,834)
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (CASH OVERDRAFT) 391 (417)
CASH AND CASH EQUIVALENTS (CASH OVERDRAFT):
Beginning of period (349) 503
--------- -------
End of period $ 42 $ 86
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SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid $ 1,774 $ 2,661
========= =======
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, 1997
(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, 1996, 1995, and 1994, 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 - PROPOSED ACQUISITION OF THE MUNICIPAL SOLID WASTE HAULING DIVISION OF
JACK GRAY TRANSPORT, INC.
On October 15, 1997, the Company obtained an assignment of an asset purchase
agreement between Gary I. Goldberg a director of the Company, and Jack Gray
Transport, Inc. ("JGT") pursuant to which assignment the Company has the right
to purchase certain assets relating to the municipal solid waste business of
JGT. The agreement is subject to certain closing conditions including the
Company's obligation to satisfy JGT that it has obtained the necessary
financing by November 30, 1997. The Company is presently in discussions with
various sources, however, no financing commitment has been obtained by the
Company as of the date of this prospectus.
Note 3 - PURCHASE OF AG TRANSPORTATION SERVICE, INC. AND AG. CARRIERS, INC.
On May 16, 1995, the Company purchased all of the outstanding common stock of
AG Transportation Service, Inc. and the net assets of AG. Carriers, Inc.
(collectively, AG Carriers) in exchange for $11,250 consisting of $5,275 cash,
$1,000 in the Company's common stock (115,075 shares) and two notes payable in
the amount of $4,975.
In accordance with the original purchase agreement, as amended, the
Company guaranteed the total value of the Company's common stock issued in the
purchase. Under the terms of the agreement, as amended, if during the period
from May 16, 1998 through September 12, 1998, the closing price per share of
the Company's common stock has not reached at least $8.69 per share, then on
the 30th day following September 12, 1998, the Company shall issue sufficient
additional shares of the Company's common stock such that all of the shares
issued have a total value of $1,120. In the event the additional shares are
required to be issued, management believes this will not have a material
adverse impact on the financial position or operations of the Company.
AG Carriers is a Florida-based carrier specializing in transporting
temperature-controlled foodstuffs and juice concentrates.
Note 4 - MERGER WITH POLAR EXPRESS CORPORATION
On December 22, 1995, the Company completed a merger, pursuant to which Polar
Express Corporation ("Polar") became a wholly owned subsidiary of the Company.
Under the terms of the merger agreement, 1,401,355 shares of the Company's
common stock were issued in exchange for all of the outstanding common shares
and unit purchase
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options of Polar. Approximately 5% of these shares were held in an escrow
account to cover liability and litigation costs related to the litigation
described in Note 7. In addition, the Company issued 1,006,905 warrants to
purchase the Company's common stock in exchange for all the outstanding
warrants of Polar. In January 1997, 41,100 of these warrants were exercised.
The merger was accounted for as a pooling of interests.
In April 1997, Polar was merged into Asche Transfer, Inc., a wholly-owned
subsidiary of the Company, and renamed Asche Transfer Inc.'s Southwest
Division. The merger was accounted for similar to a pooling of interests.
Note 5 - PROPERTY AND EQUIPMENT
In December 1996, the Company entered into various agreements for the
sale and leaseback of certain Polar motor carrier equipment which reduced
expenses $149 and increased net income per common share $0.03 in the third
quarter of 1997 and reduced expenses $480 and increased net income per common
share $0.11 for the nine months ended September 30, 1997. The leases are
classified as operating leases in accordance with SFAS No. 13, Accounting for
Leases.
In February 1997, the Company entered into a purchase agreement to sell 68
Polar tractors and 141 Polar trailers for $4,592. The transaction generated
$1,373 in net cash proceeds to the Company with no significant earnings effect
in 1997. The transaction was completed in March 1997.
Note 6 - NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding.
Note 7 - LITIGATION SETTLEMENT
In May 1996, the Company settled all outstanding litigation related to
Polar's acquisition of Polar Express, Inc. ("PEI") for $150 or $0.02 net income
per common share. This amount, which was provided for during the quarter ended
March 31,1996, did not include the Company's legal costs incurred related to
its defense of this matter, which had been expensed as incurred and had not
been included in the settlement amount.
In conjunction with the Polar merger, 5% of the Company's common stock issued
in the merger (69,941 shares) were held in an escrow account pending final
determination of the litigation. Upon reaching a final settlement, 34,030 of
the common shares held in the escrow account were retired by the Company.
Note 8 - STOCKHOLDERS' EQUITY
On July 3, 1997, the Company completed a private placement offering of 540,558
shares of restricted common stock at a price of $3.70 per share and warrants to
purchase 54,070 shares of common stock at an exercise price of $4.625 per
share. The warrants are exercisable at any time within three years after June
24, 1997. The offering was made solely to accredited investors. The net
proceeds of approximately $1,878 was used to reduce outstanding indebtedness
and for general corporate purposes.
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.
Beginning in 1992, the Company commenced a program to increase its size and
operational efficiency. This program changed the Company's strategic direction
by implementing a shift to company-owned revenue equipment and equipping
tractors with the QUALCOMM(TM) two-way satellite-based tracking and
communication system and advanced computer software systems. The Company also
implemented a strategy of pursuing strategic
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acquisitions. Since its initial public offering, the Company acquired all of
the assets of AG Carriers (the "AG Acquisition") and merged with Polar (the
"Polar Merger"). In accordance with the Company's strategic plan, the Company
sold 68 Polar tractors and 141 Polar trailers in February 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 WITH THE NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1996.
Net revenues decreased $9.2 million, or 15.6%, to $49.8 million in 1997, from
$59.0 million in 1996, largely due to having less tractors in service. During
the nine month period ended September 30, 1997, the Company decreased its
tractor fleet by 83 units. Average revenue per tractor decreased 3.0% to
$97,970 in 1997 from $100,967 in 1996, largely due to having less revenue
producing tractors in service due to a shortage of drivers. Competition for
drivers is intense within the trucking industry and the Company occasionally
experiences difficulty attracting and retaining qualified drivers and
owner-operators which results in the temporary idling of revenue equipment.
Total miles decreased 8.6 million, or 16.3%, to 44.2 million in 1997 from 52.8
million in 1996, largely due to having less tractors in service. Average miles
per tractor decreased 3.6% to 87,058 miles in 1997 from 90,339 miles in 1996,
largely due to having less revenue producing tractors in service due to a
shortage of drivers.
The Company's operating ratio (operating expenses divided by operating
revenues) increased 0.3%, to 95.5% in 1997 from 95.2% in 1996, largely due to
having less revenue producing tractors in service due to a shortage of drivers.
Total operating expenses decreased $8.6 million, or 15.4%, to $47.5 million in
1997, compared to $56.1 million in 1996, largely due to having less tractors in
service.
Salaries, wages, and benefits decreased $2.0 million, or 10.2%, to $17.6
million in 1997 compared to $19.6 million in 1996, largely due to having less
personnel to service the fewer tractors in service, which more than offset
increases in overall compensation of drivers that were needed to enhance driver
recruitment and retention.
Fuel expenses decreased $1.3 million, or 13.6% to $8.4 million in 1997 compared
to $9.7 million in 1996, largely due to the decrease in the number of tractors
in service, which more than offset increased fuel prices.
Depreciation and amortization expense decreased $2.3 million, or 37.3%, to $3.8
million in 1997 compared to $6.1 million in 1996, largely due to having less
tractors in service, in accordance with the Company's strategic plan of selling
68 Polar tractors.
Insurance expense decreased $0.7 million, or 30.2% to $1.5 million in 1997
compared to $2.2 million in 1996, largely due to the decrease in the number of
tractors in service.
Litigation settlement expense in 1996 represents the provision for final
settlement of all outstanding litigation related to Polar's acquisition of PEI.
Polar Express restructuring expense in 1996 represents severance payments to
terminated employees of Polar.
Interest expense decreased $0.9 million, or 35.1%, to $1.7 million in 1997
compared to $2.7 million in 1996, due to lower debt levels and a lower overall
interest rate.
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COMPARISON OF THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 WITH THE THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1996.
Net revenues decreased $4.2 million, or 21.2%, to $15.7 million in
1997, from $19.9 million in 1996, largely due to having less tractors in
service. Average revenue per tractor decreased 5.8% to $31,890 in 1997 from
$33,869 in 1996, largely due to having less revenue-producing tractors in
service due to a shortage of drivers. Competition for drivers is intense
within the trucking industry and the Company occasionally experiences
difficulty attracting and retaining qualified drivers and owner-operators which
results in the temporary idling of revenue equipment.
Total miles decreased 4.3 million, or 23.8%, to 13.8 million in 1997 from 18.1
million in 1996, largely due to having less tractors in service. Average miles
per tractor decreased 8.3% to 28,203 miles in 1997 from 30,759 miles in 1996,
largely due to having less revenue-producing tractors in service due to a
shortage of drivers.
The Company's operating ratio (operating expenses divided by operating
revenues) increased 1.6%, to 96.5% in 1997 from 94.9% in 1996, largely due to
having less revenue producing tractors in service due to a shortage of drivers.
Total operating expenses decreased $3.8 million, or 19.9%, to $15.1 million in
1997, compared to $18.9 million in 1996, largely due to having less tractors in
service.
Salaries, wages, and benefits decreased $0.6 million, or 9.8%, to $5.8 million
in 1997 compared to $6.4 million in 1996, largely due to having less personnel
to service the fewer tractors in service, which more than offset increases in
overall compensation of drivers that were needed to enhance driver recruitment
and retention.
Fuel expenses decreased $0.8 million, or 24.8% to $2.6 million in 1997 compared
to $3.4 million in 1996, largely due to the decrease in the number of tractors
in service.
Depreciation and amortization expense decreased $0.8 million, or 40.0%, to $1.2
million in 1997 compared to $2.0 million in 1996, largely due to having less
tractors in service, in accordance with the Company's strategic plan of selling
68 Polar tractors.
Interest expense decreased $0.3 million, or 32.8%, to $0.6 million in 1997
compared to $0.8 million in 1996, due to lower debt levels and a lower overall
interest rate.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had a net working capital deficit of
$6.1 million, primarily as a result of the financing of revenue equipment
purchases (noncurrent assets) through borrowings, a portion of which is
reflected in current liabilities. 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 has a revolving
bank line of credit with a $6.0 million borrowing limit based on a percentage
of eligible trade receivables, $4.2 million of which was borrowed against this
line of credit at September 30, 1997, and approximately $0.1 million was
available.
The Company's growth in prior years and the significant investment in its
modern fleet of tractors and temperature-controlled 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 $21.7 million and
$30.1 million at September 30, 1997 and December 31, 1996, respectively.
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In October 1994, the Company completed an initial public offering of its common
stock that raised net proceeds to the Company of $6.4 million. To date, the
Company has utilized proceeds to repay outstanding indebtedness under its
revolving bank line of credit and certain long-term debt obligations, to
purchase trailers, and for the AG Acquisition and the Polar Merger. The debt
to equity ratio (calculated excluding payables and other liabilities) was
1.68:1 at September 30, 1997, and 2.86:1 at December 31, 1996.
In January 1997, the Company borrowed $1 million against the appraised
value of approximately $1.5 million of a terminal and maintenance facility, and
used the proceeds to pay down current liabilities. In February 1997, the
Company entered into a purchase agreement to sell certain Polar motor carrier
equipment for $4.6 million. The transaction was completed in March 1997 and
generated $1.4 million in net cash proceeds to the Company. In July 1997, the
Company completed a private placement offering of restricted common stock that
raised net proceeds to the Company of $1.9 million.
The Company believes that available cash, cash flow from future operations, and
borrowings available under its line of credit will be sufficient to meet its
current working capital needs. On October 15, 1997, the Company obtained an
assignment of an asset purchase agreement between Gary I. Goldberg a director
of the Company, and JGT pursuant to which assignment, the Company has the right
to purchase certain assets relating to the municipal solid waste business of
JGT. The agreement is subject to certain closing conditions including the
Company's obligation to satisfy JGT that it has obtained the necessary
financing by November 30, 1997. The Company is presently in discussions with
various sources, however, no financing commitment has been obtained by the
Company as of the date of this prospectus. As the Company continues to
facilitate its planned future growth, the Company's capital needs may require
additional borrowings or an equity infusion.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K for the quarter ended September 30,
1997.
On July 3, 1997, the Company filed a Current Report on
Form 8-K to report the completion of a private offering
of its securities.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Aasche Transportation Services, Inc.
Date November 12, 1997 BY: s/Leon M. Monachos
-----------------------------------------
Leon M. Monachos, Chief Financial Officer
Date November 12, 1997 BY: s/Larry L. Asche
-----------------------------------------
Larry L. Asche, Chairman and
Chief Executive Officer
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Exhibits
10.1 Asset Purchase Agreement dated September 24, 1997 between Gary I. Goldberg
and Jack Gray Transport, Inc.
10.2 Assignment of Asset Purchase Agreement dated September 29, 1997 between
Gary I. Goldberg and Aasche Transportation Services, Inc.