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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 JUNE 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.
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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 Identification No.)
Incorporation or Organization)
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)
June 30, December 31,
1998 1997
----------- -------------
(Unaudited)
ASSETS
Current assets:
Trade receivables, net $ 13,130 $ 5,449
Prepaid expenses and other current assets 5,437 2,691
-------- --------
Total current assets 18,567 8,140
Property and equipment, at cost 56,789 32,931
Less accumulated depreciation and amortization (13,956) (13,755)
-------- --------
Net property and equipment 42,833 19,176
-------- --------
Excess of cost over net assets acquired, net 11,713 7,340
Debt issuance cost, net 1,048 --
Other assets 3,383 851
-------- --------
TOTAL ASSETS $ 77,544 $ 35,507
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 448 $ 312
Accounts payable 2,572 788
Accrued liabilities 2,433 1,234
Guaranteed obligation of Employee Stock Ownership Plan 194 203
Line of credit -- 3,817
Current maturities of long-term debt with unrelated parties 3,805 2,752
Current maturities of long-term debt with related party 995 995
Current maturities of capital lease obligations with unrelated parties 3,322 2,696
Current maturities of capital lease obligations with related parties 437 669
-------- --------
Total current liabilities 14,206 13,466
Line of credit 9,632 --
Long-term debt with unrelated parties, less current maturities 17,415 3,745
Long-term debt with related party, less current maturities 1,053 1,550
Capital lease obligations with unrelated parties, less current maturities 6,374 2,787
Capital lease obligations with related parties, less current maturities 33 144
Minority interest 529 --
Subordinated debt 12,694 --
Deferred income taxes 1,006 1,006
Other 357 --
-------- --------
Total liabilities 63,299 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 (194) (203)
Accumulated deficit (3,319) (3,553)
-------- --------
Total stockholders' equity 14,245 12,809
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 77,544 $ 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
NET REVENUES $ 29,129 $ 16,799 $ 51,299 $ 34,111
OPERATING EXPENSES:
Salaries, wages and benefits 10,774 5,723 18,906 11,868
Fuel 3,516 2,724 6,416 5,823
Purchased transportation 6,338 2,789 10,558 5,614
Supplies and maintenance 3,315 1,710 5,166 3,198
Depreciation and amortization 1,852 1,245 3,509 2,641
Taxes and licenses 397 420 798 882
Insurance 697 482 1,375 993
Communications and utilities 327 202 622 424
Gain on disposition of equipment (22) (27) (48) (64)
Other 167 497 580 1,012
----------- ---------- ----------- ----------
Total operating expenses 27,361 15,765 47,882 32,391
----------- ---------- ----------- ----------
OPERATING INCOME 1,768 1,034 3,417 1,720
OTHER (EXPENSES) INCOME:
Interest expense (1,387) (586) (2,225) (1,173)
Warrant accretion expense (214) -- (357) --
Debt issuance cost (76) -- (127) --
Amortization of debt discount (72) -- (120) --
Minority interest expense (17) -- (29) --
Other 127 12 184 16
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAX PROVISION 129 460 743 563
INCOME TAX PROVISION (181) (299) (509) (366)
----------- ---------- ----------- ----------
NET (LOSS) INCOME $ (52) $ 161 $ 234 $ 197
=========== =========== =========== ===========
NET (LOSS) INCOME PER COMMON SHARE:
BASIC $ (0.01) $ 0.04 $ 0.05 $ 0.05
=========== =========== =========== ===========
DILUTED $ (0.01) $ 0.04 $ 0.05 $ 0.05
=========== =========== =========== ===========
Weighted average common shares outstanding 4,612,930 4,019,420 4,556,575 4,003,689
=========== =========== =========== ===========
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
Stock
Ownership
Common Stock Additional Plan Total
$.0001 Par Value 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 -- -- -- 9 -- 9
Net income -- -- -- -- 234 234
--------- -------- --------- ---------- --------- ---------
Balance at June 30, 1998 4,626,130 $ -- $ 17,758 $ (194) $ (3,319) $ 14,245
========= ======== ========= ========== ========= =========
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)
Six Months Ended
June 30,
----------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 234 $ 197
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 3,509 2,641
Gain on disposition of equipment (48) (64)
Other 633 --
Changes in other current operating items:
Trade receivables (7,681) 847
Prepaid expenses and other assets (2,413) (548)
Accounts payable 1,784 (1,070)
Accrued liabilities 1,199 (45)
-------- --------
Net cash (used in) provided by operating activities (2,783) 1,958
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Revenue equipment (3,283) (629)
Building, office equipment and other (153) (62)
Proceeds from the sale of equipment 5,927 4,785
Purchase of Specialty Transportation Services, Inc. (31,564) --
-------- --------
Net cash (used in) provided by investing activities (29,073) 4,094
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt with unrelated parties 18,042 --
Borrowings of subordinated debt 13,375 --
Minority interest 500 --
Debt issuance cost (1,175) --
Net borrowings (repayments) on lines of credit 5,815 (825)
Principal payments on long-term debt with unrelated parties (3,318) (2,943)
Principal payments on long-term debt with related party (498) (786)
Principal payments on capital leases with unrelated parties (1,046) (1,946)
Principal payments on capial leases with related parties (367) (352)
Issuance of common stock -- 1,306
Proceeds from exercise of options and warrants 392 --
-------- --------
Net cash provided by (used in) financing activities 31,720 (5,546)
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (136) 506
CASH AND CASH EQUIVALENTS (CASH OVERDRAFT):
Beginning of period (312) (349)
-------- --------
End of period $ (448) $ 157
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid $ 2,257 $ 1,163
======== ========
======== ========
Income taxes paid $ 313 $ --
======== ========
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
June 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, 1996, and 1995, 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 Tranport, 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 $4,575 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
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from transfer stations to landfill sites owned by either the municipality or a
waste services company. Subsequent to 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 six months ended June 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.
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
Net revenues $ 54,733 $ 51,154
Net income (loss) 232 (94)
Net income (loss) per common share:
Basic 0.05 (0.02)
Diluted 0.05 (0.02)
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 June 30, 1998 and 1997 in connection with
options and warrants amount to 852,175 shares and 78,139 shares, respectively.
Diluted weighted average shares outstanding for the six months ended June 30,
1998 and 1997 in connection with options and warrants amount to 564,295 shares
and 91,686 shares, respectively.
NOTE 4 - 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.
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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 six
months ended June 30, 1997 do not include STS and the results from operations
for the six months ended June 30, 1998 only include STS since the date of its
acquisition.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTH PERIOD ENDED JUNE 30, 1998 WITH THE SIX MONTH PERIOD
ENDED JUNE 30, 1997.
Net revenues increased $17.2 million, or 50.4%, to $51.3 million in 1998, from
$34.1 million in 1997, largely due to the STS Acquisition. During the first half
of 1998, the Company increased its revenue producing power units by 353 units.
Without giving effect to the additional net revenues contributed by the STS
Acquisition, the Company's net revenues decreased by $2.8 million, or 8.2%, due
to having less tractors in service.
Total miles increased 9.1 million, or 29.9%, to 39.5 million in 1998 from 30.4
million in 1997, largely due to the STS Acquisition. Average miles per tractor
decreased 10.1% to 54,839 miles in 1998 from 61,000 miles in 1997. Average
revenue per tractor increased 2.7% to $71,179 in 1998 from $69,331 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 4.0 million, or 13.2%, due to having less tractors in
service. 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 1.7%, to 93.3% in 1998 from 95.0% 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 0.2%, to 94.8% in 1998 from 95.0% in 1997. Total operating
expenses increased $15.5 million, or 47.8%, to $47.9 million in 1998, compared
to $32.4 million in 1997, largely due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's total operating expenses decreased
by $2.7 million, or 8.3%, due primarily to having less tractors in service and
decreased fuel prices.
Salaries, wages and benefits increased $7.0 million, or 59.3%, to $18.9 million
in 1998 compared to $11.9 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 decreased by $0.1 million, or 0.4%,
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 increased $0.6 million, or 10.2%, to $6.4 million in 1998 compared
to $5.8 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 $1.3 million or 22.8%,
largely due to the decrease in the number of tractors in service and decreased
fuel prices.
Purchased transportation expense increased $4.9 million, or 88.1%, to $10.6
million in 1998 compared to $5.6 million in 1997, largely due to the STS
Acquisition. Without giving effect to the STS Acquisition, the Company's
purchased transportation expense increased by $0.4 million, or 6.8%, due to an
increase in contractor operated units.
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Supplies and maintenance expenses increased $2.0 million, or 61.5%, to $5.2
million in 1998 compared to $3.2 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 $0.6 million, or 18.4%, due to a
decrease in company-owned units in service.
Depreciation and amortization expense increased $0.9 million, or 32.9%, to $3.5
million in 1998 compared to $2.6 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 $0.4 million or 13.2%, due to
a decrease in company-owned units in service.
Insurance expense increased $0.4 million, or 38.5%, to $1.4 million in 1998
compared to $1.0 million in 1997, due to the STS Acquisition.
Interest expense increased $1.1 million, or 89.7%, to $2.2 million in 1998
compared to $1.2 million in 1997, due to the STS Acquisition. Without giving
effect to the STS Acquisition, the Company's interest expense decreased $0.5
million, due to lower levels of debt. Outstanding debt and capital lease
obligations aggregated $56.0 million at June 30, 1998 compared with $23.2
million at June 30, 1997.
Warrant accretion expense of $357 in 1998 represents the accretion of STS
warrants.
Debt issuance cost of $127 in 1998 represents the amortization of debt issuance
costs in connection with the STS Acquisition.
Amortization of debt discount of $120 in 1998 represents the amortization of
debt discount in connection with the STS Acquisition.
Minority interest expense of $29 in 1998 represents the increase in minority
interest in connection with the STS Acquisition.
The effective income tax rates of 68.5% 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 JUNE 30, 1998 WITH THE THREE MONTH
PERIOD ENDED JUNE 30, 1997.
Net revenues increased $12.3 million, or 73.4%, to $29.1 million in 1998, from
$16.8 million in 1997, largely due to the STS Acquisition. During the first half
of 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 $0.8 million, or 4.7%, due
to having less tractors in service.
Total miles increased 7.1 million, or 47.7%, to 22.0 million in 1998 from 14.9
million in 1997, largely due to the STS Acquisition. Average miles per tractor
decreased 7.1% to 28,069 miles in 1998 from 30,198 miles in 1997. Average
revenue per tractor increased 8.7% to $37,121 in 1998 from $34,144 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 1.4 million, or 9.4%, due to having less tractors in service.
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)
increased 0.1%, to 93.9% in 1998 from 93.8% in 1997. Without giving effect to
the STS Acquisition, the Company's operating ratio increased 0.7%, to 94.5% in
1998 from 93.8% in 1997. Total operating expenses increased $11.6 million, or
73.6%, to $27.4 million in 1998, compared to $15.8 million in 1997, largely due
to the STS Acquisition. Without giving effect to the STS Acquisition, the
Company's total operating expenses decreased by $0.6 million, or 4.3%, due
primarily to having less tractors in service and decreased fuel prices.
Salaries, wages and benefits increased $5.1 million, or 88.3%, to $10.8 million
in 1998 compared to $5.7 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
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increased by $0.4 million, or 7.2%, 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.
Fuel expenses increased $0.8 million, or 29.1%, to $3.5 million in 1998 compared
to $2.7 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 $0.4 million or 15.7%,
largely due to the decrease in the number of tractors in service and decreased
fuel prices.
Purchased transportation expense increased $3.5 million, or 127.2%, 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 $0.3 million, or 10.9%, due to an
increase in contractor operated units.
Supplies and maintenance expenses increased $1.6 million, or 93.9%, to $3.3
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 $0.3 million, or 19.1%, due to a
decrease in company-owned units in service.
Depreciation and amortization expense increased $0.6 million, or 48.8%, to $1.9
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 $0.1 million or 9.4%, due to
a decrease in company-owned units in service.
Insurance expense increased $0.2 million, or 44.6%, to $0.7 million in 1998
compared to $0.5 million in 1997, due to the STS Acquisition.
Interest expense increased $0.8 million, or 136.7%, 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 $56.0 million at June 30, 1998 compared with $23.2
million at June 30, 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.
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 140.3% and 65.0% 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 June 30, 1998, the Company had net working capital of $4.4 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 has two revolving bank lines of credit with a total borrowing limit
of $12.0 million based on a percentage of eligible trade receivables, $9.6
million of which was borrowed against these lines of credit at June 30, 1998,
and approximately $1.1 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.
The Company's growth in prior years 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
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$56.0 million and $23.2 million at June 30, 1998 and 1997, respectively. The
debt to equity ratio (calculated excluding payables and other liabilities) was
3.93:1 at June 30, 1998 and 1.90:1 at June 30, 1997. During 1998, the Company
increased its owned fleet size by 353 tractors and 494 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 in 1998, 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 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 Division 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.
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.
(a)(i) Date of Meeting.
On May 13, 1998, the Company held its Annual Meeting of
Stockholders.
(b)(i) Description of each matter voted on and number of votes cast.
The following actions were taken at the annual meeting:
1. To elect Larry L. Asche as a Class I director.
FOR AGAINST ABSTAIN
3,497,092 -- 44,292
2. To elect Leon M. Monachos as a Class I director.
FOR AGAINST ABSTAIN
3,495,892 -- 45,492
3. To elect Gary I. Goldberg as a Class I director.
FOR AGAINST ABSTAIN
3,495,892 -- 45,492
4. To elect Dennis D. Wilson as a Class I director.
FOR AGAINST ABSTAIN
3,497,092 -- 44,292
5. To adopt an Amendment to the Company's Stock Option Plan.
FOR AGAINST ABSTAIN
3,381,946 128,935 30,503
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Loan and Security Agreement between Asche Transfer, Inc.,
AG Carriers, Inc. and American National Bank and Trust
Company of Chicago dated June 23, 1998
10.2 Secured Guaranty by Aasche Transportation Services, Inc.
in favor of American National Bank and Trust Company of
Chicago dated June 23, 1998.
10.3 ESOP Loan and Security Agreement between Aasche
Transportation Services, Inc. Employees' Stock Ownership
Trust and American National Bank and Trust Company of
Chicago dated June 23, 1998.
10.4 Continuing Unconditional Guaranty by Aasche Transportation
Services, Inc. in favor of American National Bank and
Trust Company of Chicago dated June 23, 1998.
10.5 Continuing Unconditional Guaranty by Asche Transfer, Inc.
in favor of American National Bank and Trust Company of
Chicago dated June 23, 1998.
10.6 Continuing Unconditional Guaranty by AG Carriers, Inc. in
favor of American National Bank and Trust Company of
Chicago dated June 23,1998.
10.7 First Amendment to the Stock Option Plan.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the calender quarter
ended June 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 August 13, 1998 BY: s/Leon M. Monachos
-----------------------------------------
Leon M. Monachos, Chief Financial Officer
Date August 13, 1998 BY: s/Larry L. Asche
------------------------------------------
Larry L. Asche, Chairman and
Chief Executive Officer
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