SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
------------------------------------
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
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24960
Covenant Transport, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0320154
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
400 Birmingham Hwy
Chattanooga, TN 37419
(423) 821-1212
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
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 the filing requirements for at least the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (September
30, 1997):
Class A Common Stock, $.01 par value: 11,009,000 shares
Class B Common Stock, $.01 par value: 2,350,000 shares
Exhibit Index is on Page 14
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial statements
Condensed consolidated balance sheets as of
December 31, 1996 and September 30, 1997
(unaudited). . . . . . . . . . . . . . . . . . . . 3
Condensed consolidated statements of operations
for the three and nine months ended
September 30, 1996 and 1997 (unaudited). . . . . . 4
Condensed consolidated statements of cash flows
for the nine months ended September 30, 1996
and 1997 (unaudited) . . . . . . . . . . . . . . . . 5
Notes to condensed consolidated financial
statements (unaudited) . . . . . . . . . . . . . . 6
Item 2. Management's discussion and analysis
of financial condition and results
of operations . . . . . . . . . . . . . . . 7
PART II
OTHER INFORMATION
PAGE
NUMBER
Item 1. Legal proceedings. . . . . . 14
Items 2., 3., 4., and 5. Not applicable . . . . . . . 14
Item 6. Exhibits and reports on
Form 8-K . . . . . . . . . . 14
Page 2 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
ASSETS 1996 1997
-------------- --------------
(unaudited)
Current assets:
Cash and cash equivalents $ 3,492 $ 2,666
Accounts receivable, net of allowance
of $500,000 in 1996 and $800,000
in 1997 29,956 33,793
Drivers advances and other
receivables 3,231 1,494
Tire and parts inventory 880 852
Prepaid expenses 3,781 4,953
Deferred income taxes 248 259
--------------- -------------
Total current assets 41,587 44,017
Property and equipment, at cost 183,136 206,891
Less accumulated depreciation
and amortization 38,752 50,614
--------------- -------------
Net property and equipment 144,384 156,277
Other 1,177 3,781
--------------- -------------
Total assets $ 187,148 $ 204,074
=============== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 50 $ 250
Accounts payable 3,892 3,599
Accrued expenses 4,480 9,598
--------------- -------------
Total current liabilities 8,422 13,447
Long-term debt, less current maturities 83,110 80,860
Deferred income taxes 13,886 18,403
--------------- -------------
Total liabilities 105,418 112,710
Stockholders' equity:
Class A common stock, $.01 par
value; 11,009,000 shares issued
and outstanding 110 110
Class B common stock, $.01 par
value; 2,350,000 shares issued
and outstanding 23 23
Additional paid-in capital 50,470 50,615
Retained earnings 31,127 40,616
--------------- -------------
Total stockholders' equity 81,730 91,364
=============== =============
Total liabilities and stockholders' $ 187,148 $ 204,074
equity
============================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 3 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997
(in thousands except per share data)
Three months ended Nine months ended
September 30, September 30,
1996 1997 1996 1997
----------- ----------- ----------- ----------
Revenue $ 63,023 $ 75,308 $ 172,106 $ 207,956
Operating expenses:
Salaries, wages, and 28,924 33,836 79,483 93,228
related expenses
Fuel, oil, and road 13,958 15,405 39,344 45,877
expenses
Revenue equipment rentals 79 1,802 400 3,335
and purchased
transportation
Repairs 1,254 1,615 3,268 4,186
Operating taxes and 1,698 1,854 4,777 5,202
licenses
Insurance 1,619 2,109 4,486 5,800
General supplies and 3,300 3,992 9,394 11,545
expenses
Depreciation and 5,421 6,807 15,971 19,496
amortization, including
gain on disposition
of equipment
----------- ----------- ----------- ----------
Total operating expenses 56,253 67,420 157,123 188,669
----------- ----------- ----------- ----------
Operating income 6,770 7,888 14,983 19,287
Interest expense 1,582 1,384 4,443 4,228
----------- ----------- ----------- ----------
Income before income 5,188 6,504 10,540 15,059
taxes
Income tax expense 1,868 2,406 3,816 5,570
----------- ----------- ----------- ----------
Net income $ 3,320 $ 4,098 $ 6,724 $ 9,489
=========== =========== =========== ==========
Earnings per share net $ 0.25 $ 0.31 $ 0.50 $ 0.71
income
=========== =========== =========== ==========
Weighed average shares 13,359 13,359 13,359 13,359
outstanding
=========== =========== =========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 4 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997
(in thousands)
1996 1997
----------- ------------
Cash flows from operating activities:
Net income $ 6,724 $ 9,489
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on receivables 253 293
Depreciation and amortization 16,584 19,654
Deferred income taxes 2,546 4,506
Gain on disposition of property and (613) (158)
equipment
Change in operating assets and liabilities
Receivables and advances 1,872 (2,980)
Prepaid expenses (1,619) (1,172)
Tire and parts inventory 124 28
Accounts payable and accrued 2,650 4,825
expenses
----------- ------------
Net cash flows from operating activities 28,522 34,486
Cash flows from investing activities:
Acquisition of property and equipment (40,088) (41,282)
Acquisition of business - Goodwill - (975)
Acquisition of business - Covenant not - (1,275)
to compete
Proceeds from disposition of property 4,500 10,125
and equipment
----------- ------------
Net cash flows from investing activities (35,588) (33,407)
Cash flows from financing activities:
Deferred debt issuance cost (132) -
Exercise of stock options - 146
Net change in credit line 9,960 (2,050)
----------- ------------
Net cash flows from financing activities 9,828 (1,905)
----------- ------------
Net increase (decrease) in cash 2,761 (826)
Cash, beginning of period 461 3,492
=========== ============
Cash, end of period $ 3,222 $ 2,666
=========== ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Page 5 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Covenant Transport, Inc., a Nevada holding company, and its wholly
owned subsidiaries (the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The financial statements have been prepared, without audit, in
accordance with generally accepted accounting principles, pursuant to
the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, the accompanying financial statements
include all adjustments which are necessary for a fair presentation of
the results for the interim periods presented, such adjustments being
of a normal recurring nature. Certain information and footnote
disclosures have been condensed or omitted pursuant to such rules and
regulations. The December 31, 1996 Condensed Consolidated Balance Sheet
was derived from the audited balance sheet of the Company for the year
then ended. It is suggested that these condensed consolidated financial
statements and notes thereto be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996. Results of
operations in interim periods are not necessarily indicative of results
to be expected for a full year.
- ------------------------
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements in paragraphs that
are marked with an asterisk. Statements by the Company in press releases,
public filings, and stockholder reports, as well as oral public statements
by Company representatives, also may contain certain forward looking
information. Forward-looking information is subject to certain risks and
uncertainties that could cause actual results to differ materially from
those projected. Without limitation, these risks and uncertainties
include economic factors such as recessions, downturns in customers'
business cycles, surplus inventories, inflation, fuel price increases,
and higher interest rates; the resale value of the Company's used revenue
equipment; the availability and compensation of qualified drivers; and
competition from trucking, rail, and intermodal competitors. Readers
should review and consider the various disclosures made by the Company in
its press releases, stockholder reports, and public filings, as well as
the factors explained in greater detail in the Company's annual report on
Form 10-K.
Page 6 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
items to revenue for the periods indicated:
Three months Nine months
ended ended
September 30, September 30,
1996 1997 1996 1997
--------- --------- --------- --------
Revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and
related expenses 45.9 44.9 46.1 44.8
Fuel, oil, and road
expenses 22.1 20.5 22.9 22.1
Revenue equipment rentals
and purchased
transportation 0.1 2.4 0.2 1.6
Repairs 2.0 2.1 1.9 2.0
Operating taxes and
licenses 2.7 2.5 2.8 2.5
Insurance 2.5 2.8 2.6 2.8
General supplies and
expenses 5.2 5.3 5.5 5.5
Depreciation and
amortization 8.6 9.0 9.3 9.4
--------- --------- --------- ---------
Total operating
expenses 89.3 89.5 91.3 90.7
--------- --------- --------- ---------
Operating income 10.7 10.5 8.7 9.3
Interest expense 2.5 1.9 2.6 2.0
--------- --------- --------- ---------
Income before income taxes 8.2 8.6 6.1 7.3
Provision for income taxes 2.9 3.2 2.2 2.7
--------- --------- --------- ---------
Net income 5.3% 5.4% 3.9% 4.6%
========= ========= ========= =========
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue increased $12.3 million (19.5%) to $75.3 million in the 1997
period from $63.0 million in the 1996 period. The revenue increase was
primarily generated by a 15.9% increase in weighted average tractors, to
1,808 during the 1997 period from 1,560 during the 1996 period, as the
Company expanded to meet demand from new customers and higher volume from
existing customers. The Company's average revenue per loaded mile also
increased to approximately $1.13 during the 1997 period from $1.09 during
the 1996 period. The increase was attributable to per-mile rate increases
negotiated by the Company. Included in the revenue amounts were fuel
surcharges totaling approximately $320,000 during the 1997 period and
$220,000 during the 1996 period. The Company's revenue per loaded mile
in the 1997 period net of the fuel surcharges was $1.125 in
the 1997 period and $1.088 in the 1996 period. Average miles per tractor
decreased slightly to 38,850 in the 1997 period from 38,989 in the 1996
period. Deadhead was 5.1% of total miles in both the 1997 and 1996
periods. Revenue per tractor increased approximately 3.0% in the 1997
period compared with the 1996 period.
Page 7 of 15
Salaries, wages, and related expenses increased $4.9 million (17.0%), to
$33.8 million in the 1997 period from $28.9 million in the 1996 period.
As a percentage of revenue, salaries, wages, and related expenses
decreased to 44.9% of revenue in the 1997 period from 45.9% in the 1996
period. Driver wages as a percentage of revenue increased slightly to
33.7% of revenue in the 1997 period from 33.6% in the 1996 period, as a
per mile pay increase to the drivers that was effective on May 15, 1997,
more than offset higher revenue per tractor. Non-driving employee payroll
expense decreased to 5.0% of revenue in the 1997 period from 5.5% in the
1996 period as the Company improved its ratio of tractors to non-driver
employees. Employee benefits, consisting primarily of health insurance,
workers' compensation costs, and employer paid taxes, decreased to 6.3% of
revenue in the 1997 period from 6.8% in the 1996 period as the Company did
not contract with the leasing company utilized during the 1996 period and
obtained more favorable rates for health insurance during the 1997
period.
Fuel, oil, and road expenses increased $1.4 million (7.4%), to $15.4
million in the 1997 period from $14.0 million in the 1996 period. As a
percentage of revenue, fuel, oil, and road expenses decreased to 20.5% of
revenue in the 1997 period from 22.1% in the 1996 period primarily as a
result of lower per gallon fuel costs and surcharges with a greater
percentage of the Company's customers during the 1997 period. Fuel
surcharges totaled $320,000 during the 1997 period and $220,000 in the
1996 period.
Revenue equipment rentals and purchased transportation increased $1.7
million, to $1.8 million in the 1997 period from $79,000 in the 1996
period. As a percentage of revenue, revenue equipment rentals and
purchased transportation increased to 2.4% in the 1997 period from 0.1% in
the 1996 period as operating leases for revenue equipment were added in
1997 and the Company initiated the use of independent contractor
owner-operators of tractors after the 1996 period.
Repairs increased $361,000 (28.8%), to $1.6 million in the 1997 period
from $1.3 million in the 1996 period. As a percentage of revenue, repairs
remained essentially constant at 2.1% in the 1997 period and 2.0% in the
1996 period.
Operating taxes and licenses increased $156,000 (9.2%), to $1.9 million in
the 1997 period from $1.7 million in the 1996 period. As a percentage of
revenue, operating taxes and licenses decreased to 2.5% in 1997 from 2.7%
in the 1996 period.
Insurance increased $490,000 (30.3%), to $2.1 million in the 1997 period
from $1.6 million in the 1996 period. As a percentage of revenue,
insurance increased to 2.8% in the 1997 period from 2.5% in the 1996
period as a larger number of accidents resulted in additional deductibles
being paid.
General supplies and expenses, consisting primarily of driver recruiting,
communications, and facilities expenses, increased $692,000 (21.0%), to
$4.0 million in the 1997 period from $3.3 million in the 1996 period. As
a percentage of revenue, general supplies and expenses increased to 5.3%
of revenue in the 1997 period from 5.2% in the 1996 period. The 1997
increase is primarily due to higher facilities expenses related to the
Page 8 of 15
Company's new headquarters and terminal in Chattanooga, Tennessee and the
continuing rent payable on the former headquarters.
Depreciation and amortization, consisting primarily of depreciation of
revenue equipment, increased $1,386,000 (25.6%), to $6.8 million in the
1997 period from $5.4 million in the 1996 period. As a percentage of
revenue, depreciation and amortization increased to 9.0% in the 1997
period from 8.6% in the 1996 period. The increase as percentage of
revenue occurred due to a $400,000 gain on sale of equipment during the
1996 period, which offset depreciation more than the higher revenue per
tractor during the 1997 period.
As a result of the foregoing, the Company's operating ratio was 89.5% in
the 1997 period and 89.3% for 1996.
Interest expense declined $198,000 (12.5%), to $1.4 million for the 1997
period from $1.6 million in the 1996 period. Interest expense decreased
to 1.9% of revenue in the 1997 period from 2.5% in the 1996 period, due
to lower average debt balances ($83.7 million in the 1997 period compared
with $88.7 million in the 1996 period) as well as lower average interest
rates (6.8% in the 1997 period compared with 7.3% in the 1996 period) and
higher revenue in 1997.
The Company's effective tax rate was 37.0% in the 1997 period compared
with 36.0% in the 1996 period reflecting increased state income taxes in
the 1997 period. The effective tax rate is expected to average
approximately 37.0% for the remainder of 1997. (*)
Primarily as a result of the factors described above, net income increased
to $4.1 million in the 1997 period (5.4% of revenue) from $3.3 million in
the 1996 period (5.3% of revenue).
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenue increased $35.9 million (20.8%), to $208.0 million in the 1997
period from $172.1 million in the 1996 period. The revenue increase was
primarily generated by a 19.3% increase in weighted average tractors, to
1,767 during the 1997 period from 1,481 during the 1996 period, as the
Company expanded to meet demand from new customers and higher volume from
existing customers. The Company's average revenue per loaded mile also
increased to approximately $1.121 during the 1997 period from $1.089
during the 1996 period. The increase was attributable to per-mile rate
increases negotiated by the Company and approximately $1.8 million in fuel
surcharge revenue during the 1997 period as compared to $806,000 during
the 1996 period. The Company's revenue per loaded mile net of the fuel
surcharges was $1.111 in the 1997 period and $1.084 in the 1996 period.
Average miles per tractor decreased to 110,641 in the 1997 period from
112,732 in the 1996 period. Deadhead improved to 5.2% of total miles in
the 1997 period from 5.3% in the 1996 period. Revenue per tractor
increased 0.6% in the 1997 period compared with the 1996 period.
- --------
(*) May contain forward-looking statements.
Page 9 of 15
Salaries, wages, and related expenses increased $13.7 million (34.9%), to
$93.2 million in the 1997 period from $79.5 million in the 1996 period.
As a percentage of revenue, salaries, wages, and related expenses
decreased to 44.8% of revenue in the 1997 period from 46.1% in the 1996
period. Driver wages as a percentage of revenue decreased to 33.2% in the
1997 period from 33.5% in the 1996 period. Non-driving employee payroll
expense decreased to 5.2% in the 1997 period from 5.3% in the 1996.
Employee benefits, consisting primarily of health insurance, workers'
compensation costs, and employer paid taxes, decreased to 6.5% of revenue
in the 1997 period from 7.4% in the 1996 period as the Company did not
contract with the leasing company utilized during the 1996 period and
obtained more favorable rates for health insurance during the 1997 period.
Fuel, oil, and road expenses increased $6.5 million (16.6%), to $45.9
million in the 1997 period from $39.3 million in the 1996 period. As a
percentage of revenue, fuel, oil, and road expenses decreased to 22.1% of
revenue in the 1997 period from 22.9% in the 1996 period. Fuel
surcharges totaled $1.8 million during the 1997 period and $806,000 in
the 1996 period.
Revenue equipment rentals and purchased transportation increased $2.9
million, to $3.3 million in the 1997 period from $400,000 in the 1996
period. As a percentage of revenue, revenue equipment rentals and
purchased transportation increased to 1.6% in the 1997 period from 0.2% in
the 1996 period as operating leases for revenue equipment were added in
1997 and the Company initiated the use of independent contractor
owner-operators of tractors during the 1997 period.
Repairs increased $918,000 (28.1%), to $4.2 million in the 1997 period
from $3.3 million in the 1996 period. As a percentage of revenue,
repairs remained essentially constant at 2.0% of revenue in the 1997
period and 1.9% in the 1996 period.
Operating taxes and licenses increased $425,000 (8.9%), to $5.2 million in
the 1997 period from $4.8 million in the 1996 period. As a percentage of
revenue, operating taxes and licenses decreased to 2.5% in the 1997
period from 2.8% in the 1996 period.
Insurance increased $1.3 million (29.3%), to $5.8 million in the 1997
period from $4.5 million in the 1996 period. As a percentage of revenue,
insurance increased to 2.8% of revenue in the 1997 period from 2.6% in the
1996 period as a larger number of accidents resulted in additional
deductibles being paid.
General supplies and expenses, consisting primarily of driver recruiting,
communications expenses, and facilities expenses, increased $2.2 million
(22.9%), to $11.5 million in the 1997 period from $9.4 million in the 1996
period. As a percentage of revenue, general supplies and expenses
remained constant at 5.5% in each period.
Depreciation and amortization, consisting primarily of depreciation of
revenue equipment, increased $3.5 million (22.1%), to $19.5 million in the
1997 period from $16.0 million in the 1996 period. As a percentage of
revenue, depreciation and amortization remained essentially constant at
9.4% in the 1997 period and 9.3% in the 1996 period. The use of operating
leases and independent contractors and slightly higher revenue per tractor
Page 10 of 15
during the 1997 period more than offset a larger gain on disposition of
revenue equipment during the 1996 period.
As a result of the foregoing, the Company's operating ratio was 90.7% in
the 1997 and 91.3% in the 1996 period.
Interest expense decreased $215,000 (4.8%), to $4.2 million in the 1997
period from $4.4 million in the 1996 period. Interest expense decreased
to 2.0% of revenue in the 1997 period from 2.6% in the 1996 period, as
higher average debt balances ($85.7 million in the 1997 period compared
with $84.6 million in the 1996 period) were offset by lower average
interest rates (6.8% in the 1997 period compared with 7.1% in the 1996
period) and higher revenue in 1997.
The Company's effective tax rate was 37.0% in the 1997 period compared
with 36.2% in the 1996 period reflecting increased state income taxes in
the 1997 period. The effective tax rate is expected to average
approximately 37.0% for the remainder of 1997. (*)
Primarily as a result of the factors described above, net income increased
to $9.5 million in the 1997 period (4.6% of revenue) from $6.7 million in
the 1996 period (3.9% of revenue).
LIQUIDITY AND CAPITAL RESOURCES
The growth of the Company's business has required significant investments
in new revenue equipment. The Company historically has financed its
revenue equipment requirements with borrowings under a line of credit,
senior notes, cash flows from operations, and operating leases. The
Company's primary sources of liquidity at September 30, 1997, were funds
provided by operations, borrowings under its credit agreement, funds
provided from its $25 million in senior notes, and an operating lease
covering its new headquarters and terminal facility. The Company's use of
owner-operator providers of tractors also permits the Company to expand
with lower capital expenditure than purchasing all of its tractors.
Management believes that the Company's sources of liquidity are adequate
to meet currently anticipated working capital, capital expenditure, and
other needs. (*)
The Company's primary source of cash flow from operations is net income
increased by depreciation and deferred income taxes. Historically,
financing increases in receivables and advances associated with the
Company's revenue growth has been a significant use of cash provided by
operations. In the 1996 period, however, receivables and advances
decreased due to collection of an "other receivable" and rectifying an
accounts receivable imbalance caused during conversion to a new computer
billing system that had occurred at the end of 1995, which resulted in
$1.9 million in operating cash flows. Management believes that cash
flows in the 1997 period are more representative of a normalized period.
Net cash provided by operating activities was $34.5 million in the 1997
period and $28.5 million in the 1996 period. (**)
- --------
(*) May contain forward-looking statements.
(**) May contain forward-looking statements.
Page 11 of 15
Net cash used in investing activities was $33.4 million in the 1997 period
and $35.6 million in the 1996 period. These investments were primarily to
acquire additional revenue equipment as the Company expanded its
operations. Approximately $2.3 million represented the purchase price for
the customer list and business of a truckload carrier acquired in August
1997. All of the purchase price was allocated to covenants-not-to-compete
and goodwill. The Company expects to expend an additional $14.0 million
on capital expenditures during 1997, including $5.2 million for the
purchase of all of the stock of Bud Meyer Truck Lines, Inc., a $45 million
annual revenue (1996) truckload carrier acquired in October 1997 and
approximately $7.0 million on new revenue equipment, net of dispositions.
(*)
Net cash provided by financing activities of $1.9 million in the 1997
period and $9.8 million in the 1996 period. The cash provided was
related to borrowings under a credit agreement in each period.
At September 30, 1997, the Company had outstanding debt of $81.1 million,
substantially all of which related to draws under its credit agreement and
$25 million in senior notes. Interest rates on this debt ranged from 6.2%
to 7.4% at September 30, 1997.
The Company's credit agreement has a term of five years and a maximum
borrowing limit of $85 million. At September 30, 1997, $55 million was
drawn under the Company's credit agreement. The credit agreement is with
a syndicate of banks and provides for outstanding borrowings to bear
interest at the London Interbank Offered Rate (LIBOR) plus an applicable
margin between 0.375% and 1.0%. For the quarter ended September 30, 1997,
the applicable margin was 0.50%. During February 1997, the Company
entered into an interest rate swap agreement that fixed interest rates
for two years on $25 million of the borrowings under the credit agreement
at 6.1% plus the applicable margin, and during October 1997, the Company
entered into an interest rate swap agreement that fixed interest rates for
two years on $10 million of the borrowings under the credit agreement at
6.0% plus the applicable margin. All remaining borrowings under the credit
agreement are at one, two, or three month LIBOR plus the applicable
margin. The Company is presently negotiating an increase in the facility
to $100 million to provide for future needs. (*)
The Company also has outstanding $25 million in senior notes due October
2005 that were placed with an insurance company. The notes bear interest
at 7.4%, payable semi-annually. Principal payments are due in equal
annual installments beginning in October 2001.
In December 1996, the Company took possession of its new headquarters and
terminal facility. The facility was constructed under a "build-to-suit"
operating lease and is expected to increase the Company's annual
facilities costs by approximately $750,000.
The credit agreement, senior notes, and headquarters and terminal lease
agreement contain certain restrictions and covenants relating to, among
other things, dividends, tangible net worth, cash flow, acquisitions and
dispositions, and total indebtedness. All of these agreements are
cross-defaulted. The Company was in compliance with the agreements at
September 30, 1997.
Page 12 of 15
COVENANT TRANSPORT, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
No reportable events or material changes occurred during
the quarter for which this report is filed.
Items 2, 3,
4 and 5. Not applicable
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
10.3** Credit Agreement dated January 17, 1995, among Covenant
Transport, Inc., a Tennessee corporation, ABN-AMRO Bank
N.V., as agent, and certain other banks, filed as
Exhibit 10 to the Company's Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein by
reference.
10.4* Lease dated January 1, 1990, between David R. and
Jacqueline F. Parker and Covenant Transport, Inc, a
Tennessee corporation, with respect to the Chattanooga,
Tennessee headquarters, filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1,
Registration No. 33-82978, effective October 28, 1994,
and incorporated herein by reference.
10.5* Lease dated June 1, 1994, between David R. and Jacqueline
F. Parker and Covenant Transport, Inc, a Tennessee
corporation, with respect to terminal facility in Greer,
South Carolina, filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-1, Registration
No. 33-82978, effective October 28, 1994, and
incorporated herein by reference.
10.8* Incentive Stock Plan.
10.9* 401(k) Plan.
10.12*** Note Purchase Agreement dated October 15, 1995, among
Covenant Transport, Inc, a Tennessee corporation and
CIG & Co.
10.13*** First Amendment to Credit Agreement and Waiver dated
October 15, 1995.
10.14**** Participation Agreement dated March 29, 1996, among
Covenant Transport, Inc, a Tennessee corporation, Lease
Plan USA, Inc., and ABN-AMRO Bank, N.V., Atlanta Agency.
10.15**** Second Amendment to Credit Agreement and Waiver dated
April 12, 1996.
10.16**** First Amendment to Note Purchase Agreement and Waiver
dated April 1, 1996.
10.17***** Third Amendment to Credit Agreement and Waiver dated
March 31, 1997.
10.18***** Waiver to Note Purchase Agreement dated March 31, 1997.
11+ Statement re: Computation of Per Share Earnings.
27+ Financial data schedule (not included in paper filing).
Page 13 of 15
- ------------------------
+ Filed herewith.
* Filed as an exhibit to the registrant's Registration
Statement on Form S-1, Registration No. 33-82978,
effective October 28, 1994, and incorporated herein
by reference.
** Filed as an exhibit to the registrant's Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by
reference.
*** Filed as an exhibit to the registrant's Form 10-K for the
year ended December 31, 1995, and incorporated herein by
reference.
**** Filed as an exhibit to the registrant's Form 10-Q for the
quarter ended March 31, 1996, and incorporated herein by
reference.
***** Filed as an exhibit to the registrant's Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by
reference.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COVENANT TRANSPORT, INC.
Date: November 14, 1997 /s/ David R. Parker
David R. Parker
Chairman, President, and
Chief Executive Officer
Page 14 of 14