[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| TRANSPORT CORPORATION OF AMERICA, INC. | |||
| (Exact name of registrant as specified in its charter) | |||
| Minnesota | 41-1386925 | ||
| (State or other jurisdiction | (I.R.S. Employer | ||
| of incorporation or organization) | Identification No.) | ||
| 1715 Yankee Doodle Road Eagan, Minnesota 55121 |
||
| (Address of principal executive offices and zip code) |
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):
YES NO X .
As of April 26, 2004, the Company had outstanding 6,969,449 shares of Common Stock, $.01 par value.
TRANSPORT CORPORATION OF AMERICA, INC.
Quarterly Report on Form 10-Q
Part I. |
FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | ||||
| Consolidated Balance Sheets as of | |||||
| March 31, 2004 and December 31, 2003 | Page 3 | ||||
| Consolidated Statements of Operations for the three | |||||
| months ended March 31, 2004 and 2003 | Page 4 | ||||
| Consolidated Statements of Cash Flows for the | |||||
| three months ended March 31, 2004 and 2003 | Page 5 | ||||
| Notes to Consolidated Financial Statements | Page 6 | ||||
Item 2. | Management’s Discussion and Analysis of Financial | ||||
| Condition and Results of Operations | Page 10 | ||||
Item 3. | Quantitative and Qualitative Disclosure about Market Risk | Page 18 | |||
Item 4. | Controls and Procedures | Page 19 | |||
Part II. | OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | Page 19 | |||
Item 2. | Changes in Securities, Use of Proceeds, and | ||||
| Issuer Purchases of Equity Securities | Page 19 | ||||
Item 3. | Defaults Upon Senior Securities | Page 19 | |||
Item 4. | Submission of Matters to a Vote of Security Holders | Page 19 | |||
Item 5. | Other Information | Page 19 | |||
Item 6. | Exhibits and Reports on Form 8-K | Page 20 |
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Item 1. Financial Statements
Transport Corporation of America, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
| Assets | March 31, 2004 | December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 4,054 | $ | 2,345 | |||||
| Trade accounts receivable, net | 27,589 | 24,978 | |||||||
| Other receivables | 1,757 | 1,200 | |||||||
| Operating supplies - inventory | 777 | 813 | |||||||
| Deferred income tax benefit | 6,189 | 6,452 | |||||||
| Prepaid expenses | 4,552 | 2,894 | |||||||
| Total current assets | 44,918 | 38,682 | |||||||
Property and equipment: | |||||||||
| Land, buildings, and improvements | 16,302 | 16,237 | |||||||
| Revenue equipment | 180,840 | 180,970 | |||||||
| Other equipment | 21,563 | 21,436 | |||||||
| Total property and equipment | 218,705 | 218,643 | |||||||
| Less accumulated depreciation | (98,044 | ) | (94,102 | ) | |||||
| Property and equipment, net | 120,661 | 124,541 | |||||||
Other assets, net | 1,633 | 2,045 | |||||||
| Total assets | 167,212 | 165,268 | |||||||
Liabilities and Shareholders’ Equity | |||||||||
| Current liabilities: | |||||||||
| Current maturities of long-term debt | 8,758 | 8,843 | |||||||
| Current maturities of capital lease obligations | 4,402 | 4,328 | |||||||
| Accounts payable | 7,404 | 3,526 | |||||||
| Checks issued in excess of cash balances | 1,492 | 1,066 | |||||||
| Due to independent contractors | 2,379 | 1,545 | |||||||
| Accrued expenses | 20,879 | 19,407 | |||||||
| Total current liabilities | 45,314 | 38,715 | |||||||
Long-term debt, less current maturities | 26,743 | 28,929 | |||||||
| Capital lease obligations, less current maturities | 11,691 | 12,820 | |||||||
Deferred income taxes | 25,869 | 26,103 | |||||||
Shareholders’ equity: | |||||||||
| Common stock, $.01 par value; 15,000,000 shares authorized, | |||||||||
| 6,985,849 and 7,141,730 shares issued and outstanding as of | |||||||||
| March 31, 2004 and December 31, 2003, respectively | 70 | 71 | |||||||
| Additional paid-in capital | 28,713 | 29,889 | |||||||
| Retained earnings | 28,812 | 28,741 | |||||||
| Total shareholders’ equity | 57,595 | 58,701 | |||||||
| Total liabilities and shareholders’ equity | $ | 167,212 | $ | 165,268 | |||||
See accompanying notes to consolidated financial statements
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Transport Corporation of America, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| Three months ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Operating revenues | $ | 62,143 | $ | 67,101 | ||||
Operating expenses: | ||||||||
| Salaries, wages, and benefits | 18,195 | 18,665 | ||||||
| Fuel, maintenance, and other expenses | 9,390 | 10,883 | ||||||
| Purchased transportation | 20,591 | 23,767 | ||||||
| Revenue equipment leases | 268 | 260 | ||||||
| Depreciation and amortization | 5,743 | 6,338 | ||||||
| Insurance, claims and damage | 3,142 | 2,919 | ||||||
| Taxes and licenses | 1,101 | 1,204 | ||||||
| Communications | 443 | 537 | ||||||
| Other general and administrative expenses | 2,310 | 2,480 | ||||||
| Impairment of revenue equipment | — | (278 | ) | |||||
| Gain (loss) on sale of property and equipment | (2 | ) | 7 | |||||
| Total operating expenses | 61,181 | 66,782 | ||||||
Operating income (loss) | 962 | 319 | ||||||
Interest expense | 854 | 1,156 | ||||||
| Interest income | (9 | ) | (81 | ) | ||||
| Interest expense, net | 845 | 1,075 | ||||||
Earnings (loss) before income taxes and cumulative | ||||||||
| effect of change in accounting principle | 117 | (756 | ) | |||||
Provision (benefit) for income taxes | 46 | (302 | ) | |||||
Earnings (loss) before cumulative effect | ||||||||
| of change in accounting principle | 71 | (454 | ) | |||||
Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (64 | ) | |||||
Net earnings (loss) | $ | 71 | $ | (518 | ) | |||
Earnings (loss) per share – basic: | ||||||||
| Before cumulative effect of change | ||||||||
| in accounting principle | 0.01 | (0.06 | ) | |||||
| Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (0.01 | ) | |||||
| Net earnings (loss) per share | $ | 0.01 | $ | (0.07 | ) | |||
Earnings (loss) per share – diluted: | ||||||||
| Before cumulative effect of change | ||||||||
| in accounting principle | 0.01 | (0.06 | ) | |||||
| Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (0.01 | ) | |||||
| Net earnings (loss) per share | $ | 0.01 | $ | (0.07 | ) | |||
Average common shares outstanding: | ||||||||
| Basic | 7,087,215 | 7,217,394 | ||||||
| Diluted | 7,199,488 | 7,217,394 | ||||||
See accompanying notes to consolidated financial statements
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Transport Corporation of America, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Operating activities: | ||||||||
| Net earnings (loss) | $ | 71 | $ | (518 | ) | |||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 5,743 | 6,338 | ||||||
| Cumulative effect of change in accounting | ||||||||
| principle, net of tax effect | — | 64 | ||||||
| Impairment of revenue equipment | — | (278 | ) | |||||
| Gain (loss) on sale of property and equipment | (2 | ) | 7 | |||||
| Deferred income taxes | 29 | (365 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Trade receivables | (2,611 | ) | (1,879 | ) | ||||
| Other receivables | (557 | ) | 1,086 | |||||
| Operating supplies – inventory | 36 | 98 | ||||||
| Prepaid expenses | (1,658 | ) | (2,801 | ) | ||||
| Other assets | 412 | (298 | ) | |||||
| Accounts payable | 3,878 | 418 | ||||||
| Due to independent contractors | 834 | 1,008 | ||||||
| Accrued expenses | 1,472 | (12 | ) | |||||
| Net cash provided by operating activities | 7,647 | 2,868 | ||||||
| Investing activities: | ||||||||
| Purchases of revenue equipment | (2,751 | ) | (401 | ) | ||||
| Purchases of property and other equipment | (215 | ) | (288 | ) | ||||
| Proceeds from disposition of property and equipment | 1,105 | 317 | ||||||
| Net cash used by investing activities | (1,861 | ) | (372 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of common stock, | ||||||||
| and exercise of options and warrants | 24 | 18 | ||||||
| Payments for repurchase and retirement of common stock | (1,201 | ) | (109 | ) | ||||
| Proceeds from issuance of long-term debt | — | 655 | ||||||
| Principal payments on long-term debt and capital leases | (3,326 | ) | (4,182 | ) | ||||
| Proceeds from issuance of notes payable to bank | 100 | 20,950 | ||||||
| Principal payments on notes payable to bank | (100 | ) | (20,200 | ) | ||||
| Change in net checks issued in excess of cash balances | 426 | 369 | ||||||
| Net cash used by financing activities | (4,077 | ) | (2,499 | ) | ||||
| Net increase (decrease) in cash | 1,709 | (3 | ) | |||||
| Cash and cash equivalents, beginning of period | 2,345 | 124 | ||||||
| Cash and cash equivalents, end of period | $ | 4,054 | $ | 121 | ||||
Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 761 | $ | 1,186 | ||||
| Income taxes | 73 | 112 | ||||||
Supplemental schedule of noncash investing and financing activities: | ||||||||
| Lease receivables from disposition of revenue equipment | $ | -- | $ | 1,554 | ||||
See accompanying notes to consolidated financial statements
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Notes to Consolidated Financial Statements
(Unaudited)
| 1. | Basis of Presentation |
| The unaudited interim consolidated financial statements contained herein reflect all adjustments, which, in the opinion of management, are necessary for a fair statement of the interim periods. They have been prepared in accordance with the instructions to Form 10-Q, Article 10 of Regulation S-X and, accordingly, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. |
| These financial statements should be read in conjunction with the financial statements and footnotes included in the Company’s most recent annual financial statements on Form 10-K for the year ended December 31, 2003. The accounting policies described in that report are used in preparing quarterly reports. |
| The Company’s business is seasonal. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. |
| Impairment of Long-Lived Assets |
| During March 2002, the Company initiated a plan to accelerate the disposal of approximately 260 tractors and 500 trailers. As a result of the change in utilization period and related estimated cash flows, the Company recorded a pre-tax $4.7 million impairment charge under Statement of Financial Accounting Standards (“SFAS”) No. 144 related to this disposition of revenue equipment. The estimated fair value of the revenue equipment was based on a combination of market quotes and independent appraisals of the equipment. The tractors identified for accelerated disposition represent over-the-road units not covered by manufacturer guaranteed residual value programs. The trailers to be disposed were identified as being in excess of the Company’s needs. An analysis of the initial impairment reserve demonstrated that the ultimate impairment charge on this disposal program was less than originally estimated and the reserve was reduced by $1.0 million in the fourth quarter of 2002 and a further $278,000 in the first quarter of 2003. This disposal program was completed during the second quarter 2003. |
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| The following is an analysis of the Company’s asset impairment reserve accounts: |
| (Dollars in thousands) | Revenue equipment impairment | ||||
|---|---|---|---|---|---|
| Balance as of December 31, 2001 | $ | — | |||
| Initial Charge | 4,741 | ||||
| Utilization | (2,782 | ) | |||
| Change in estimate | (1,000 | ) | |||
| Balance as of December 31, 2002 | 959 | ||||
| Utilization | (681 | ) | |||
| Change in estimate | (278 | ) | |||
| Balance as of December 31, 2003 | $ | -- | |||
| During the fourth quarter of 2002, the Company established a new disposal program for an additional 400 trailers to be disposed of in 2003. The pre-tax impairment charge on this disposal program was $1.0 million. This disposal program was completed during the fourth quarter 2003 and an analysis of the initial impairment reserve demonstrated that the ultimate impairment charge on this disposal program was less than originally estimated; accordingly, the reserve was reduced by $271,000 in the fourth quarter of 2003. |
| (Dollars in thousands) | Revenue equipment impairment | ||||
|---|---|---|---|---|---|
| Balance as of December 31, 2001 | $ | — | |||
| Initial Charge | 1,000 | ||||
| Utilization | — | ||||
| Balance as of December 31, 2002 | 1,000 | ||||
| Utilization | (729 | ) | |||
| Change in estimate | (271 | ) | |||
| Balance as of December 31, 2003 | $ | — | |||
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| . | Stock-Based Employee Compensation |
| The Company has adopted the disclosure only provisions of SFAS No. 148 Accounting for Stock –Based Compensation – Transition and Disclosure. SFAS No. 148 amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, effective as of January 1, 2003. As of September 30, 2003, the Company has two stock-based employee compensation plans. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123. |
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Net earnings (loss), as reported | $ | 71 | ($ 518 | ) | ||||
| Deduct: Total stock-based employee | ||||||||
| compensation expense determined | ||||||||
| under fair value based method for all | ||||||||
| awards, net of related tax effects | (65 | ) | (84 | ) | ||||
| Pro forma net earnings (loss) | $ | 6 | ($ 602 | ) | ||||
| Earnings (loss) per share: | ||||||||
| Basic—as reported | $ | 0.01 | ($ 0.07 | ) | ||||
| Basic—pro forma | $ | 0.00 | ($ 0.08 | ) | ||||
| Diluted—as reported | $ | 0.01 | ($ 0.07 | ) | ||||
| Diluted—pro forma | $ | 0.00 | ($ 0.08 | ) | ||||
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|
Computation of Earnings (Loss) per Common Share
(In thousands, except share and per share amounts) |
| Three months ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Earnings (loss) before cumulative effect | ||||||||
| of change in accounting principle | $ | 71 | $ | (454 | ) | |||
Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (64 | ) | |||||
Net earnings (loss) | $ | 71 | $ | (518 | ) | |||
Average number of common | ||||||||
| shares outstanding | 7,087,215 | 7,217,394 | ||||||
Dilutive effect of outstanding stock | ||||||||
| options | 112,273 | — | ||||||
Average number of common and common | ||||||||
| equivalent shares outstanding | 7,199,488 | 7,217,394 | ||||||
Net earnings (loss) per share – basic: | ||||||||
| Before cumulative effect of change | ||||||||
| in accounting principle | 0.01 | (0.06 | ) | |||||
| Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (0.01 | ) | |||||
| Net earnings (loss) per share | $ | 0.01 | $ | (0.07 | ) | |||
Net earnings (loss) per share – diluted: | ||||||||
| Before cumulative effect of change | ||||||||
| in accounting principle | $ | 0.01 | $ | (0.06 | ) | |||
| Cumulative effect of change in | ||||||||
| accounting principle, net of tax effect | — | (0.01 | ) | |||||
| Net earnings (loss) per share | $ | 0.01 | $ | (0.07 | ) | |||
| 2. | New Accounting Pronouncements |
| In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” effective for fiscal years beginning after June 15, 2002. The rule requires businesses to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It was determined that SFAS 143 applies to environmental disposal fees related to tractor and trailer tires. As a result of its adoption of SFAS No. 143 in the first quarter of 2003, the |
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| Company established a liability of $212,000 for the fair value of tire disposal fees. In addition, the Company recorded a prepaid asset related to tire disposal fees of $106,000 and a charge of $64,000, net of a tax benefit of $42,000, representing the cumulative effect of change in accounting principle. |
| 3. | Subsequent Event |
| On April 9, 2004, the Company signed a sub-lease agreement to rent 9,000 square feet of its headquarters facility at a rental rate that is less than the rental rate paid by the Company. Accordingly, the Company will record a pre-tax impairment charge related to this sub-lease agreement of approximately $0.2 million in the second quarter 2004. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| Organization of Financial Information |
| This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the caption “Forward-Looking Statements” on page 18 of this Quarterly Report on Form 10-Q. |
| The condensed consolidated financial statements and notes are presented in Item 1 of this Quarterly Report on Form 10-Q. Included in the condensed consolidated financial statements are the consolidated statements of operations, consolidated balance sheets, and consolidated statements of cash flows. The notes, which are an integral part of the condensed consolidated financial statements, provide additional information required to fully understand the nature of amounts included in the condensed consolidated financial statements. |
| Significant Transactions and Financial Trends |
| Throughout these financial sections, you will read about significant transactions or events that materially contribute to or reduce earnings and materially affect financial trends. Significant transactions discussed in this Management’s Discussion and Analysis include impairment charges recorded in 2003 related to the disposal of tractors and trailers and reductions of these impairment reserves during 2003 when the ultimate impairment proved to be less than estimated, and the adoption in the first quarter of 2003 of SFAS No. 143, “Accounting for Asset Retirement Obligations” which required the Company to establish a liability of $212,000 for the fair value of tire disposal fees, a prepaid asset related to tire disposal fees of $106,000, and a charge of $64,000, net of a tax benefit of $42,000, representing the cumulative effect of change in accounting principle. |
| These significant transactions result from unique facts and circumstances that likely will not recur with similar materiality or impact on continuing |
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| operations. While these items are important in understanding and evaluating financial results and trends, other transactions or events such as those discussed later in this Management’s Discussion and Analysis may also have a material impact. A complete understanding of these transactions and events is necessary in order to estimate the likelihood that these trends will continue. |
| Significant Operating Trends |
| Revenues continue to be negatively impacted by higher than expected unseated tractors (tractors owned by the Company for which no driver is available to assign) and the limited availability of owner operator capacity. While the hiring market has tightened significantly, the Company has taken actions that it expects will address these trends, including increasing driver pay rates. |
| New Hours of Service (HOS) rules went into effect at the beginning of 2004 and the Company is committed to ensuring that its drivers do not bear the financial burden of the more restrictive limits on hours of service; accordingly, it implemented increased accessorial pay for the drivers and negotiated new accessorial charges for customer events that decrease asset and driver productivity. |
| Ongoing cost reduction efforts continue to make the Company more competitive. The Company has benefited from broad cost reduction initiatives implemented in 2003 which have reduced salaries and wages, maintenance costs, accident claim costs, depreciation and other general and administrative costs. In the first quarter 2003, the Company closed two service center facilities that did not fit the network. The Company eliminated redundant functions throughout other service centers and increased maintenance capabilities to provide maintenance services to its owner operators. |
| The sales department continues to successfully secure new opportunities that drive density and balance in our network, and the Company is attaining increased freight rates as it better manages the network and customer mix. |
| Outlook |
| Looking forward, the Company expects the rate environment to remain strong throughout fiscal 2004. The improving economic conditions and limited driver availability continue to put pressure on truckload capacity. Sequentially, the Company has experienced five quarters in a row of increased rates and expects this trend to continue into 2004. |
| The Company expects some of its costs to increase in 2004. The tight driver market continues to put upward pressure on driver hiring expenses, insurance costs continue to increase, and tractor replacements in 2004 will be required to comply with new EPA standards that will lead to increased depreciation expenses and reduced fuel efficiency. |
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| New hours of service rules came into effect in January 2004. The Company believes it is minimizing the impact of the new hours of service rules through proactive planning; however, the Company is unable to predict the ultimate impact of the new hours of service rules. Early indications are promising, as the Company has been able to charge for customer events that decrease asset and driver productivity; however, changes in customer billing and payment procedures could occur which would have an adverse effect on the operations and profitability of the Company. |
| The biggest challenge for the Company and the industry continues to be seated capacity since the market for new drivers has tightened significantly. The Company has implemented several programs to boost its recruiting efforts and increase the seated fleet percentage. The Company is seeing early indications that it has begun to reverse the attrition rate and is improving driver retention. |
| Three Months Ended March 31, 2004 and 2003 |
| Operating revenues, including fuel surcharges, were $62.1 million for the quarter ended March 2004, a decrease of 7.5% compared to $67.1 million for the same quarter of 2003. Fuel surcharges were $3.0 million and $3.5 million for the first quarters of 2004 and 2003, respectively, reflecting the effect of lower average fuel prices in the first quarter of 2004 compared to the same period of 2003. Excluding fuel surcharges, revenues decreased 6.9% when compared to the same period of 2003. The Company measures “freight revenue”, which is revenue before fuel surcharges, as well as operating revenue, because management believes removing fuel surcharges affords a more consistent basis for comparing results of operations from period to period. Operating revenues per mile, which includes fuel surcharges, were $1.38 per mile for the first quarter 2004 compared to $1.32 for the same quarter of 2003. Freight revenues per mile, which excludes fuel surcharges, were $1.32 per mile for the first quarter of 2004, compared to $1.25 for the same quarter of 2003. The increase in 2004 rate per mile is primarily a result of increased rates the Company has obtained with many of its customers, new customers and lanes that build density and better balance our network, and increased detention and stop-off accessorial charges related to the new hours of service rules. These increased rates have been somewhat offset by increased deadhead miles. Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $2,978 during the first quarter of 2004, compared to $2,868 for the same quarter of 2003. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,797 during the first quarter of 2004, compared to $2,688 for the same quarter of 2003. The increase in equipment utilization reflects the rate increases offset by an increase in the number of unseated tractors when compared to the same period of 2003. |
| At March 31, 2004, the Company’s fleet included 999 Company-owned tractors and 678 tractors provided by independent contractors compared to 1,004 |
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| Company-owned tractors and 865 tractors provided by independent contractors at March 31, 2003. At March 31, 2004, 147 tractors were unseated compared to 58 unseated tractors at March 31, 2003. The increase in unseated tractors in 2004 is due to difficulties in recruiting and retaining professional and student drivers. |
| Salaries, wages, and benefits decreased $0.5 million to $18.2 million during the first quarter 2004 compared to $18.7 million for the same period of 2003. The decrease is due to decreased miles as a result of fewer seated tractors and lower general and administrative salaries as a result of closing two support centers in February 2003, partially offset by higher accessorial pay to the drivers related to the new hour of service rules, higher workers’ compensation expense when compared to the same period of 2003, and a higher proportion of miles driven by Company drivers. Salaries, wages, and benefits as a percentage of operating revenues were 29.3% for the first quarter of 2004, compared to 27.8% for the same quarter of 2003. The increase as a percent of revenue is attributable to a higher proportion of miles driven by Company drivers. |
| Fuel, maintenance, and other expenses decreased $1.5 million to $9.4 million during the first quarter 2004 compared to $10.9 million for the same period of 2003. Fuel, maintenance, and other expenses, as a percentage of operating revenues, were 15.1%, compared to 16.2% for the same quarter of 2003. The decrease is due to decreased miles as a result of fewer seated tractors, lower average per-gallon fuel costs in the first quarter of 2004 compared to 2003, and reduced maintenance expenses due to more preventative maintenance being performed in the support centers instead of emergency breakdowns on the road. |
| Purchased transportation decreased $3.2 million to $20.6 million during the first quarter 2004 compared to $23.8 million for the same period of 2003. Purchased transportation, as a percentage of operating revenues, was 33.1% for the first quarter of 2004 compared to 35.4% for the same quarter of 2003. The decrease in 2004 is due to decreased miles as a result of fewer seated independent contractors, and a higher proportion of miles driven by Company drivers. |
| Revenue equipment leases were $0.3 million in both the first quarter 2004 and the same period 2003. Revenue equipment leases, as a percentage of operating revenues, were 0.4% for the first quarter of 2004 compared to 0.4% for the same quarter of 2003, reflecting the Company’s use of operating leases for certain tractors acquired in 2002. |
| Depreciation and amortization decreased $0.6 million to $5.7 million during the first quarter 2004 compared to $6.3 million for the same period of 2003. Depreciation and amortization, as a percentage of operating revenues, was 9.2% of operating revenues for the first quarter of 2004 compared to 9.4% for the same quarter of 2003. The decrease is a result of fewer trailers in 2004 as well as reduced depreciation related to leasehold improvements as a result of the sale of our rights in the corporate headquarters in the fourth quarter of 2003. |
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| Insurance, claims and damage expense increased $0.2 million to $3.1 million during the first quarter 2004 compared to $2.9 million for the same period of 2003. Insurance, claims and damage expense, as a percentage of operating revenues, was 5.1% for the first quarter of 2004 compared to 4.4% for the same quarter of 2003. The expense increase is the result of an additional $0.5 million reserves related to current-period accident experience recorded during the first quarter of 2004. |
| Taxes and licenses decreased $0.1 million to $1.1 million during the first quarter 2004 compared to $1.2 million for the same period of 2003. The decrease is due to decreased miles as a result of fewer seated tractors in 2004 when compared to 2003. Taxes and licenses, as a percentage of operating revenues was 1.8% for the first quarter of 2004 and 1.8% for the same period of 2003. |
| Communication expense decreased $0.1 million to $0.4 million during the first quarter 2004 compared to $0.5 million for the same period of 2003. Communication expense, as a percentage of operating revenues, decreased to 0.7% for the first quarter 2004 versus 0.8% for the first quarter of 2003. The decrease reflects the effect of favorable rates for communication services in 2004 combined with a lower company and independent contractor tractor count in 2004 compared to the same period of 2003. |
| Other general and administrative expense decreased $0.2 million to $2.3 million during the first quarter 2004 compared to $2.5 million for the same period of 2003. The decrease is a result of lower operating costs due to reduced capacity, ongoing cost reduction initiatives, and the recovery of a bad debt write-off of approximately $0.1 million, offset by increased rent on the Corporate headquarter facility. Other general and administrative expense, as a percentage of operating revenues, was 3.7% in 2004 compared to 3.7% for the first quarter of 2003. |
| During March 2002, the Company initiated a plan to accelerate the disposal of approximately 260 tractors and 500 trailers. As a result of the change in utilization period and related estimated cash flows, the Company recorded a pre-tax $4.7 million impairment charge under Statement of Financial Accounting Standards (“SFAS”) No. 144 related to this disposition of revenue equipment. An analysis of the initial impairment reserve demonstrated that the ultimate impairment charge on this disposal program was less than originally estimated and the reserve was reduced by $278,000 in the first quarter of 2003. |
| As a result of the items discussed above, the Company’s operating ratio (operating expenses as a percentage of operating revenues) was 98.5% for the first quarter of 2004 compared to 99.5% for the same quarter of 2003. |
| Net interest expense decreased $0.3 million to $0.8 million during the first quarter 2004 compared to $1.1 million for the same period of 2003. Net interest expense, as a percentage of operating revenues, was 1.4% for the first quarter of |
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| 2004 compared to 1.6% for the same quarter of 2003. The decrease primarily reflects lower average debt balances in 2004. |
| The effective tax rate was 39.3% for the first quarter of 2004 compared to 40.0% for the same quarter of 2003. |
| In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” effective for fiscal years beginning after June 15, 2002. The rule requires businesses to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It has been determined that SFAS 143 applies to environmental disposal fees related to tractor and trailer tires. As a result of its adoption of SFAS No. 143 in the first quarter of 2003, the Company established a liability of $212,000 for the fair value of tire disposal fees. In addition, the Company recorded a prepaid asset related to tire disposal fees of $106,000 and a charge of $64,000, net of a tax benefit of $42,000, representing the cumulative effect of change in accounting principle. |
| As a result of the foregoing factors, net earnings were $71,000 for the first quarter of 2004 compared to a net loss of $454,000 for the same quarter of 2003. |
| Liquidity and Capital Resources |
| Net cash provided by operating activities for the first quarter of 2004 was $7.6 million compared to $2.9 million provided for the first quarter of 2003. The net change in operating assets and liabilities provided cash of $1.8 million during the first quarter 2004 and consumed cash of $2.4 million during the first quarter of 2003. The increase in cash provided by operating activities is due to current year earnings and increases in operating liabilities offset by increases in trade and lease receivables when compared to the same period of 2003. |
| Investing activities for the first quarter of 2004 consumed net cash of $1.9 million compared to $0.4 million net cash consumed by investing activities in 2003. Gross capital expenditures were $3.0 million in the first quarter of 2004 primarily related to the acquisition of 35 replacement tractors. Gross capital expenditures were $0.7 million in the first quarter 2003 primarily related to the acquisition of 30 trailers for a new customer and dedicated business. Proceeds from the disposition of property and equipment for the first three months of 2004 were $1.1 million primarily related to the disposition of 20 replacement tractors. Proceeds from the disposition of property and equipment for the first three months of 2003 were $0.3 million primarily related to the disposition of 103 trailers. |
| Financing activities for the first quarter of 2004 consumed $4.1 million compared to $2.5 million consumed for the first quarter of 2003. Cash consumed in 2004 included net payments on long-term debt and capital leases of $3.3 million and $1.2 million for repurchase and retirement of common stock. Cash consumed in 2003 included net payments on long-term debt of $4.2 million and $0.1 million for repurchase and retirement of common stock. |
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| In 1997, the Board of Directors approved purchasing up to 350,000 shares of the Company’s common stock and did not impose an expiration date on such purchases. As of December 31, 2003, the Company had repurchased 229,400 shares, leaving 120,600 shares available for repurchase under this authority. In February 2004, the Company repurchased an additional 102,800 shares of its own common stock, leaving 17,800 shares available for repurchase under this authority. On March 10, 2004, the Board of Directors approved repurchasing an additional 500,000 shares of the Company’s common stock, which increased to 517,800 the amount of shares available for repurchase, and did not impose an expiration date on such purchases. On March 31, 2004, the Company repurchased an additional 57,900 shares of its own common stock. As of March 31, 2003, the Company has repurchased 390,100 shares, leaving 459,900 shares available for repurchase under the combined authority. |
| The following table shows the monthly first quarter 2004 stock repurchase activity: |
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 2004 | -- | -- | -- | 120,600 | ||||||||||
| February 2004 | 102,800 | $ | 7.53 | 102,800 | 620,600 | |||||||||
| March 2004 | 57,900 | $ | 7.38 | 57,900 | 517,800 | |||||||||
| Total | 160,700 | $ | 7.48 | 160,700 | 459,900 | |||||||||
| Working capital was negative $0.4 million at March 31, 2004, compared to negative $5.8 million at March 31, 2003. The Company relies primarily on its operating cash flows and available borrowings under its credit facility to satisfy its short-term capital and debt-service requirements. |
| The Company has a credit agreement which expires on October 5, 2004 for a secured credit facility with maximum combined borrowings and letters of credit of $30 million at March 31, 2004. The Company is currently renegotiating a new credit agreement and anticipates obtaining terms that are at least as favorable as the expiring agreement. Amounts actually available under the credit facility are limited by the Company’s accounts receivable and certain unencumbered revenue equipment. The credit facility is used to meet working capital needs, purchase revenue equipment and other assets, and to satisfy letter of credit requirements associated with the Company’s self-insured retention arrangements. At March 31, 2004, there were outstanding borrowings and letters of credit of $0.0 million and $4.6 million, respectively, and the Company was in compliance with the financial covenants under the credit facility. At March 31, 2004, the Company had additional amounts available under its credit facility of $19.5 million. The Company expects to continue to fund its liquidity needs and anticipated capital expenditures with cash flows from operations, the credit |
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| facility, and other financing arrangements related to revenue equipment purchases. |
| Off-Balance Sheet Arrangements and Contractual Obligations |
| It is not the Company’s usual business practice to enter into off-balance sheet arrangements, except for off-balance sheet arrangements related to operating lease commitments and letters of credit for self-insured workers’ compensation reserves disclosed in the table of contractual obligations below. The Company entered into lease arrangements in 2002 for revenue equipment that are classified as operating leases. The lease agreements are for terms of 48 months and contain TRAC (terminal rental adjustment clause) provisions, which require the Company to guarantee a termination value as a percentage of the original cost of the leased equipment at the lease termination date. The maximum potential amount the Company could be required to pay under the guarantee is $1.1 million. |
| The following tables set forth the Company’s contractual obligations on balance sheet and off-balance sheet obligations as of March 31, 2004: |
Payments Due by Period
(In thousands)
| Contractual Obligations on Balance Sheet | Total | Less than one year | Years 2 and 3 | Years 4 and 5 | Year 6 and after | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Long-term debt | $ | 35,501 | $ | 8,758 | $ | 19,807 | $ | 6,936 | $ | — | |||||||
| Capital leases | 16,093 | 4,402 | 11,691 | — | — | ||||||||||||
| Total Balance Sheet Contractual Obligations | $ | 51,594 | $ | 13,160 | $ | 31,498 | $ | 6,936 | $ | — | |||||||
| Off-Balance Sheet Obligations | Total | Less than one year | Years 2 and 3 | Years 4 and 5 | Year 6 and after | ||||||||||||
| Operating leases | 18,944 | 2,367 | 5,473 | 2,190 | 8,914 | ||||||||||||
| Letters of credit | 4,590 | 4,590 | — | — | — | ||||||||||||
| Guarantees | 1,100 | — | 1,100 | — | — | ||||||||||||
| Total Off-Balance Sheet Obligations | $ | 24,634 | $ | 6,957 | $ | 6,573 | $ | 2,190 | $ | 8,914 | |||||||
| Total Obligations | $ | 76,228 | $ | 20,117 | $ | 38,071 | $ | 9,126 | $ | 8,914 | |||||||
| Regulations |
| The Federal Motor Carrier Safety Administration (FMCSA) of the U.S. Department of Transportation issued a final rule on April 24, 2003 that made several changes to the regulations that govern truck drivers’ hours of service. Under the new rules, loading / unloading delays and shipments that require multiple stop deliveries may be affected as the new rules may limit drivers’ available hours. The new rules became effective on January 4, 2004. |
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| Forward-looking Statements |
| Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report, elsewhere in this Report, in future filings by the Company with the SEC, in the Company’s press releases, and in oral statements made with the approval of an authorized executive officer which are not historical or current facts, are forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. The following important factors, among other things, in some cases have affected and in the future could affect the Company’s actual results and could cause the Company’s actual financial performance to differ materially from that expressed in any forward-looking statement: (1) the highly competitive conditions that currently exist in the Company’s market and the Company’s ability to compete, (2) the Company’s ability to recruit, train, and retain qualified drivers, (3) increases in fuel prices, and the Company’s ability to recover these costs from its customers, (4) the impact of environmental standards and regulations on new revenue equipment, (5) changes in governmental regulations applicable to the Company’s operations, including hours of service regulations (6) adverse weather conditions, (7) accidents, (8) the market for used revenue equipment, (9) changes in interest rates, (10) cost of liability insurance coverage, and (11) downturns in general economic conditions affecting the Company and its customers. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise or update any previously made forward-looking statements. Unanticipated events are likely to occur. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
| Interest Rate Risk |
| The Company is exposed to certain market risks with its $30 million credit agreement, of which $0 was outstanding at March 31, 2004. The agreement bears interest at a variable rate, which was 4.75% at March 31, 2004. Consequently, the Company is exposed to the risk of greater borrowing costs if interest rates increase. |
| Commodity Price Risk |
| The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, the Company has been able to recover a majority of fuel price increases from customers in the form of fuel surcharges. The Company |
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| cannot predict the extent to which high fuel price levels will occur in the future or the extent to which fuel surcharges could be collected to offset such increases. As of March 31, 2004, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. |
Item 4. Controls and Procedures
| The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”) as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. |
| There have been no changes in internal control over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
Item 1. Legal Proceedings
| None |
Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
| The information regarding issuer purchases of equity securities is incorporated herein from Item 2 of Part 1 of this Form 10-Q. |
Item 3. Defaults Upon Senior Securities
| None |
Item 4. Submission of Matters to a Vote of Security Holders
| None |
Item 5. Other Information
| None |
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Item 6. Exhibits and Reports on Form 8-K
| (a) Exhibits: |
| Exhibit Number |
Description |
| 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 33-84140) as declared effective by the Commission on November 3, 1994 (the “1994 S-1”)). |
| 3.2 | Bylaws (incorporated by reference to Exhibit 3.2 to the 1994 S-1). |
| 4.1 | Rights Agreement by and between the Company and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.) dated February 25, 1997 (incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8-A, as amended, filed with the SEC on February 27, 1997; to Exhibit 1 to the Company’s Registration Statement on Form 8-K/A, filed with the SEC on June 29, 1998; and to Exhibit 1 to the Company’s Registration Statement on Form 8-A/A, filed with the SEC on January 21, 2000). |
| 31.1 | Section 302 Certification of Chief Executive Officer. |
| 31.2 | Section 302 Certification of Chief Financial Officer. |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003. |
| (b) Reports on Form 8-K |
| On February 10, 2004, the Company filed a Form 8-K to furnish to the SEC under Item 12 (Results of Operations and Financial Condition) a press release regarding the Company’s results of operations for the fourth quarter of 2003. |
| On April 15, 2004, the Company filed a Form 8-K to furnish to the SEC under Item 12 (Results of Operations and Financial Condition) a press release regarding the Company’s results of operations for the first quarter of 2004. |
| On April 21, 2004, the Company filed a Form 8-K to furnish to the SEC under Item 9 (Regulation FD Disclosure) the Transport Corporation of America, Inc. 2003 Annual Report to Shareholders (excluding the Company’s 2003 Form 10-K which is enclosed with the Annual Report to Shareholders and is separately filed with the Commission). |
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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.
| TRANSPORT CORPORATION OF AMERICA, INC. | |||||||
| Date: | May 4, 2004 | /s/ Michael J. Paxton | |||||
| Michael J. Paxton Chairman, President and Chief Executive Officer (Principal Executive Officer) | |||||||
| /s/ Keith R. Klein | |||||||
| Keith R. Klein Chief Financial Officer and Chief Information Officer (Principal Financial and Accounting Officer) | |||||||
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