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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended March 31, 2005
OR
[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
0-24908
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
(Address of principal executive offices)
55121
(zip code)
(651) 686-2500
(Registrant’s telephone number, including area code)
N/A
(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
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 22, 2005, the Company had outstanding 6,554,528 shares of Common Stock, $.01 par
value.
TRANSPORT CORPORATION
OF AMERICA, INC.
Quarterly Report on Form 10-Q
Table of Contents
2
Item 1. Financial
Statements
Transport Corporation of America, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
|
March 31,
2005 |
|
December 31,
2004 |
|
| |
| |
| Assets |
|
|
| |
|
| |
|
| Current assets: | | |
| Cash and cash equivalents | | |
$ | 2,610 |
|
$ | 3,714 |
|
| Trade accounts receivable, net of allowances for doubtful accounts | | |
| and other billing adjustments of $650 at March 31, 2005 | | |
| and $800 at December 31, 2004 | | |
| 24,861 |
|
| 24,610 |
|
| Other receivables | | |
| 2,267 |
|
| 1,170 |
|
| Operating supplies – inventory | | |
| 848 |
|
| 800 |
|
| Deferred income tax benefit | | |
| 5,609 |
|
| 6,316 |
|
| Prepaid expenses | | |
| 3,782 |
|
| 2,626 |
|
|
| |
| |
| Total current assets | | |
| 39,977 |
|
| 39,236 |
|
| |
| Property and equipment: | | |
| Revenue equipment, at cost | | |
| 183,394 |
|
| 180,827 |
|
| Less accumulated depreciation | | |
| (78,037 |
) |
| (80,077 |
) |
|
| |
| |
| Revenue equipment, net | | |
| 105,357 |
|
| 100,750 |
|
| |
| Property and other equipment | | |
| Land, buildings, and improvements | | |
| 16,718 |
|
| 16,516 |
|
| Other equipment and leasehold improvements | | |
| 21,387 |
|
| 21,219 |
|
| Less accumulated depreciation | | |
| (19,307 |
) |
| (18,699 |
) |
|
| |
| |
| Property and equipment, net | | |
| 18,798 |
|
| 19,036 |
|
|
| |
| |
| |
| Revenue, property and other equipment, net | | |
| 124,155 |
|
| 119,786 |
|
| |
| Other assets, net | | |
| 2,705 |
|
| 2,056 |
|
|
| |
| |
| |
| Total assets | | |
| 166,837 |
|
| 161,078 |
|
|
| |
| |
| |
| Liabilities and Shareholders’ Equity | | |
| |
| Current liabilities: | | |
| Current maturities of long-term debt | | |
| 7,581 |
|
| 7,965 |
|
| Current maturities of capital lease obligations | | |
| 9,153 |
|
| 9,990 |
|
| Accounts payable | | |
| 11,142 |
|
| 5,026 |
|
| Checks issued in excess of cash balances | | |
| 1,123 |
|
| 1,871 |
|
| Due to independent contractors | | |
| 1,223 |
|
| 1,157 |
|
| Accrued expenses | | |
| 22,212 |
|
| 21,132 |
|
|
| |
| |
| Total current liabilities | | |
| 52,434 |
|
| 47,141 |
|
| |
| Long-term debt, less current maturities | | |
| 29,517 |
|
| 28,336 |
|
| Capital lease obligations, less current maturities | | |
| 2,535 |
|
| 2,826 |
|
| |
| Deferred income taxes | | |
| 25,787 |
|
| 26,504 |
|
| |
| Shareholders’ equity: | | |
| Common stock, $.01 par value; 15,000,000 shares authorized, | | |
| 6,554,528 and 6,527,392 shares issued and outstanding as of | | |
| March 31, 2005 and December 31, 2004, respectively | | |
| 66 |
|
| 65 |
|
| Additional paid-in capital | | |
| 25,626 |
|
| 25,428 |
|
| Retained earnings | | |
| 30,872 |
|
| 30,778 |
|
|
| |
| |
| Total shareholders' equity | | |
| 56,564 |
|
| 56,271 |
|
|
| |
| |
| Total liabilities and shareholders' equity | | |
$ | 166,837 |
|
$ | 161,078 |
|
|
| |
| |
See accompanying notes to consolidated financial statements.
3
Transport Corporation
of America, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
|
Three months ended
March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Operating revenues |
|
|
$ | 61,436 |
|
$ | 62,143 |
|
| |
| Operating expenses: | | |
| Salaries, wages, and benefits | | |
| 19,077 |
|
| 18,195 |
|
| Fuel, maintenance, and other expenses | | |
| 11,547 |
|
| 9,390 |
|
| Purchased transportation | | |
| 17,672 |
|
| 20,591 |
|
| Revenue equipment leases | | |
| 390 |
|
| 268 |
|
| Depreciation and amortization | | |
| 5,723 |
|
| 5,743 |
|
| Insurance, claims and damage | | |
| 2,202 |
|
| 3,142 |
|
| Taxes and licenses | | |
| 1,167 |
|
| 1,101 |
|
| Communications | | |
| 420 |
|
| 443 |
|
| Other general and administrative expenses | | |
| 2,452 |
|
| 2,310 |
|
| Gain on sale of property and equipment | | |
| (7 |
) |
| (2 |
) |
|
| |
| |
| Total operating expenses | | |
| 60,643 |
|
| 61,181 |
|
|
| |
| |
| |
| Operating income | | |
| 793 |
|
| 962 |
|
| |
| Interest expense | | |
| 746 |
|
| 854 |
|
| Interest and other income | | |
| (107 |
) |
| (9 |
) |
|
| |
| |
| Interest expense, net | | |
| 639 |
|
| 845 |
|
|
| |
| |
| |
| Earnings before income taxes | | |
| 154 |
|
| 117 |
|
| |
| Provision for income taxes | | |
| 60 |
|
| 46 |
|
|
| |
| |
| |
| Net earnings | | |
$ | 94 |
|
$ | 71 |
|
|
| |
| |
| |
| Net earnings per share - basic | | |
$ | 0.01 |
|
$ | 0.01 |
|
|
| |
| |
| |
| Net earnings per share - diluted | | |
$ | 0.01 |
|
$ | 0.01 |
|
|
| |
| |
| |
| Average common shares outstanding: | | |
| Basic | | |
| 6,541,890 |
|
| 7,087,215 |
|
| Diluted | | |
| 6,725,525 |
|
| 7,199,488 |
|
See accompanying notes to consolidated financial statements.
4
Transport Corporation
of America, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
Three months ended
March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Operating activities: |
|
|
| |
|
| |
|
| Net income | | |
$ | 94 |
|
$ | 71 |
|
| Adjustments to reconcile net income to net cash | | |
| provided by operating activities: | | |
| Depreciation and amortization | | |
| 5,723 |
|
| 5,743 |
|
| Gain on sale of property and equipment | | |
| (7 |
) |
| (2 |
) |
| Deferred income taxes | | |
| (10 |
) |
| 29 |
|
| Changes in operating assets and liabilities: | | |
| Trade receivables | | |
| (251 |
) |
| (2,611 |
) |
| Other receivables | | |
| (1,097 |
) |
| (557 |
) |
| Operating supplies – inventory | | |
| (48 |
) |
| 36 |
|
| Prepaid expenses | | |
| (1,156 |
) |
| (1,658 |
) |
| Other assets | | |
| (649 |
) |
| 412 |
|
| Accounts payable | | |
| 6,116 |
|
| 3,878 |
|
| Due to independent contractors | | |
| 66 |
|
| 834 |
|
| Accrued expenses | | |
| 1,080 |
|
| 1,472 |
|
|
| |
| |
| Net cash provided by operating activities | | |
| 9,861 |
|
| 7,647 |
|
|
| |
| |
| Investing activities: | | |
| Purchases of revenue equipment | | |
| (12,161 |
) |
| (2,751 |
) |
| Purchases of property and other equipment | | |
| (510 |
) |
| (215 |
) |
| Proceeds from disposition of equipment | | |
| 2,586 |
|
| 1,105 |
|
|
| |
| |
| Net cash used by investing activities | | |
| (10,085 |
) |
| (1,861 |
) |
|
| |
| |
| Financing activities: | | |
| Proceeds from issuance of common stock, | | |
| and exercise of options and warrants | | |
| 199 |
|
| 24 |
|
| Payments for repurchase and retirement of common stock | | |
| — |
|
| (1,201 |
) |
| Proceeds from issuance of long-term debt | | |
| 5,432 |
|
| — |
|
| Principal payments on long-term debt and capital leases | | |
| (5,763 |
) |
| (3,326 |
) |
| Proceeds from issuance of notes payable to bank | | |
| — |
|
| 100 |
|
| Principal payments on notes payable to bank | | |
| — |
|
| (100 |
) |
| Change in net checks issued in excess of cash balances | | |
| (748 |
) |
| 426 |
|
|
| |
| |
| Net cash used by financing activities | | |
| (880 |
) |
| (4,077 |
) |
|
| |
| |
| Net (decrease) increase in cash | | |
| (1,104 |
) |
| 1,709 |
|
| Cash and cash equivalents, beginning of period | | |
| 3,714 |
|
| 2,345 |
|
|
| |
| |
| Cash and cash equivalents, end of period | | |
$ | 2,610 |
|
$ | 4,054 |
|
|
| |
| |
| |
| Supplemental disclosure of cash flow information: | | |
| Cash paid during the period for: | | |
| Interest | | |
$ | 674 |
|
$ | 761 |
|
| Income taxes | | |
| 94 |
|
| 73 |
|
See accompanying notes to consolidated financial statements.
5
TRANSPORT CORPORATION
OF AMERICA, INC.
Notes to Consolidated
Financial Statements
(Unaudited)
| |
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
interim consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2004. The Company uses the accounting
policies described in that report in preparing quarterly reports.
|
| |
The
Company’s business is seasonal. Operating results for the three-month period ended
March 31, 2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005.
|
| |
The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
|
| 2. |
|
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 March 31, 2005, 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 and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123.
|
6
|
Three Months Ended
March 31 |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Net earnings, as reported |
|
|
$ | 94 |
|
$ | 71 |
|
| |
| Deduct: Total stock-based employee compensation expense determined | | |
| under fair value based method for all awards, net of related tax effects | | |
| (67 |
) |
| (65 |
) |
|
| |
| |
| |
| Pro forma net earnings | | |
$ | 27 |
|
$ | 6 |
|
|
| |
| |
| |
| Earnings per share: | | |
| Basic—as reported | | |
$ | 0.01 |
|
$ | 0.01 |
|
| Basic—pro forma | | |
$ | 0.00 |
|
$ | 0.00 |
|
| |
| Diluted—as reported | | |
$ | 0.01 |
|
$ | 0.01 |
|
| Diluted—pro forma | | |
$ | 0.00 |
|
$ | 0.00 |
|
| 3. |
Computation of Earnings per Common Share (In thousands, except share and
per share amounts) |
|
Three months ended
March 31, |
|
| |
|
2005 |
|
2004 |
|
| |
| |
| Net earnings |
|
|
$ | 94 |
|
$ | 71 |
|
|
| |
| |
| Average number of common | | |
| shares outstanding | | |
| 6,541,890 |
|
| 7,087,215 |
|
| Dilutive effect of outstanding stock | | |
| options and warrants | | |
| 183,635 |
|
| 112,273 |
|
|
| |
| |
| Average number of common and common | | |
| equivalent shares outstanding | | |
| 6,725,525 |
|
| 7,199,488 |
|
|
| |
| |
| Net earnings per share - basic | | |
$ | 0.01 |
|
$ | 0.01 |
|
| Net earnings per share - diluted | | |
$ | 0.01 |
|
$ | 0.01 |
|
7
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
Organization of
Financial Information
| |
This
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) provides material historical and prospective disclosures intended to enable
investors and other users to assess the Company’s 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
15 of this Quarterly Report on Form 10-Q. The Company believes it may be useful to
read this MD&A in conjunction with its Annual Report on Form 10-K for the year ended
December 31, 2004, and its reports on Forms 10-Q and 8-K and other publicly available
information.
|
| |
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 balance sheets, consolidated statements of operations, 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
this MD&A, you will read about significant transactions or events that materially
contribute to or reduce earnings and materially affect financial trends. These significant
transactions and events result from unique facts and circumstances that likely will not
recur with similar materiality or impact on future 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 MD&A may also have a material impact
on future operations. 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 lower than expected seated tractors and the limited
availability of independent contractor capacity. While the hiring market has tightened
significantly, the Company continues to take actions that it expects will address this
trend, including increasing driver pay rates and attempting to design its network in such
a manner as to offer drivers more time to be at home. Average seated tractor counts by
quarter for tractors owned by the Company and tractors provided by independent contractors
were as follows:
|
|
Average Seated
Company Tractors |
Average Independent
Contractor Tractors |
Total Average |
|
| |
| 1st Qtr 2004 |
832 |
698 |
1,530 |
| 2nd Qtr 2004 |
895 |
667 |
1,562 |
| 3rd Qtr 2004 |
920 |
628 |
1,548 |
| 4th Qtr 2004 |
897 |
580 |
1,477 |
| 1st Qtr 2005 |
856 |
526 |
1,382 |
8
| |
The
reduction in overall capacity reduces the number of miles the Company operates. Total
miles decreased 11.9% to 39.0 million miles in the first quarter 2005 compared to 44.3
million miles for the same period in 2004. The Company has been able to partially offset
the effect on revenues and earnings of the decrease in total miles by adding customers and
lanes that build density and better balance the network, resulting in increased
productivity and reduced costs.
|
| |
High
fuel costs continue to impact the Company’s industry. While the Company is able to
recover most of this increased cost through fuel surcharge arrangements with the majority
of its customers, the Company does absorb increased fuel costs on empty miles.
|
| |
The
Company continues to secure new opportunities that drive density and balance in the
Company’s network. In addition, the Company is attaining increased freight rates as
it better manages its network and customer mix.
|
| |
Finally,
the Company continues to benefit from broad cost reduction initiatives implemented in 2003
and 2004 which are expected to continue to reduce non-driver salaries and wages,
maintenance costs, accident claim costs, depreciation and other general and administrative
costs.
|
Outlook
| |
Looking
forward, the Company expects the rate environment to remain favorable throughout the
remainder of 2005 as limited driver availability will continue to put pressure on
truckload capacity. Sequentially, the Company has experienced nine quarters in a row of
increased rates and expects this trend to continue throughout 2005.
|
| |
Even
though the Company has been successful in reducing specific costs, the industry continues
to face cost pressures; driver pay rates are increasing as the industry tries to attract
and retain drivers; insurance and accident costs continue to rise; medical and workers
compensation costs continue to increase; fuel costs are at historical highs; and taxing
authorities continue to raise tax levies and toll rates. In addition, tractor replacements
are required to comply with new EPA standards that will lead to increased depreciation
expenses and reduced fuel efficiency.
|
| |
While
the Company has been successful in minimizing the impact of the new hours of service (HOS)
rules through proactive planning and the ability to invoice for additional accessorial
charges (primarily detention), it is unable to predict the ultimate long-term impact of
the new HOS rules. Any changes to these rules could have an adverse effect on the
operations and profitability of the Company.
|
| |
The
biggest challenge for the Company and the industry is seated capacity since the market for
new drivers has tightened significantly. To address this trend, the Company has
implemented several programs to boost its recruiting efforts and increase the seated fleet
percentage, including increased driver pay packages, new commitments to get drivers home
weekly within specified areas of its network, and new programs designed to improve
retention of existing drivers.
|
9
Three Months Ended March
31, 2005 and 2004
| |
Operating
revenues, including fuel surcharges, were $61.4 million for the quarter ended March 31,
2005, a decrease of 1.1% compared to $62.1 million for the same quarter of 2004. Fuel
surcharges were $6.1 million and $3.0 million for the first quarters of 2005 and 2004,
respectively, reflecting the effect of higher fuel costs in the first quarter of 2005
compared to the same period of 2004. Excluding fuel surcharges, revenues for this
year’s first quarter decreased 9.1% when compared to the same period of 2004.
|
| |
The
Company measures revenue before fuel surcharges, or “freight revenue,” in
addition to operating revenue, because management believes removing this sometimes
volatile source of revenue affords a more consistent basis for comparing results of
operations from period to period. Operating revenues per total mile, which includes fuel
surcharges, were $1.52 per mile for the first quarter of 2005 compared to $1.38 for the
same quarter of 2004. Freight revenues per total mile, which excludes fuel surcharges,
were $1.36 per mile for the first quarter of 2005, compared to $1.32 for the same quarter
of 2004. Operating revenues per loaded mile, which includes fuel surcharges, were $1.71
for the first quarter of 2005 compared to $1.55 for the same period of 2004. Freight
revenues per loaded mile, which excludes fuel surcharges, were $1.53 for the first quarter
of 2005 compared to $1.47 for the same period of 2004. These increases are primarily a
result of increased line-haul rates and increased accessorial charges related to the new
HOS rules, as well as changes in customer mix.
|
| |
The
following table reconciles the differences between these non-GAAP financial measures
excluding fuel surcharges and the most directly comparable GAAP measures including fuel
surcharges.
|
|
1st Quarter
2005 |
|
1st Quarter
2004 |
|
| |
| |
| Operating revenue per total mile |
|
|
$ | 1.52 |
|
$ | 1.38 |
|
| Fuel surcharge per total mile | | |
| 0.16 |
|
| 0.06 |
|
|
| |
| |
| Freight revenue per total mile | | |
$ | 1.36 |
|
$ | 1.32 |
|
|
| |
| |
| |
| Operating revenue per loaded mile | | |
$ | 1.71 |
|
$ | 1.55 |
|
| Fuel surcharge per loaded mile | | |
| 0.18 |
|
| 0.08 |
|
|
| |
| |
| Freight revenue per loaded mile | | |
$ | 1.53 |
|
$ | 1.47 |
|
|
| |
| |
| |
Equipment
utilization, as measured by average operating revenues per tractor in-service per week
(including fuel surcharges), was $3,218 during the first quarter of 2005, compared to
$2,938 for the same quarter of 2004. Equipment utilization, as measured by average freight
revenues per tractor in-service per week (excluding fuel surcharges), was $2,887 during
the first quarter of 2005, compared to $2,797 for the same quarter of 2004. The increase
in equipment utilization in the first quarter of 2005 reflects increased rates, offset by
a higher percentage of empty (deadhead) miles in the first quarter of 2005 compared to the
same period of 2004.
|
10
| |
The
following table reconciles the differences between these non-GAAP financial measures
excluding fuel surcharges and the most directly comparable GAAP measures including fuel
surcharges.
|
|
1st Quarter
2005 |
|
1st Quarter
2004 |
|
| |
| |
| Operating revenue per tractor per week |
|
|
$ | 3,218 |
|
$ | 2,938 |
|
| Fuel surcharge per tractor per week | | |
| 331 |
|
| 141 |
|
|
| |
| |
| Freight revenue per tractor per week | | |
$ | 2,887 |
|
$ | 2,797 |
|
|
| |
| |
| |
At
March 31, 2005, the Company’s fleet was comprised of 1,031 Company-owned tractors and
505 tractors provided by independent contractors, compared to 999 Company-owned tractors
and 678 tractors provided by independent contractors at March 31, 2004. At March 31, 2005,
187 tractors were unseated compared to 147 unseated tractors at March 31, 2004. The
increase in unseated tractors in 2005 is due to difficulties in recruiting and retaining
professional and student drivers, as well as independent contractors.
|
| |
Logistics
and other revenues were $2.3 million for the quarter ended March 31, 2005 compared to
$0.8 million for the same quarter of 2004 due to increased logistics operations and
intermodal activities. Profit contribution related to the logistics and other revenue was
$0.6 million in the first quarter of 2005 compared to $0.2 million for the same period of
2004.
|
| |
Salaries,
wages, and benefits increased $0.9 million to $19.1 million during the first quarter of
2005 compared to $18.2 million during the first quarter of 2004. The increase is primarily
a result of higher miles driven by employee drivers when compared to independent
contractors (employee transported miles represented 61.4% of total miles in the first
quarter of 2005 compared to 53.7% of total miles in the first quarter of 2004), as well as
an increase in the line-haul rates and incentives paid to drivers. Accessorial
compensation also increased as a result of higher miles driven by employee drivers
compared to independent contractors. G&A wages and benefits increased due to annual
pay increases that were effective in the first quarter. Salaries, wages, and benefits, as
a percentage of operating revenues, were 31.1% for the first quarter of 2005, compared to
29.3% for the same quarter of 2004.
|
| |
Fuel,
maintenance, and other expenses increased $2.1 million to $11.5 million during the first
quarter of 2005 compared to $9.4 million in the first quarter of 2004. The increase
reflects a higher proportion of miles driven by company drivers, higher fuel prices, and
increased toll and unloading costs. These increases were offset by lower maintenance costs
during the first quarter of 2005 when compared to the same period of 2004. Fuel,
maintenance, and other expenses, as a percentage of operating revenues, were 18.8% for the
first quarter of 2005, compared to 15.1% for the same quarter of 2004.
|
| |
Purchased
transportation decreased $2.9 million to $17.7 million in the first quarter of 2005
compared to $20.6 million in the first quarter of 2004. The decrease reflects lower miles
driven by independent contractors (independent contractor transported miles represented
38.6% of total miles in the first quarter of 2005 compared to 46.3% of total miles in the
first quarter of 2004), offset by an increase in the line-haul,
|
11
| |
accessorial,
incentive, and fuel surcharge pay to independent contractors. Purchased transportation, as
a percentage of operating revenues, was 28.8% for the first quarter of 2005 compared to
33.1% for the same quarter of 2004. |
| |
Revenue
equipment leases increased $0.1 million to $0.4 million in the first quarter of 2005
compared to $0.3 million in the first quarter of 2004. Revenue equipment leases, as a
percentage of operating revenues, were 0.6% for the first quarter of 2005 compared to 0.4%
for the same period of 2004, reflecting the Company’s use of operating leases for
certain tractors acquired in 2002 and 2004.
|
| |
Depreciation
and amortization was $5.7 million for the first quarter of 2005 and the same period of
2004. Depreciation and amortization, as a percentage of operating revenues, was 9.3% of
operating revenues for the first quarter of 2005 compared to 9.2% for the same quarter of
2004.
|
| |
Insurance,
claims and damage expense decreased $0.9 million to $2.2 million in the first quarter 2005
compared to $3.1 million in the first quarter 2004. Insurance, claims and damage expense,
as a percentage of operating revenues, was 3.6% for the first quarter of 2005 compared to
5.1% for the same quarter of 2004. The decrease is a result of lower accident frequency
during the first quarter of 2005 as compared to the same period of 2004. The Company did
experience one significant accident claim during the first quarter of 2005, the effect of
which was partially offset by a cost recovery of approximately $0.4 million related to
certain recoverable claim costs. During the first quarter 2004, the Company experienced
several significant claims that resulted in an additional $0.5 million expense recorded
during the first quarter 2004.
|
| |
Taxes
and licenses expense increased $0.1 million to $1.2 million in the first quarter of 2005
compared to $1.1 million in the first quarter of 2004. Although the Company’s overall
fleet is smaller in 2005, the increase is due to increased fees and assessments levied by
taxing authorities. Taxes and licenses, as a percentage of operating revenues, was 1.9%
for the first quarter of 2005 compared to 1.8% for the same quarter of 2004.
|
| |
Communication
expense remained at $0.4 million in both the first quarter of 2005 and the same period of
2004. Communication expense, as a percentage of operating revenues, was 0.7% for the first
quarter 2005 and the same period of 2004.
|
| |
Other
general and administrative expense increased $0.1 million to $2.4 million in the first
quarter of 2005 compared to $2.3 million in the first quarter of 2004. Other general and
administrative expenses that increased include driver hiring and training expenses,
G&A hiring expenses, and professional and legal fees. Other general and administrative
expenses which decreased include consulting fees, employee moving expenses, and building
rent and utilities as a result of a sub-lease agreement the Company entered into in the
second quarter of 2004. Other general and administrative expense, as a percentage of
operating revenues, was 4.0% in the first quarter 2005 compared to 3.7% in the first
quarter 2004.
|
| |
As
a result of the items discussed above, the Company’s operating ratio (operating
expenses as a percentage of operating revenues) was 98.7% for the first quarter of 2005
compared to 98.5% for the same quarter of 2004.
|
12
| |
Net
interest expense decreased $0.2 million to $0.6 million in the first quarter of 2005
compared to $0.8 million in the first quarter of 2004. Net interest expense, as a
percentage of operating revenues, was 1.0% for the first quarter of 2005 compared to 1.4%
for the same quarter of 2004. The decrease primarily reflects lower average debt balances
during the first quarter of 2005 compared to the same quarter of 2004, as well as
increased interest income related to interest earned on the Company’s lease to own
program and increased cash balances.
|
| |
The
effective tax rate was 39.0% for the first quarter of 2005 compared to 39.3% for the same
quarter of 2004.
|
| |
Net
earnings were $94,000 for the first quarter of 2005 compared to net earnings of $71,000
for the same quarter of 2004.
|
Liquidity and Capital
Resources
| |
Cash
and cash equivalents were $2.6 million at March 31, 2005, compared to $3.7 million at
December 31, 2004 and $4.1 million at March 31, 2004. Net cash provided by operating
activities for the first quarter of 2005 was $9.9 million compared to $7.6 million
provided for the same period of 2004. The net change in operating assets and liabilities
provided cash of $4.0 million during the first quarter of 2005 and provided cash of $1.8
million during the same period of 2004. The primary changes in operating assets and
liabilities relate to increased other receivables related to proceeds due from revenue
equipment sold offset by continued payments from independent contractors who participate
in the Company’s lease to own program, increased prepaid expenses related to annual
tractor registrations that occurred during the quarter, and increased accounts payable
primarily due to accruals for new revenue equipment received but not yet financed on a
long-term basis.
|
| |
Investing
activities for the first quarter of 2005 consumed net cash of $10.1 million compared to
$1.9 million net cash consumed by investing activities in the same period of 2004. Gross
capital expenditures were $12.7 million in the first quarter of 2005 primarily related to
the acquisition of 63 replacement tractors and 297 trailers. Gross capital expenditures
were $3.0 million in the first quarter of 2004 primarily related to the acquisition of 35
replacement tractors. Proceeds from the disposition of property and equipment for the
first quarter of 2005 and 2004 were $2.6 million and $1.1 million, respectively, related
to assets retired when the new equipment was purchased.
|
| |
Financing
activities for the first quarter of 2005 consumed $0.9 million compared to $4.1 million
consumed for the first quarter of 2004. Net cash consumed for the first quarter of 2005
included $5.8 million for repayments of long-term debt, and $5.4 million from proceeds
from the issuance of new long-term debt associated with new revenue equipment. Net cash
consumed for the first quarter of 2004 included $3.3 million for repayments of long-term
debt and $1.2 million for the repurchase and retirement of common stock.
|
13
| |
In
1997, the Board of Directors approved repurchasing up to 350,000 shares of the
Company’s common stock. In 2004, the Board of Directors granted approval to
repurchase an additional 1,000,000 shares of the Company’s common stock. As of
December 31, 2004, the Company had repurchased 855,400 shares of its own common stock,
leaving 494,600 shares available for repurchase under this combined authority. No common
stock shares have been repurchased in 2005.
|
| |
Working
capital was negative $12.5 million at March 31, 2005, compared to negative $7.9 million at
December 31, 2004 and negative $0.4 million at March 31, 2004. The decrease in working
capital from December 31, 2004 to March 31, 2005 is a result of increased accounts payable
and other accrued liabilities, primarily due to accruals for new revenue equipment
received but not yet financed on a long-term basis. 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 May 4, 2007 for a secured credit facility
with maximum combined borrowings and letters of credit of $30.0 million at March 31, 2005.
Amounts actually available under the credit facility are limited by the Company’s
accounts receivable and unencumbered revenue equipment. The credit facility is used to
meet working capital needs, purchase revenue equipment and other assets, and satisfy
letter of credit requirements associated with the Company’s self-insured retention
arrangements. At March 31, 2005, there were outstanding borrowings and letters of credit
of $0.0 and $5.5 million, respectively, and the Company was in compliance with the
financial covenants under the credit facility. At March 31, 2005, the Company had
additional amounts available under its credit facility of $17.8 million. The Company
expects to continue to fund its liquidity needs and anticipated capital expenditures with
cash flows from operations, the credit 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. While it is not the
Company’s normal policy to issue guarantees to third parties, 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
guarantees is $1.1 million.
|
14
| |
The
following tables set forth the Company’s contractual obligations as of March 31,
2005:
|
Payments Due by Period
(In thousands)
| Contractual Obligations |
Total |
|
Less than
one year |
|
1 - 3
Years |
|
3 - 5
Years |
|
More than
5 years |
| |
| Long-term debt |
|
|
$ | 37,098 |
|
$ | 7,581 |
|
$ | 18,976 |
|
$ | 10,541 |
|
$ | — |
|
| Interest on long-term debt | | |
| 4,145 |
|
| 1,611 |
|
| 2,039 |
|
| 495 |
|
| Capital leases | | |
| 11,688 |
|
| 9,153 |
|
| 2,535 |
|
| — |
|
| — |
|
| Interest on capital leases | | |
| 454 |
|
| 391 |
|
| 63 |
|
| — |
|
| — |
|
| Purchase Obligations for Revenue Equipment | | |
| 9,998 |
|
| 9,998 |
|
| — |
|
| — |
|
| — |
|
| Operating leases | | |
| 16,810 |
|
| 3,506 |
|
| 3,279 |
|
| 2,178 |
|
| 7,847 |
|
| Letters of credit | | |
| 5,460 |
|
| 5,460 |
|
| — |
|
| — |
|
| — |
|
| Guarantees | | |
| 1,050 |
|
| 1,050 |
|
| — |
|
| — |
|
| — |
|
|
| |
| Total Obligations | | |
$ | 86,703 |
|
$ | 38,750 |
|
$ | 26,892 |
|
$ | 13,214 |
|
$ | 7,847 |
|
|
| |
Forward-looking
Statements
| |
Statements
included in this MD&A, elsewhere in this report, in the Company’s Annual Report
on Form 10-K, 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) the 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.
|
15
New Accounting
Pronouncements to be adopted
| |
In
December 2004, the FASB issued SFAS No. 123R “Share based payment” which is a
revision to SFAS No. 123 “Accounting for Stock Based Compensation”. The
provisions of this statement shall be effective for annual periods beginning after June
15, 2005. This new accounting pronouncement will require the Company to recognize in the
income statement the grant-date fair value of stock-based compensation issued to
employees. The Company currently accounts for stock-based compensation 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 currently reflected in net income, but the
Company does disclose in its footnotes the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of Statement No. 123. The
Company is still evaluating the ultimate financial statement impact as it relates to
Statement No. 123R, however, it does not currently believe the impact will be
significantly different from the amounts currently disclosed in the notes to the financial
statements.
|
| |
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of non-monetary assets, an
amendment of APB Opinion No. 9". The provisions of this statement shall be effective
for interim periods beginning after June 15, 2005. The adoption of this new accounting
standard is not expected to have a material impact on the Company’s financial
statements.
|
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
| |
The
Company is exposed to certain market risks with its $30.0 million credit agreement, of
which $0 was outstanding at March 31, 2005. The agreement bears interest at a variable
rate, which was 6.25% at March 31, 2005. Consequently, the Company is exposed to the risk
of greater borrowing costs if interest rates increase.
|
| |
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 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, 2005, the Company had no
derivative financial instruments to reduce its exposure to fuel price fluctuations.
|
16
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, 2005 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
|
PART II OTHER INFORMATION
| Item 1. |
Legal Proceedings |
| |
None |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
| |
None |
| Item 3. |
Defaults Upon Senior Securities |
| |
None |
| Item 4. |
Submission of Matters to a Vote of Security Holders |
| |
None |
| Item 5. |
Other Information |
| |
None |
| Item 6. |
Exhibits |
| |
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). |
17
| |
|
|
| |
10.1 |
Description of the terms of employment of Peggy C. Farra, dated February 24, 2005 (filed herewith). |
| |
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350). |
| |
31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350). |
| |
32.1 |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350). |
| |
32.2 |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350). |
18
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.
| |
|
TRANSPORT CORPORATION OF AMERICA, INC. |
| |
| Date: April 26, 2005 | |
/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) |
19