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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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.)
1769 YANKEE DOODLE ROAD
EAGAN, MINNESOTA 55121
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (651) 686-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of shares held by non-affiliates of the Registrant as
of March 24, 1999 (based on the closing sale price of the Common Stock on that
date) was $77,259,446.
As of March 24, 1999, the Company had outstanding 7,898,201 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, 12 and 13
incorporate by reference portions of Transport Corporation of America, Inc.'s
Proxy Statement for the 1999 Annual Meeting of Shareholders.
- ----------------------
This Form 10-K report consists of 54 pages (including exhibits: the index to
exhibits is set forth on page 23).
TRANSPORT CORPORATION OF AMERICA, INC.
PART I
ITEM 1. BUSINESS
OVERVIEW
Transport Corporation of America, Inc. (the "Company" or "Transport
America") provides a wide range of truckload carriage and logistics services in
various lengths of haul in the United States and parts of Canada. The Company
has designed its business to provide high quality, customized logistics services
that allow it to be a preferred partner or core carrier to major shippers. The
Company serves as an integral part of the distribution system of many of its
major customers, including Federal Express, P.P.G. Industries, 3M Company, S.C.
Johnson & Sons, General Mills, Hon Company, Polaris Industries, and Sears,
Roebuck & Co. The Company's customers require time-definite pick-up and delivery
to support just-in-time inventory management; specialized equipment, such as
temperature controlled trailers, trailers designed to support decking,
multi-stop loading and unloading and electronic data interchange services to
automate the exchange of order and load data. The Company also provides
transportation logistic services in which it arranges transportation for
customers with other third-party transportation providers. To support these
complex customer requirements and deliver logistics services cost effectively,
Transport America has developed a sophisticated information management system
which it believes makes it a technological leader in the industry.
On July 1, 1998, the Company acquired North Star Transport, Inc.
("North Star"), a private truckload carrier based in Eagan, Minnesota. The
operations of North Star were integrated into those of the Company during the
second half of 1998.
The Company operated Transport International Express, Inc. ("TIE") from
August 1997 through December 1998. This less-than-truckload express service did
not meet Company expectations and was sold, effective January 1, 1999.
The Company carries out its business strategy by assigning an
experienced marketing representative to each customer to tailor its logistics
services, and by providing a wide range of transportation services, including
line-haul, multi-stop capability, regional and local operations, van trailers
with and without refrigeration or temperature control, time-definite pick-up and
delivery, satellite monitored transit, and information technology services. As
part of its mission to serve the logistics needs of its mostly Fortune 500
customers, Transport America provides dedicated transportation and logistic
services. With an advanced information system, modern fleet of equipment,
experienced management team and a strong customer base, Transport America
believes it is well-positioned to achieve sustained profitability and growth in
the future.
1
TRANSPORT CORPORATION OF AMERICA, INC.
CUSTOMER FOCUS AND SERVICES
The Company has designed its business to be a core carrier or preferred
partner to major shippers by providing high quality, tailored logistics service.
The Company serves as an integral part of the distribution system of many of its
major customers, including Federal Express, P.P.G. Industries, 3M Company, S.C.
Johnson & Sons, General Mills, Hon Company, Polaris Industries, and Sears,
Roebuck & Co. Some of the Company's other major customers are Gillette Company,
Arctic Cat Inc., Dupont, and Clorox Company. The principal categories of freight
hauled by the Company are department store merchandise, grocery, industrial,
consumer, paper products, and expedited services.
The Company's largest 25, 10, and 5 customers accounted for
approximately 73%, 57% and 39%, respectively, of operating revenues. During
1998, Sears, Roebuck & Co. accounted for approximately 14% of the Company's
operating revenues.
MARKETING. The Company's marketing personnel seek to strengthen
Transport America's position with existing customers and establish it with
prospective customers by taking advantage of the trend among shippers toward
private fleet conversions, outsourcing of transportation requirements, and
utilization of core carriers. The Company employs a marketing force of persons
located throughout its primary business areas. Senior management is also
actively involved in marketing, logistics planning, and customer relations,
especially with large national customers.
SERVICE CENTERS. The Company utilizes strategically located service
centers to provide an added level of customer service and support. These
facilities are located in close proximity to major customer locations, thereby
enabling the Company to provide a large amount of equipment, local cartage
service, and local customer service representatives to work directly with
customers on a day-to-day basis. The Company believes these service centers
provide a competitive advantage by allowing it to work more directly and
frequently with customers and provide equipment more rapidly. The Company also
believes that its service centers allow it to maintain closer relationships with
its driver workforce through on-site driver amenities and interactions with
service center personnel.
TIME-DEFINITE SERVICE. In each of its markets, the Company seeks to
provide 100% on-time pickup and delivery, expedited time-in-transit, logistical
planning to coordinate and deliver freight within time-definite parameters, and
advanced information capabilities that provide value to customers. Time-definite
transportation requires pick-ups and deliveries to be performed within narrowly
defined time frames. Time-definite services are particularly important to the
Company's customers who operate just-in-time manufacturing, distribution, and
retail inventory systems.
2
TRANSPORT CORPORATION OF AMERICA, INC.
HUMAN RESOURCES
Transport America's human resources are an important element of its
customer-focused business strategy. Employee drivers, independent contractors,
and non-driver employees regularly interact with customers and are ultimately
responsible for customer satisfaction. In order for the Company to grow and
continue to be positioned as a quality carrier of choice for existing and new
customers, changes to the driver's work environment are necessary. The Company
continues to emphasize competitive pay packages, quality at-home time, and
"driver friendly" freight as principal means to attract and retain its driver
workforce.
INDEPENDENT CONTRACTORS. The Company believes that a fleet of both
employee drivers and independent contractors is essential if the Company is to
continue its growth. Independent contractors provide their own tractors,
generally have a lower turnover rate than the Company has experienced with
employee drivers, and have a strong emphasis on safety.
The Company enters into operating agreements with its independent
contractors, pursuant to which its independent contractors agree to furnish a
tractor and driver to transport, load and unload goods on behalf of the Company.
These agreements typically have terms for less than one year and provide for the
payment to independent contractors of fixed compensation for total loaded and
empty miles. Independent contractors must pay all of their operating expenses
and must meet DOT regulatory requirements, as well as safety and other standards
established by the Company. The Company has implemented an incentive program to
encourage safe driving and good customer service habits.
DRIVER WORK ENVIRONMENT. The Company believes that the type of freight
it typically handles is a significant factor in retention of employee drivers
and independent contractors. Consequently, the Company focuses much of its
marketing efforts on customers with freight that is "driver-friendly" in that it
requires minimal loading or unloading by drivers and customer employees.
The Company utilizes late-model, reliable equipment including standard
features such as double sleeper bunks, extra large cabins, air-ride suspensions,
and anti-lock brakes. The Company also provides satellite communications
technology which enables drivers to receive load-related information,
directions, pay information, and family emergency information. The Company's
service centers are strategically located to provide services for the driver,
such as showers, laundry facilities, break-rooms, fuel, tractor and trailer
maintenance, and in-person assistance from service center personnel.
3
TRANSPORT CORPORATION OF AMERICA, INC.
COMPENSATION AND BENEFITS. The Company's compensation and benefits
package has been structured to compensate drivers on the basis of miles driven,
with base compensation increases commensurate with length of service. Employee
driver benefits include paid holiday and vacation days, health insurance, and a
Company funded 401(k) retirement plan. Performance bonuses are paid based upon
safety, customer service and fuel consumption. The Company believes its
compensation and benefits package for employee drivers and independent
contractors continue to rank among the highest in the truckload industry.
RECRUITING AND TRAINING. The Company's employee drivers are hired and
independent contractors are approved in accordance with specific Company
guidelines relating to safety records, prior work history, personal evaluation,
accident and driving record verification, drug and alcohol screening, and a
physical examination. The Company's initial orientation and training seminar
includes a review of all Company policies and operating requirements, written
and road driving tests, defensive driving and safety skills, DOT compliance
requirements, and the employee driver's and independent contractor's role in
providing safe and efficient value-added service to customers. The Company has
increased the recruitment and training of inexperienced driver trainees. These
driver candidates are placed in an extensive training program before being
assigned their own truck.
In addition to the initial training seminar, on-going training on
subjects such as safety, compliance, the handling of hazardous materials,
equipment operation, customer expectations, and Company policies is conducted at
the Company's service centers and periodically at outside training facilities
under contract with the Company. The Company also conducts driver meetings,
publishes a newsletter, and conducts specific professional development training,
including training to become an over-the-road driver instructor.
DRIVER AND INDEPENDENT CONTRACTOR SUPERVISION. The Company assigns each
employee driver and independent contractor to a specific fleet manager. The
fleet manager's role is to be the primary support resource for the employee
driver or independent contractor. The fleet manager also communicates the work
assignments using satellite technology, schedules time off, arranges required
safety inspections, reviews performance, provides day-to-day training, and is
accountable for the retention and productivity of the assigned employee drivers
and independent contractors.
NON-DRIVER EMPLOYEES. Mechanics, service center personnel, corporate
staff, and marketing employees are as important to the success of the Company in
meeting or exceeding customer expectations as are employee drivers and
independent contractors. Employee task groups are used to analyze specific
problems, recommend a course of corrective action, and assist in the
implementation of required changes.
As of December 31, 1998, the Company employed 1,153 student and
professional employee drivers, 92 mechanics, 401 persons in operations,
marketing, training, and administration, and had agreements with 922 independent
contractors. The Company's employees are not represented by any collective
bargaining units, and the Company considers relations with its employees and
independent contractors to be good.
4
TRANSPORT CORPORATION OF AMERICA, INC.
TECHNOLOGY
The Company has developed a fully integrated, client/server computer
information system. This system, which the Company anticipates will be fully
Year 2000 compliant in the second quarter of 1999, integrates operations with
the principal back-office functions of safety, maintenance, driver and
independent contractor settlement, fuel, billing, and accounting. The system
also includes satellite-based communications with the fleet. This system
provides information directly to and from the Company, its customers, and
drivers to assist in managing a complex information environment. The Company
believes that utilizing advanced technology is the best way to manage a complex,
customer-driven logistics process in a cost effective manner.
OPERATIONS AND COMMUNICATIONS. The Company utilizes information systems
and satellite-based communications to process orders, dispatch loads, and
monitor loads in transit. Load planners match customer orders daily with driver
availability. Once the most appropriate decision respecting a load is made,
based on computer monitored load factors, the load information is sent directly
to the driver through the satellite network. The satellite system simplifies
locating of equipment and permits timely and efficient communication of critical
operating data such as shipment orders, loading instructions, routing, fuel,
taxes paid and mileage operated, payroll, safety, traffic, and maintenance
information.
ELECTRONIC DATA INTERCHANGE ("EDI"). The Company's system enables full
electronic data interchange of load tendering, shipment status, freight billing,
and payment. This system provides significant operating advantages to the
Company and its customers, including real-time information flow, reduction or
elimination of paperwork, error-free transcription, and reductions in clerical
personnel. EDI allows the Company to exchange data with its customers in a
variety of formats, depending on the individual customer's capabilities, which
significantly enhances quality control, customer service, and efficiency. A
majority of the Company's revenues are currently processed through EDI. The
Company is currently working with its trading partners to make its EDI
transactions Year 2000 compliant.
INTERNET ACCESS. The Company provides access to certain load status
information via the Internet. This capability allows customers to obtain near
real-time information about their loads. The Company also maintains an internet
web site (www.transportamerica.com) to provide information for customers,
potential employees and investors. The company expects to continue to expand its
use of the internet.
REVENUE EQUIPMENT
The Company operates a modern fleet of tractors and trailers. Tractors
are typically replaced every 48 to 60 months, based on factors such as age and
condition, current interest rates, the market for used equipment, and
improvements in technology and fuel efficiency. The average age of the
Company-operated tractors at December 31, 1998 was approximately 26 months.
5
TRANSPORT CORPORATION OF AMERICA, INC.
The Company has available a variety of trailers to meet customer
requirements. At December 31, 1998, these included 5,051 dry vans, most of which
are logistic capable and many of which are equipped with heaters, 275
refrigerated vans, and 61 flat beds. The trailer-to-tractor ratio of 2.7 allows
the Company to provide its high-volume customers with extra trailers to
accommodate loading and unloading, and to improve driver and asset utilization.
Depending on market conditions, the Company generally replaces trailers after
four to six years of service. The average age of in-service trailers at December
31, 1998 was approximately 28 months.
The following table shows the model years of the Company tractors and
trailers as of December 31, 1998:
Model Year Tractors Trailers
- ---------- -------------- --------------
1999 332 692
1998 339 930
1997 146 568
1996 103 1,000
1995 148 774
1994 and prior, including North Star trailers 10 1,423
-------------- --------------
Total Company 1,078 5,387
Independent Contractor 922 0
============== ==============
Total available 2,000 5,387
============== ==============
COMPETITION
The truckload transportation business is extremely competitive and
fragmented. The Company competes primarily with other truckload carriers,
particularly those in the high service end of the truckload market. The Company
also competes with alternative forms of transportation, such as rail,
intermodal, and air freight, particularly in the longer haul segments of its
business. Competition in the truckload industry has created pressure on the
industry's pricing structure. Generally, competition for the freight transported
by the Company is based more on service, equipment availability, trailer type,
and efficiency than freight rates. There are a number of competitors that have
substantially greater financial resources, operate more equipment, and transport
more freight than the Company.
RECENT DEVELOPMENTS
The Company sold certain assets and the on-going business of its
subsidiary, Transport International Express (TIE) to Express America, Inc.,
effective January 1, 1999. The Company will obtain an ownership interest in
Express America, Inc., but will not be the controlling shareholder nor will it
be consolidating financial results.
6
TRANSPORT CORPORATION OF AMERICA, INC.
Company is finalizing an agreement to enter into a five-year operating
lease in connection with the construction of a new corporate office facility.
The total cost of the construction of the corporate office facility is expected
to be approximately $13 million. The lease provides for a substantial residual
value guarantee by the Company at the termination of the lease and includes
purchase and renewal options. Upon termination of the lease, the Company can
either exercise its purchase option, or the facility can be sold to a third
party. The Company expects the fair market value of the leased facility to
substantially reduce or eliminate the Company's payment under the residual value
guarantee.
EXECUTIVE OFFICERS OF THE REGISTRANT
THE COMPANY'S EXECUTIVE OFFICERS ARE:
Name Age Position
- ---- --- --------
James B. Aronson..................60 Chairman of the Board of Directors and Chief Executive Officer
Robert J. Meyers..................45 President, Chief Operating Officer, Chief Financial Officer, Chief Information
Officer, and Director.
David L. Carter...................50 Vice President of Risk Management
Larry Johnson.....................54 Vice President of Marketing Services
Robert C. Stone...................47 Vice President of Fleet Services
Jon M. Seebach....................45 Vice President of Information Services
Jeff Vandercook...................43 Vice President of Operations
Executive officers of the Company are appointed by the Board of
Directors and serve at the Board's discretion. There are no family relationships
among the executive officers.
JAMES B. ARONSON has been Chairman of the Board since May 1997, Chief
Executive Officer and a Director of the Company since August 1984, and served as
President from August 1984 to June 1994 and from June 1996 to May 1997. Prior to
joining the Company, he served in several management positions with Overland
Express, Inc. from June 1969 to May 1984, most recently as President and Chief
Operating Officer.
ROBERT J. MEYERS has been a Director of the Company since July 1997,
President and Chief Operating Officer since May 1997, Chief Financial Officer
from January 1993 to July 1998 and since December 1998, and Chief Information
Officer since January 1992. Prior to joining the Company, Mr. Meyers was founder
and President of MicroMation, Inc., a Minneapolis/Saint Paul software
development firm, from February 1982 to January 1992. During this same period,
he founded and served as a certified public accountant with Meyers and Meyers,
LTD
7
TRANSPORT CORPORATION OF AMERICA, INC.
DAVID L. CARTER has been Vice President of Risk Management and an
Officer of the Company since March 1999, Director of Risk Management since March
1997, and Loss Prevention Manager from February 1995 to March 1997. Prior to
joining the Company, he served in several risk management and training positions
with Schneider National, Inc. Prior to that time, he served as a pilot on the
Inland Waterways of the United States.
LARRY E. JOHNSON was appointed Vice President of Marketing Services and
an Officer of the Company in March 1999. He joined the Company in September of
1984 as Manager of Marketing Services and has served as Director of Marketing
Services since January 1995. Prior to joining the Company he worked for Overland
Express, Inc. as Manager of Marketing Services from January 1981 to September
1984. Prior to Overland Express, he served in various management positions with
Target Stores, Inc. from January 1968 to December 1980.
ROBERT C. STONE was appointed Vice President of Fleet Services and an
Officer of the Company in March 1999. He was Director of Fleet Management for
the Company from January 1997 to 1999, Manager of Emergency Road Service from
February 1993 to December 1996, and Shop Supervisor from December 1991 to
February 1993. Prior to joining the Company as a Maintenance Mechanic in 1985,
Mr. Stone served as a Mechanic for Overland Express beginning in 1971. In
addition to his years at Overland Express, Mr. Stone served as Warehouse
Coordinator for Gazda-Bekins and a franchise operator for MAC Tools.
JON M. SEEBACH has been Vice President of Information Services and an
Officer of the Company since March 1999. Prior to joining the Company, Mr.
Seebach was Director of Client Operations from May 1997 through February 1999,
Deluxe Corporation; Director of Information Services at Transport America from
October 1995 to May 1997; Director of Information Services at AmeriData
Technologies from April 1993 to October 1995; Director of System Support at
EduServ Technologies from April 1993 to April 1994; Assistant Vice President and
Network Services Technical Manager at First Bank Systems from December 1988 to
April 1993; Manager of Microcomputer Development at McGladrey and Pullen, CPA's,
from June 1984 to December 1988; and Senior Auditor/Planning & Budget Analyst at
St. Paul Companies, Inc. from June 1973 to June 1984.
JEFFREY P. VANDERCOOK was appointed Vice President of Operations and an
Officer of the Company in March 1999, Director of Operations from 1993 to March
1999, Operations Manager from 1989 to 1993, Area Manager from 1987 to 1989, and
a Dispatcher from 1986 to 1987. Prior to joining the Company, he worked as a
Dispatcher for Overland Express.
8
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 2. PROPERTIES
The following chart provides information concerning the Company's
service centers and other facilities:
OWNED OR SQUARE
SERVICE CENTERS AND OTHER FACILITIES LEASED ACREAGE FOOTAGE
-------------------------------------------- ------------ ------------- -----------
Clarksville, Indiana Owned 14.7 18,126
Eagan, Minnesota Owned 17.4 46,500
Hudson, Wisconsin Owned 6.8 4,896
Janesville, Wisconsin Owned 13.6 36,700
North Jackson, Ohio Owned 8.1 11,230
North Liberty, Iowa Owned 13.0 15,150
Kansas City, Missouri Owned 10.0 14,862
Columbus, Ohio Owned 17.0 43,000
Garland, Texas Owned 9.2 32,000
Bishopville, South Carolina Leased 3.5 1,500
Atlanta, Georgia Leased * *
Harrisburg, Pennsylvania Leased * *
Eagan, Minnesota (Yankee Doodle Road) Leased ** 11,358
Eagan, Minnesota (Apollo Road) Leased 4.0 15,760
* This facility is shared with another company.
** Office facility.
The Company's current rental payments for its leased facilities range
from approximately $1,000 to $12,000 per month. The terms of the Company's
leases for the Bishopville, Atlanta, and Harrrisburg locations are
month-to-month and do not include automatic renewal options. The Company does
not anticipate any difficulties renewing or continuing these leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to litigation incidental to its
business, primarily involving claims for workers' compensation or for personal
injury and property damage incurred in the transportation of freight. The
Company maintains insurance which covers liability amounts in excess of retained
liabilities from personal injury and property damage claims. The Company
currently carries a total of $30 million liability insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
9
TRANSPORT CORPORATION OF AMERICA, INC.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK. The Company's Common Stock is traded
on the Nasdaq National Market under the symbol TCAM. The following table sets
forth the high and low closing prices for the Company's Common Stock, as
reported by Nasdaq, for the periods indicated:
Period High Low
------ ---- ---
1998:
1st Quarter 18 1/4 14 1/4
2nd Quarter 18 1/4 16 1/4
3rd Quarter 17 1/4 10
4th Quarter 12 7/8 10 7/8
1997:
1st Quarter 13 1/2 10 1/4
2nd Quarter 14 13
3rd Quarter 15 1/2 13 1/8
4th Quarter 17 1/4 15 7/16
SHAREHOLDERS. As of March 24, 1999, the Company had 224 shareholders of
record, including Depository Trust Company, which held of record 5,556,747
shares.
DIVIDENDS. The Company has never paid any dividends on its Common Stock
and does not intend to pay cash dividends for the foreseeable future. Any future
decision as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial position, cash requirements, certain corporate law
restrictions, restrictions under loan agreements and such other factors as the
Board of Directors deems relevant.
SALES OF UNREGISTERED SECURITIES. In connection with the Company's
acquisition of North Star Transport Inc., on July 1, 1998, the Company issued
1,200,000 shares of its Common Stock pursuant to Rule 506 under Regulation D.
10
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Operating revenues $ 245,913 $ 186,392 $ 164,666 $ 144,254 $ 127,425
Operating expenses:
Salaries, wages and benefits 67,937 53,166 45,515 41,479 37,107
Fuel, maintenance and other expenses 26,916 25,028 23,877 21,191 20,917
Purchased transportation 83,005 55,614 46,761 37,258 29,754
Revenue equipment leases 3,731 4,893 6,490 7,090 8,423
Depreciation and amortization 19,348 15,494 13,966 10,273 6,535
Insurance, claims and damage 6,816 5,620 4,686 5,727 5,526
Taxes and licenses 4,016 3,248 2,952 2,873 3,064
Communications 2,869 2,072 1,974 1,978 1,881
Other general and administrative expenses 9,310 6,410 5,324 5,389 5,096
Gain on disposition of equipment (503) (1,336) (275) (1,755) (642)
--------- --------- --------- --------- ---------
Total operating expenses 223,445 170,209 151,270 131,503 117,661
Operating income 22,468 16,183 13,396 12,751 9,764
Interest expense, net 4,999 3,242 2,734 2,038 2,031
--------- --------- --------- --------- ---------
Earnings before income taxes 17,469 12,941 10,662 10,713 7,733
Provision for income taxes 6,813 5,190 4,368 4,607 3,524
--------- --------- --------- --------- ---------
Net earnings $ 10,656 $ 7,751 $ 6,294 $ 6,106 $ 4,209
========= ========= ========= ========= =========
Net earnings per share - basic $ 1.46 $ 1.18 $ 0.98 $ 0.96 $ 0.86
========= ========= ========= ========= =========
Net earnings per share - diluted $ 1.42 $ 1.15 $ 0.94 $ 0.91 $ 0.78
========= ========= ========= ========= =========
Weightd average shares outstanding 7,300 6,568 6,442 6,361 4,883
========= ========= ========= ========= =========
Weighted average shares outstanding,
assuming dilution 7,521 6,734 6,718 6,709 5,382
========= ========= ========= ========= =========
Pretax margin 7.1% 6.9% 6.5% 7.4% 6.1%
OPERATING DATA (TRUCKLINE ONLY):
Tractors (at end of period)
Company 1,078 891 775 779 677
Independent contractor 922 448 445 401 303
--------- --------- --------- --------- ---------
Total 2,000 1,339 1,220 1,180 980
Trailers (at end of period) 5,387 3,723 3,236 2,913 2,378
Average revenues per tractor per week $ 2,848 $ 2,837 $ 2,736 $ 2,739 $ 2,718
Average revenues per mile (1) $ 1.26 $ 1.28 $ 1.28 $ 1.28 $ 1.28
Average empty mile percentage 10.8% 11.0% 11.2% 11.4% 9.9%
Average length of haul, miles 674 629 644 674 661
Average annual revenues per non-driver employee $ 591,000 $ 544,300 $ 526,700 $ 477,300 $ 456,100
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 224,552 $ 147,528 $ 108,671 $ 99,457 $ 76,757
Long term debt, net of current maturities (2) 79,531 44,618 21,838 24,436 17,456
Common stock with non-detachable put 20,268 - - - -
Stockholders' equity 61,733 50,808 43,083 36,307 30,189
11
TRANSPORT CORPORATION OF AMERICA, INC.
(1) Net of fuel surcharges.
(2) Long-term debt excludes $5,353,000 for the total of obligations
under revenue equipment operating leases for regular lease payments plus the
residual cost of acquiring the leased equipment at the end of the lease term.
The combined total of long-term indebtedness (excluding current maturities),
lease obligations, and residual acquisition costs at December 31, 1998 was
$84,885,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, (4) changes in governmental
regulations applicable to the Company's operations, (5) adverse weather
conditions, (6) accidents, (7) the Company's year 2000 Readiness, (8) the market
for used revenue equipment, and (9) 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.
12
TRANSPORT CORPORATION OF AMERICA, INC.
OVERVIEW
Transport America began substantial operations in 1984 when Mr. Aronson
joined the Company as President and Chief Executive Officer. From 1984 to 1998,
the Company increased consolidated revenues from $2.4 million to $245.9 million.
In July 1998, the Company completed its acquisition of North Star, a private
truckload carrier, based in Eagan, Minnesota, employing primarily independent
contractors for its driver workforce. The operations of North Star were
integrated into those of the Company during the last six months of 1998. Other
than the North Star acquisition, the Company has accomplished its revenue
increases through internal growth.
The Company operated Transport International Express, Inc. ("TIE)" from
August 1997 through December 1998. This less-than-truckload express service did
not meet Company's expectations and was sold, effective January 1, 1999.
The Company's operating strategy is to provide high quality, customized
logistics services that allow it to be a preferred partner or core carrier to
major shippers. The Company carries out this strategy through its experienced
marketing and operations staff by providing a stable driver workforce, employing
technologically sophisticated systems, and maintaining a late-model equipment
fleet.
Potential liability associated with accident, cargo loss, workers'
compensation and equipment damage in the truckload industry is large and
difficult to predict. The Company reserves in its financial statements the
estimated value of all known claims, damage and losses. These estimates are
determined by Company management with the assistance of claims administrators at
the insurance carrier or by third party claims administrators. Estimates are
based on case facts and past experience and are adjusted as necessary when
additional information becomes available.
13
TRANSPORT CORPORATION OF AMERICA, INC.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of expense
items to operating revenues for the periods indicated:
Years ended December 31,
-----------------------------
1998 1997 1996
--------- --------- ---------
Operating revenues 100.0 100.0 100.0
Operating expenses:
Salaries, wages, and benefits 27.6 28.5 27.7
Fuel, maintenance, and other expenses 10.9 13.4 14.6
Purchased transportation 33.8 29.9 28.4
Revenue equipment leases 1.5 2.6 3.9
Depreciation and amortization 7.9 8.3 8.5
Insurance, claims and damage 2.8 3.0 2.8
Taxes and licenses 1.6 1.7 1.8
Communications 1.2 1.1 1.2
Other general and administrative expenses 3.8 3.5 3.2
Gain on sale of equipment (0.2) (0.7) (0.2)
Interest expense, net 2.0 1.8 1.6
--------- --------- ---------
Total operating expenses 92.9 93.1 93.5
Earnings before income taxes 7.1 6.9 6.5
Provision for income taxes 2.8 2.7 2.7
--------- --------- ---------
Net earnings 4.3 4.2 3.8
========= ========= =========
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenues increased 31.9% to $245.9 million for the year ended
December 31, 1998 from $186.4 million for the year ended December 31, 1997.
Revenue growth from existing customers, as well as additional revenues
attributable to the North Star acquisition, which became effective July 1, 1998,
were the primary factors of the revenue increase in 1998, when compared to 1997.
The additional North Star drivers provided significantly greater capacity
throughout the last six months of 1998. Revenues per mile, excluding fuel
surcharges, declined to $1.26 per mile for 1998 from $1.28 per mile for 1997 as
a result of the generally lower rate per mile associated with North Star
freight. Equipment utilization, as measured by average revenues per tractor per
week was $2,848 during 1998, approximating 1997 utilization.
14
TRANSPORT CORPORATION OF AMERICA, INC.
North Star utilized the services of independent contractors for
substantially all of its driver workforce. Following the North Star acquisition,
independent contractors represented a significantly higher share of the
Company's total driver workforce than in prior periods. In addition to providing
their own tractors, independent contractors are responsible for operating
expenses including repairs, fuel and other direct costs associated with their
equipment. As a result of the greater proportion of independent contractors than
in prior years, several expense categories declined as a percentage of revenue
in 1998, offsetting an increase of purchased transportation expense as a
percentage of revenues, when compared to 1997. At December 31, 1998 there were
922 independent contractors, compared to 448 at the end of 1997.
The Company sold TIE, its less-than-truckload express service which had
been operated since the third quarter of 1997 effective January 1, 1999. TIE
operating losses during 1998 were approximately $1.8 million, compared to an
operating loss of $0.9 million in 1997.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) increased to 7.1% for 1998 from 6.9% for 1997. Excluding
gain on sale of equipment, pre-tax margin was 6.9% and 6.2% for 1998 and 1997,
respectively. Salaries, wages and benefits declined as a percentage of operating
revenues to 27.6% for 1998 from 28.5% for 1997. Non-driver efficiency, as
measured by average annual revenues per non-driver employee, improved 8.6% to
$591,000 for 1998 from $544,300 for 1997. Miles driven by independent
contractors increased 42.6% over 1997 miles as a result of the higher average
number of independent contractors in 1998, when compared to 1997. Accordingly,
purchased transportation increased as a percentage of operating revenues to
33.8% for 1998 from 29.9% in 1997. Fuel, maintenance and other expense was 10.9%
of operating revenues in 1998, compared to 13.4% for 1997, reflecting the lower
proportion of miles driven by Company drivers as well as the lower fuel prices
which existed throughout 1998, when compared to 1997. Revenue equipment leases
decreased as a percentage of operating revenues to 1.5% for 1998 from 2.6% for
1997. Depreciation and amortization were 7.9% for 1998, compared to 8.3% for
1997 as result of the larger proportion of revenue equipment supplied by
independent contractors during 1998 and a change of estimated salvage values of
certain of the Company's revenue equipment, which reduced depreciation expense
by approximately $1,095,000 in 1998. Improved accident and claims experience in
1998, as well as favorable premium rates for policies renewed in 1998, resulted
in a decrease of insurance, claims and damage expense as a percentage of
operating revenues to 2.8% in 1998 from 3.0% in 1997. Net interest expense
increased as a percentage of operating revenues to 2.0% for 1998 from 1.8% for
1997, primarily reflecting higher average debt in 1998 resulting from the
acquisition of North Star in July 1998, and purchases of additional revenue
equipment in 1998, when compared to 1997.
Gain on the disposition of equipment was $0.5 million in 1998, compared
to a gain of $1.3 million in 1997, as a result of fewer equipment dispositions
in 1998 when compared to 1997, along with the Company's continuing effort to
more closely reflect the estimated useful lives and salvage values of its
revenue equipment.
15
TRANSPORT CORPORATION OF AMERICA, INC.
The provision for income taxes as a percentage of operating revenues
was 2.8% for 1998 and 2.7% for 1997. The effective tax rate for 1998 was 39.0%,
compared to the tax rate of 40.1% for 1997. The lower effective rate in 1998 was
due primarily to a continued decline in Company per diem payments, which are not
fully deductible for income tax purposes, when compared to 1997. The Company
pays certain of its drivers a per diem allowance while on the road to cover
meals and other expenses.
As a consequence of the items discussed above, net earnings increased
37.5% to $10.7 million, or 4.3% of operating revenues, for the year ended
December 31, 1998, from $7.8 million, or 4.2% of operating revenues, for the
year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenues increased 13.2% to $186.4 million for the year ended
December 31, 1997 from $164.7 million for the year ended December 31, 1996.
Existing customers continued as the primary source of revenue growth. Average
revenues per mile, excluding fuel surcharges, were $1.28 per mile for 1997 and
1996. Equipment utilization, as measured by average revenues per tractor per
week was $2,837 during 1997, compared to $2,736 during 1996, a 3.7% improvement
in 1997, compared to 1996.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) increased to 6.9% for 1997 from 6.5% for 1996. Excluding
gain on sale of equipment, pre-tax margin was 6.2% and 6.3% for 1997 and 1996,
respectively. As measured by average annual revenues per non-driver employee,
efficiency improved 3.3% to $544,300 for 1997 from $526,700 for 1996. Salaries,
wages and benefits increased as a percentage of operating revenues to 28.5% for
1997 from 27.7% for 1996. Independent contractor miles increased 11.8% due to an
increase in the average number of contractors in 1997, when compared to 1996.
Correspondingly, purchased transportation increased as a percentage of operating
revenues to 29.9% for 1997 from 28.4% in 1996. Fuel, maintenance and other
expense decreased as a percentage of operating revenues to 13.4% for 1997 from
14.6% for 1996 as a result of the increase in independent contractor miles as a
percentage of total miles, and lower fuel costs in 1997 when compared to 1996.
As a result of an increase in independent contractors and the expanded use of
debt-financed equipment, revenue equipment leases decreased as a percentage of
operating revenues to 2.6% for 1997 from 3.9% for 1996. Depreciation and
amortization decreased to 8.3% for 1997 from 8.5% for 1996 due to the timing of
equipment purchases and the change of estimated salvage values and useful lives
of the Company's revenue equipment and software, which reduced depreciation
expense by approximately $750,000 in 1997. Somewhat poorer accident and claims
experience in 1997, partially offset by favorable premium rates for policies
renewed in 1997, resulted in an increase of insurance, claims and damage expense
as a percentage of operating revenues to 3.0% in 1997 from 2.8% in 1996. Net
interest expense increased as a percentage of operating revenues to 1.8% for
1997 from 1.6% for 1996 primarily as a result of increased debt-financed
equipment purchases in 1997, when compared to 1996.
16
TRANSPORT CORPORATION OF AMERICA, INC.
Gain on the disposition of equipment was $1.3 million in 1997, compared
to a gain of $0.3 million in 1996, as a result of the larger number of equipment
dispositions in 1997 when compared to 1996, and a favorable market for used
equipment in 1997.
The provision for income taxes as a percentage of operating revenues
was 2.7% for both 1997 and 1996. The effective tax rate for 1997 was 40.1%,
compared to the tax rate for 1996 of 41.0%. The lower effective rate in 1997 was
due primarily to a continued decline in Company per diem payments, which are not
fully deductible for income tax purposes, when compared to 1996. The Company
pays certain of its drivers a per diem allowance while on the road to cover
meals and other expenses.
As a consequence of the items discussed above, net earnings increased
to $7.8 million, or 4.2% of operating revenues, for the year ended December 31,
1997 from $6.3 million, or 3.8% of operating revenues, for the year ended
December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $40.3 million, $16.8
million, and $25.6 million for the years ended 1998, 1997, and 1996,
respectively. Working capital was $3.2 million at December 31, 1998, compared to
a $2.2 million deficit at December 31, 1997. During 1998, the Company arranged
for a long-term credit facility which resulted in the retirement of $7.7 million
of current maturities of long-term debt and a corresponding increase of
non-current long-term liabilities. Accrued liabilities include normal provisions
for accident and workers' compensation claims associated with the Company's
self-insured retention insurance program, less claim payments actually made. The
Company believes that its reserves and liquidity are adequate for expected
future claim payments.
Investing activities consumed $68.0 million in 1998, including $15.6
million for the cash portion of the North Star acquisition, $48.7 million for
the purchase of new revenue equipment, net of proceeds from the disposition of
used revenue equipment, and $3.5 million for the purchase of land for a facility
in Atlanta, Georgia, as well as other equipment and improvements. As of December
31, 1998, the Company had purchase commitments totaling $32.5 million for the
purchase of revenue equipment and $1.9 million for the construction of a
facility in Atlanta, Georgia. The Company believes that cash flows from
operating activities, proceeds from the disposition of used revenue equipment,
and borrowings available under its credit facility will be adequate to meet its
needs.
17
TRANSPORT CORPORATION OF AMERICA, INC.
Net cash provided by financing activities in 1998 was $26.7 million.
The primary source of financing was net borrowings of $53.0 million under the
Company's long-term credit facility and the issuance of $10.6 million of
long-term debt associated with the purchase of revenue equipment. Payments under
the Company's term loan agreements were $37.2 million, including the retirement
of approximately $16.9 million of long-term debt subsequent to funding of the
Company's long-term credit facility. The Company repurchased and retired 31,000
outstanding shares of common stock during 1998 with an aggregate purchase price
of approximately $0.4 million. The Company also received $0.6 million of
proceeds from the exercise of options and warrants for the purchase of common
stock during 1998.
The Company has a credit agreement with seven major banks for an
unsecured credit facility with maximum combined borrowings and letters of credit
of $100 million. Amounts actually available under the credit facility may be
limited by the Company's accounts receivable and unencumbered revenue equipment.
The credit agreement expires in March 2001. During 1998, the credit facility was
used to retire approximately $16.9 million of existing long-term debt and the
outstanding balance of the previous credit facility, the purchase of revenue
equipment and other assets, as well as to fund other cash requirements. In the
future, the facility will be used to meet working capital needs, make purchases
of revenue equipment and other assets, satisfy letter of credit requirements
associated with the Company's self-insured retention arrangements, and for
acquisitions. At December 31, 1998, there were outstanding borrowings of $53.0
million and letters of credit outstanding totaling $3.6 million under this
credit facility.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133. SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, establishes new
standards for recognizing all derivatives as either assets or liabilities, and
measures those instruments at fair value. The Company will be required to adopt
the new standard beginning with the first quarter of fiscal 2000; earlier
application is permitted. The Company is currently in the process of evaluating
the impact of this statement.
YEAR 2000
GENERAL STATE OF READINESS:
Transport America has instituted a Steering Committee (the "Committee")
to assess the readiness of the Company's systems to accommodate Year 2000
("Y2K") issues. The Committee, consisting of senior management representing both
technical and operating departments, is charged with developing a project plan,
detailed management and remediation plans, as well as execution of these plans.
18
TRANSPORT CORPORATION OF AMERICA, INC.
The Company is currently dependent upon systems that are not Y2K
compliant, including the Company's operations system, which is critical to
coordinate driver movements with customer needs and which interacts with other
internal accounting and operating systems as well as external customer
information systems. Development of a replacement operations system commenced in
1997, and the coding and testing of this system is substantially complete.
Training and implementation is anticipated to be completed in the second quarter
of 1999. The replacement system has been designed to provide operational
capabilities and enhancements not present in the current systems, in addition to
achieving Y2K compliance.
Under the guidance of the Committee, an inventory and assessment of all
systems has been completed. A remediation timeline for non-compliant systems
will be completed in the second quarter of 1999.
The Company is dependent upon system-based relationships with outside
parties, including customers, banks, payroll processors, suppliers,
communication service providers, and other business partners. The Company has
outlined its core business processes and identified customers and vendors who
are critical to these processes. The Company has implemented a series of phone
and printed surveys which have been sent to these business partners to assess
their Y2K readiness. Responses to these surveys are being collected and
assessments made to determine the degree of impact on Company operations, should
any of these outside parties fail to achieve Y2K compliance. Remediation actions
and alternate procedures will be developed to overcome any significant business
partner issues discovered as a result of the surveys.
COSTS TO ADDRESS THE COMPANY'S Y2K ISSUES
The Company believes that the costs of addressing internal Y2K issues
will not have a material adverse effect upon its results of operations or
financial condition. The major initiative, consisting of replacing the
operations system, is primarily directed at improving operational effectiveness,
with the added benefit of replacing a non-Y2K compliant system. The Company has
estimated that internal costs associated with Y2K compliance will be $350,000,
of which approximately $200,000 has been incurred and expensed to date. The
potential financial impact on the Company resulting from the failure of any of
the Company's business partners to be Y2K compliant cannot be estimated until
the Company has received and evaluated responses to its surveys of its business
partners.
RISKS ASSOCIATED WITH THE COMPANY'S Y2K ISSUES
The Company's failure to implement Y2K compliant systems could disrupt
daily operations, impairing, for example, the Company's ability to receive and
record customer orders, coordinate driver movements, and invoice customers, all
of which could have a material adverse effect upon the Company's results of
operations and liquidity, if prolonged. Although the Company believes alternate
manual processes exist that could temporarily minimize the disruption caused by
a Y2K failure, such processes would not likely be effective for a extended
period of time.
19
TRANSPORT CORPORATION OF AMERICA, INC.
The Company is dependent upon third party resources which are outside
its direct control. Among the more critical of these is the telecommunication
system, upon which the Company depends to receive customer orders and direct
driver movements. Daily activities are very dependent upon voice-based phone
systems and satellite-based communication systems. Failure of the voice-based
phone system would pose a critical loss of capabilities, only partially offset
by satellite communication options.
Several critical relationships exist between the Company and its
customers, particularly those who electronically initiate order transactions
with the Company or interact directly with the Company's systems. Failure of the
Company's customers to achieve Y2K compliance could jeopardize the Company's
ability to transact business electronically with those customers. In the event
of a customer's Y2K failure, the success of manual interim processes will be
largely out of the Company's control.
CONTINGENCY PLANS
The Company is in the process of developing a comprehensive Y2K
Contingency Plan. The Committee is charged with developing such contingency plan
by the end of the second quarter of 1999.
SEASONALITY
As is typical in the truckload industry, the Company's operations
fluctuate seasonally according to customer shipping patterns which tend to peak
in the summer and fall, then increase again after the holiday and winter
seasons. Operating expenses also tend to be higher during the cold weather
months, primarily due to poorer fuel economy and increased maintenance costs.
INFLATION
Many of the Company's operating expenses are sensitive to the effects
of inflation, which could result in higher operating costs. The effects of
inflation on the Company's business have not been significant during the last
three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks with its $100 million
credit agreement, of which $53.0 million is outstanding at December 31, 1998.
The agreement bears interest at a variable rate, which was 6.4% at December 23,
1998. In addition, the Company also has 1.2 million shares of common stock with
a non-detachable Put option. The Put gives the shareholder the right to sell
some or all of the 1.2 million shares of the Company's common stock back to the
Company at $16.89 per share, payable in cash, during a 60-day period commencing
June 30, 2001.
20
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein. See "Quarterly Financial Data" appearing on page F-24 of
the audited consolidated financial statements which are incorporated herein, by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
TRANSPORT CORPORATION OF AMERICA, INC.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Company's executive officers, reference
is made to the information set forth under the caption "Executive Officers of
the Registrant" located in Item 1 on page 7 of this Form 10-K. For information
concerning the Company's directors and compliance by the Company's directors,
executive officers and significant shareholders with the reporting requirements
of Section 16(a) of the Securities Exchange Act of 1934, as amended, reference
is made to the information set forth under the captions "Election of Directors"
and "Beneficial Ownership of Common Stock," respectively, in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 20, 1999 to
be filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation and Other Information" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 20, 1999 to be filed
pursuant to Regulation 14A, which information is incorporated herein by
reference, except to the extent stated therein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption
"Beneficial Ownership of Common Stock" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 20, 1999 to be filed pursuant
to Regulation 14A, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under caption "Certain
Transactions" in the Company's Proxy statement for the Annual Meeting of
Shareholders to be held on May 20, 1999 to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
22
TRANSPORT CORPORATION OF AMERICA, INC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
1. Consolidated Financial Statements
---------------------------------
Form 10-K
Page Reference
--------------
Index to Consolidated Financial Statements....................................F-1
Independent Auditors' Report..................................................F-2
Consolidated Balance Sheets...................................................F-3
Consolidated Statements of Earnings...........................................F-4
Consolidated Statements of Stockholders' Equity...............................F-5
Consolidated Statements of Cash Flows.........................................F-6
Notes to Consolidated Financial Statements....................................F-7
2. Consolidated Financial Statement Schedules
------------------------------------------
Included in Part IV of this report:
Independent Auditors' Report on Schedule......................................S-1
Schedule II - Valuation and Qualifying Accounts...............................S-2
3. Exhibits
--------
Exhibit
Number Description
------ -----------
Page
----
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
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, and to Exhibit 1 to the Company's
Registration Statement on form 8-K/A, filed with
the SEC on June 29, 1998).
10.1 Credit Agreement dated as of August 14, 1998 among
ABN-AMRO Bank, N.V., certain other bank parties,
and the Company (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1998).
23
TRANSPORT CORPORATION OF AMERICA, INC.
10.2 1986 Stock Option Plan, as amended (incorporated
by reference to Exhibit 10.2 to the Company's Form
10-K for the year ended December 31, 1996).
10.3 401(k) Retirement Plan (incorporated by reference
to Exhibit 10.3 to the 1994 S-1).
10.5 Form of warrants granted to officers, directors
and consultants (incorporated by reference to
Exhibit 10.5 to the 1994 S-1).
10.6 Form of Vehicle Lease and Independent Contractor
Agreement (incorporated by reference to Exhibit
10.11 to the Company's Form 10-K for the year
ended December 31, 1996).
10.12 Employee Stock Purchase Plan (incorporated by
reference to Form S-8 which was filed on January
31, 1996 (File No. 333-934)).
10.13 1995 Stock Plan, as amended (incorporated by
reference to Exhibit 10.13 to the Company's Form
10-K for the year ended December 31, 1996).
11.1 Statement re: Computation of Earnings per
Share ........................................F-23
23.1 Independent Auditors' Consent ................F-24
21 Subsidiaries of the Registrant: North Star
Transport, Inc., and Transport International
Express Inc., Minnesota corporations.
27.1 Financial Data Schedule, Fiscal year end
December 31, 1998 ............................
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
(c) Exhibits
--------
Reference is made to Item 14(a)3.
(d) Schedules
---------
Reference is made to Item 14(a)2.
24
TRANSPORT CORPORATION OF AMERICA, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. ("Registrant")
Dated: March 24, 1999 By /s/ James B. Aronson
-------------- -----------------------------------------
James B. Aronson
Chairman of the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ James B. Aronson March 24, 1999
- --------------------------------------------------- --------------
James B. Aronson
Chairman of the Board and
Chief Executive Officer
/s/ Robert J. Meyers March 24, 1999
- --------------------------------------------------- --------------
Robert J. Meyers
President, Chief Operating Officer and
Chief Financial Officer
/s/ William Slattery March 24, 1999
- --------------------------------------------------- --------------
William Slattery, Director
/s/ Anton J. Christianson March 24, 1999
- --------------------------------------------------- --------------
Anton J. Christianson, Director
/s/ Michael J. Paxton March 24,1999
- --------------------------------------------------- --------------
Michael J. Paxton, Director
/s/ Kenneth J. Roering March 24, 1999
- --------------------------------------------------- --------------
Kenneth J. Roering, Director
25
Independent Auditors' Report on Schedule
The Board of Directors and Stockholders
Transport Corporation of America, Inc.
Under date of February 5, 1999, we reported on the consolidated balance
sheets of Transport Corporation of America, Inc. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1998. These consolidated
financial statements, and our report thereon, are included in the
annual report on Form 10-K for the year 1998. In connection with our
audits of the aforementioned consolidated financial statements, we also
have audited the related consolidated financial statement schedule as
listed in the accompanying index. This consolidated financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
S-1
TRANSPORT CORPORATION OF AMERICA, INC.
SCHEDULE II
Valuation and Qualifying Accounts
(In thousands)
Additions
----------------------
Additions
Balance at charged to Charged to Balance
beginning cost and other at end
Description of year expense accounts Deductions of year
- ----------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
(deducted from accounts receivable)
Year ended December 31, 1998 $ 324 162 30 (1) 55 $ 461
Year ended December 31, 1997 $ 313 115 104 $ 324
Year ended December 31, 1996 $ 304 60 51 (2) $ 313
Reserve for insurance, claim and damage liability
Year ended December 31, 1998 $3,408 5,191 1,490 (1) 5,426 $ 4,663
Year ended December 31, 1997 $3,341 4,157 4,090 $ 3,408
Year ended December 31, 1996 $4,277 3,014 3,950 $ 3,341
Reserve for workers' compensation liability
Year ended December 31, 1998 $1,294 1,578 1,485 $ 1,387
Year ended December 31, 1997 $1,643 1,416 1,765 $ 1,294
Year ended December 31, 1996 $1,351 1,789 1,497 $ 1,643
(1) North Star valuation at date of acquisition
(2) Net of recoveries of amounts previously deducted
S-2
TRANSPORT CORPORATION OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report...............................................F-2
Consolidated Balance Sheets................................................F-3
Consolidated Statements of Earnings........................................F-4
Consolidated Statements of Stockholders' Equity............................F-5
Consolidated Statements of Cash Flows......................................F-6
Notes to Consolidated Financial Statements.................................F-7
F-1
TRANSPORT CORPORATION OF AMERICA, INC.
Independent Auditors' Report
The Board of Directors and Stockholders
Transport Corporation of America, Inc.:
We have audited the consolidated balance sheets of Transport Corporation of
America, Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transport
Corporation of America, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
F-2
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
---------------------
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 448 $ 1,383
Trade accounts receivable, net (note 1 and 4) 27,403 17,482
Other receivables (note 2) 1,593 4,492
Operating supplies - inventory (note 1) 1,378 989
Deferred income tax benefit (note 1 and 9) 5,443 3,945
Prepaid expenses and tires 2,212 1,921
- -----------------------------------------------------------------------------------------------------
Total current assets 38,477 30,212
Property and equipment:
Land, buildings, and improvements 18,759 17,120
Revenue equipment (note 1 and 4) 179,042 126,886
Other equipment 9,905 7,082
- -----------------------------------------------------------------------------------------------------
Total property and equipment 207,706 151,088
Less accumulated depreciation (46,946) (36,048)
- -----------------------------------------------------------------------------------------------------
Property and equipment, net 160,760 115,040
Other assets, net (note 3) 25,315 2,276
- -----------------------------------------------------------------------------------------------------
Total assets $ 224,552 $ 147,528
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 4) $ 13,717 $ 19,077
Accounts payable 7,207 3,559
Checks issued in excess of cash balances 426 0
Due to independent contractors 2,126 1,206
Accrued expenses (note 5) 11,795 8,609
=====================================================================================================
Total current liabilities 35,271 32,451
Long term debt, less current maturities (note 4) 79,531 44,618
Deferred income taxes (note 9) 27,749 19,652
Commitments (note 7 and 11)
1,200,000 shares of common stock with non-detachable put (note 6) 20,268 0
Stockholders' equity (notes 7):
Common stock, $.01 par value; 15,000,000 shares authorized; 6,687,873
(excluding 1,200,000 shares with non-detachable put) and 6,590,634
shares issued and outstanding as of
December 31, 1998 and 1997, respectively 67 66
Additional paid-in capital 24,093 23,824
Retained earnings 37,573 26,917
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 61,733 50,807
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 224,552 $ 147,528
=====================================================================================================
See accompanying notes to consolidated financial statements
F-3
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Earnings
(In thousands, except share and per share amounts)
Years ended December 31,
------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
Operating revenues $ 245,913 $ 186,392 $ 164,666
Operating expenses:
Salaries, wages, and benefits 67,937 53,166 45,515
Fuel, maintenance, and other expenses 26,916 25,028 23,877
Purchased transportation 83,005 55,614 46,761
Revenue equipment leases 3,731 4,893 6,490
Depreciation and amortization 19,348 15,494 13,966
Insurance, claims and damage 6,816 5,620 4,686
Taxes and licenses 4,016 3,248 2,952
Communications 2,869 2,072 1,975
Other general and administrative expenses 9,310 6,410 5,324
Gain on sale of equipment (503) (1,336) (276)
- ------------------------------------------------------------------------------------------
Total operating expenses 223,445 170,209 151,270
- ------------------------------------------------------------------------------------------
Operating income 22,468 16,183 13,396
Interest expense 5,129 3,306 2,824
Interest income (130) (64) (90)
- ------------------------------------------------------------------------------------------
Interest expense, net 4,999 3,242 2,734
- ------------------------------------------------------------------------------------------
Earnings before income taxes 17,469 12,941 10,662
Provision for income taxes (note 9) 6,813 5,190 4,368
- ------------------------------------------------------------------------------------------
Net earnings (note 7) $ 10,656 $ 7,751 $ 6,294
- ------------------------------------------------------------------------------------------
Net earnings per share:
Basic $ 1.46 $ 1.18 $ 0.98
Diluted $ 1.42 $ 1.15 $ 0.94
- ------------------------------------------------------------------------------------------
Average common shares outstanding:
Basic 7,299,833 6,568,444 6,441,723
Diluted 7,520,534 6,734,352 6,718,351
- ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997, and 1996
(In thousands, except share amounts)
Common Stock Additional Total
---------------------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 6,420,619 $64 $23,370 $ 12,872 $ 36,306
Common stock options,
warrants, and stock
purchase plan 75,420 1 481 0 482
Net earnings 0 0 0 6,294 6,294
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,496,039 65 23,851 19,166 43,082
Common stock options,
warrants, and stock
purchase plan 170,295 2 358 0 360
Tax benefits related to
employee stock warrant
transactions 0 0 571 0 571
Repurchase and retirement
of common stock (75,700) (1) (956) 0 (957)
Net earnings 0 0 0 7,751 7,751
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,590,634 66 23,824 26,917 50,807
Common stock options,
warrants, and stock
purchase plan 128,239 1 559 0 560
Tax benefits related to
employee stock warrant
transactions 0 0 86 0 86
Repurchase and retirement
of common stock (31,000) 0 (376) 0 (376)
Net earnings 0 0 0 10,656 10,656
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,687,873 $67 $24,093 $ 37,573 $ 61,733
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years ended December 31,
---------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 10,656 $ 7,751 $ 6,294
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 19,348 15,494 13,966
Gain on sale of equipment (503) (1,336) (275)
Deferred income taxes 6,599 4,510 3,241
Tax benefits related to employee stock transactions 87 571 0
Changes in operating assets and liabilities, net of acquisition:
Trade receivables (1,652) (4,864) 423
Other receivables 2,899 (3,835) 2,665
Operating supplies (389) (179) 153
Prepaid expenses and tires 841 181 (211)
Accounts payable 2,284 950 (389)
Due to independent contractors 408 (179) 405
Accrued expenses (247) (2,228) (707)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 40,331 16,836 25,565
- -------------------------------------------------------------------------------------------------------------------
Investing activities:
Payments for purchases of revenue equipment (56,382) (51,002) (21,133)
Payments for purchases of property and other equipment (3,544) (8,049) (3,303)
(Increase) decrease in other assets (200) (196) 83
Acquisition of business, net of cash acquired (15,555) 0 0
Proceeds from sales of equipment 7,710 11,803 4,168
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (67,971) (47,444) (20,185)
- -------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock,
and exercise of options and warrants 559 361 482
Payments of loan origination fees (267) 0 0
Payments for repurchase and retirement of common stock (376) (958) 0
Proceeds from issuance of long-term debt 10,577 44,538 15,592
Principal payments on long-term debt (37,214) (17,940) (12,246)
Proceeds from issuance of notes payable to bank 96,450 38,060 21,888
Principal payments on notes payable to bank (43,450) (38,060) (24,118)
Change in net checks issued in excess of cash balances 426 (351) (802)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 26,705 25,650 796
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (935) (4,958) 6,176
Cash and cash equivalents, beginning of year 1,383 6,341 165
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 448 $ 1,383 $ 6,341
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 5,028 $ 3,425 $ 2,806
Income taxes, net (949) 1,296 531
During 1998, the Company issued 1.2 million shares of common stock at $16.89 per
share totalling $20.3 million in connection with the acquisition of North Star
Transport, Inc.
See accompanying notes to consolidated financial statements.
F-6
TRANSPORT CORPORATION OF AMERICA, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1998, 1997, and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
Transport Corporation of America, Inc. (the Company) is a truckload
motor carrier engaged in the transportation of a variety of
general commodities for customers principally in the United States
and portions of Canada, pursuant to nationwide operation
authority. Customer freight is transported by Company equipment
and by independent contractors. Payments to Company drivers and
independent contractors are primarily based upon miles driven.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of the
Company and its wholly owned subsidiaries, North Star Transport,
Inc. ("North Star") and Transport International Express, Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements in order to conform to the 1998 presentation.
REVENUE RECOGNITION
Operating revenues are recognized when the freight to be transported
has been loaded. Amounts payable to independent contractors for
purchased transportation, to Company drivers for wages and any
other direct expenses are accrued when the related revenue is
recognized.
TRADE ACCOUNTS RECEIVABLE
Trade Accounts Receivable at December 31, 1998 and 1997 are net of
allowances for doubtful accounts of $461,000 and $324,000,
respectively.
REVENUE EQUIPMENT, PROPERTY, AND OTHER EQUIPMENT
Revenue equipment, property, and other equipment are recorded at cost.
Depreciation, including amortization of capitalized leases, is
computed using the straight-line basis over the estimated useful
lives of the assets or the lease periods, whichever is shorter.
The Company regularly updates its estimates of revenue equipment
salvage values and adjusts depreciation expense prospectively if
there has been a significant change from earlier estimates.
F-7
TRANSPORT CORPORATION OF AMERICA, INC.
The estimated useful lives for new equipment when placed in service are as
follows:
Years
- --------------------------------------------------------------------------------
Tractors 5
Trailers 5
Buildings 30
Other equipment, including computers and furniture 3 - 8
- --------------------------------------------------------------------------------
The Company changed the estimated salvage value of certain of its'
revenue equipment during 1998 and 1997, and, during 1997, the
estimated life of its computer software. The changes resulted in a
net decrease in depreciation expense of approximately $1,095,000
and $750,000 for 1998 and 1997, respectively, an increase in net
income of approximately $668,000 and $450,000 for 1998 and 1997,
respectively, and an increase of basic and diluted earnings per
share of $0.09 for 1998, and $0.07 for 1997. The Company
periodically assesses it's salvage values to better match
revenues and expenses.
TIRES
Tires placed on new equipment after December 31, 1996 are capitalized
as part of revenue equipment and amortized over their estimated
life. Tires placed on new equipment prior to December 31, 1996 are
included in other assets (net) and are capitalized and recorded as
prepaid tires and amortized over their estimated life. Replacement
tires are expensed when placed in service.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, 25 years. The Company
assesses the recoverability of this intangible asset in accordance
with its Impairment of Long-lived Assets policy.
OPERATING SUPPLIES
Operating supplies representing repair parts, fuel, and replacement
tires for revenue equipment are recorded at cost.
F-8
TRANSPORT CORPORATION OF AMERICA, INC.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ESTIMATED LIABILITY FOR INSURANCE CLAIMS
The Company maintains automobile, general, cargo, and workers'
compensation claim liability insurance coverages under both
deductible and retrospective rating policies. In the month claims
are reported, the Company estimates and establishes a liability
for its share of ultimate settlements using all available
information, coupled with the Company's history of such claims.
Claim estimates are adjusted when additional information becomes
available. The recorded expense depends upon actual loss
experience and changes in estimates of settlement amounts for open
claims which have not been fully resolved. However, final
settlement of these claims could differ materially from the
amounts the Company has accrued at year-end. The Company accrues
for health insurance claims reported, as well as for claims
incurred but not reported, based upon the Company's past
experience.
STOCK-BASED EMPLOYEE COMPENSATION
The Company follows the provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for its stock-based
employee compensation plans. The Company has adopted the
disclosure-only requirements of Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the amounts
presented on the consolidated financial statements for the
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
NET EARNINGS PER SHARE: BASIC AND DILUTED
Basic net earnings per common share is computed by dividing net
earnings by the weighted average number of common shares
outstanding during the year. The 1.2 million shares of common
stock which were issued at the time of the acquisition of North
Star are considered outstanding effective July 1, 1998.
F-9
TRANSPORT CORPORATION OF AMERICA, INC.
Diluted net earnings per share is computed by dividing net earnings by
the weighted average number of potential common shares
outstanding, assuming exercise of dilutive stock options and
warrants. The potential common shares are included under the
treasury stock method using the average market price of the
Company's stock during each period.
Diluted net earnings for 1998 include the effect of a non-detachable
put option associated with the acquisition of North Star. The
potential common shares for the Put have been calculated using the
reverse treasury stock method and the average market price of the
Company's stock for the period since the July 1, 1998 effective
date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and liabilities,
because of their short-term nature, approximates fair value. The
fair value of the Company's borrowing, if recalculated based on
current interest rates, would not significantly differ from the
recorded amounts.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with initial maturities of three
months or less to be cash equivalents.
(2) OTHER RECEIVABLES
Other Receivables at December 31, 1998 and 1997 included a receivable
of approximately $1.4 and $3.7 million related to the sale of
certain revenue equipment, respectively.
(3) OTHER ASSETS
Other assets at December 31, 1998 includes Goodwill from the
acquisition of North Star in 1998 of $23.2 million, net of $0.5
million of accumulated amortization (see note 12).
F-10
TRANSPORT CORPORATION OF AMERICA, INC.
(4) CREDIT FACILITY AND LONG TERM DEBT
The Company has a credit agreement with seven major banks for an
unsecured credit facility with maximum combined borrowings and
letters of credit of $100 million. Amounts actually available
under the credit facility may be limited by the Company's accounts
receivable and unencumbered revenue equipment. The credit
agreement expires in March 2001. During 1998, the credit facility
was used to retire approximately $16.9 million of existing
long-term debt and the outstanding balance of the previous credit
facility, the purchase of revenue equipment and other assets, as
well as to fund other cash requirements. In the future, the
facility will be used to meet working capital needs, make
purchases of revenue equipment and other assets, satisfy letter of
credit requirements associated with the Company's self-insured
retention arrangements, and for acquisitions. At December 31,
1998, the credit facility bears interest at 6.5% and there were
letters of credit outstanding totaling $3.6 million under this
credit facility. Under the terms of the agreement, the Company had
available $43.4 million at December 31, 1998.
The credit agreement contains certain financial covenants, which
include maintenance of a minimum net worth, maintenance of a
consolidated funded indebtedness to consolidated earnings before
interest, taxes, depreciation, amortization and lease rental
expenses of 3 to 1, maintenance of a consolidated fixed charge
coverage ratio not less than 2 to 1.
The following is a summary of data relating to the current and expired
credit facilities:
Years ended
December 31,
-----------------------
1998 1997
-----------------------------------------------------------------------
Long Term
---------
Outstanding balance at year end $ 53,000 $ -
Average amount outstanding 39,456 0
Maximum amount outstanding 53,000 0
Weighted average interest rate during the year 6.40% 0
Commitment fee on unused balances 0.175% 0
Short Term (expired facility)
-----------------------------
Outstanding balance at year end $ - $ -
Average amount outstanding 2,950 801
Maximum amount outstanding during the year 13,641 3,640
Weighted average interest rate during the year 8.50% 8.50%
Commitment fee on unused balances 0.210% 0.210%
F-11
TRANSPORT CORPORATION OF AMERICA, INC.
Long-term debt consists of the following:
December 31,
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
Notes payable to banks and other financial institutions with maturities through
August 2002, secured by certain revenue equipment:
Interest rates ranging from 6.6% to 7.7% $ 39,649 $ 59,330
Interest rate floating on a reference rate which was 7.7%
at December 31, 1997 0 3,250
Obligations under capital leases payable with maturities through December 1999,
interest rates ranging from 4.4% to 12.0%,
and secured by certain revenue equipment 599 920
Mortgage notes secured by real estate 0 195
Unsecured credit facility 53,000 0
- ---------------------------------------------------------------------------------------------------------------
Total long-term debt 93,248 63,695
Less current maturities of long-term debt 13,717 19,077
- ---------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $ 79,531 $ 44,618
- ---------------------------------------------------------------------------------------------------------------
The aggregate annual maturities of long-term debt at December 31, 1998 are as
follows:
Year ending December 31, Amount
- ---------------------------------------------------------------------------------------------------------------
1999 $ 13,717
2000 13,127
2001 64,629
2002 1,775
- ---------------------------------------------------------------------------------------------------------------
Total $ 93,248
- ---------------------------------------------------------------------------------------------------------------
F-12
TRANSPORT CORPORATION OF AMERICA, INC.
(5) ACCRUED EXPENSES
Accrued expenses are as follows:
December 31,
--------------------
1998 1997
- -------------------------------------------------------------------------------
Salaries and wages $ 1,656 $ 1,768
Insurance, claims and damage 4,663 3,408
Workers compensation 1,387 1,294
Taxes, other than income 813 431
Current income tax 508 0
Interest 242 149
Other 2,526 1,559
- -------------------------------------------------------------------------------
Total $ 11,795 $ 8,609
===============================================================================
(6) COMMON STOCK WITH NON-DETACHABLE PUT
In July 1998, as part of its acquisition of North Star, the Company
issued 1.2 million shares of common stock with a non-detachable
put option ("Put"). The shares are considered issued and
outstanding as of December 31, 1998.
The Put gives the shareholder the right to sell some or all of the 1.2
million shares of the Company's common stock back to the Company
at $16.89 per share, payable in cash, during a 60-day period
commencing June 30, 2001. The maximum repurchase obligation of 1.2
million shares at $16.89 per share is $20,268,000, and has been
classified outside of stockholders' equity. In the event the Put
expires unexercised, this amount will be reclassified to
stockholders' equity.
The effect of the 1.2 million shares associated with the Put is
included in the computations of both basic and diluted earnings
per share. Additionally, for dilutive earnings per share, the
reverse treasury stock method is applied to the 1.2 million shares
as the Company's average stock price has been below the Put price
of $16.89. The dilutive effect for 1998 was $.03 per share.
F-13
TRANSPORT CORPORATION OF AMERICA, INC.
(7) STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN AND PREFERRED STOCK DISTRIBUTION
In February 1997, the Company adopted a stockholder rights plan and
declared a dividend of one Preferred Stock Purchase Right (Right)
for each outstanding share of the Company's common stock. The plan
and dividend become operative in certain events involving the
acquisition of 15% or more of the Company's voting stock by any
person or group in a transaction not approved by the Board of
Directors.
Each Right entitles the holder to purchase two-hundredths of a share of
Series A Junior Participating Preferred Stock for $60 upon the
occurrence of certain specified events. Additionally, the Rights
entitle the holder, upon the occurrence of certain specified
events, to purchase common stock having a value of twice the
exercise price of the Right; upon the occurrence of certain other
specified events, to purchase from an entity acquiring at least
15% of the voting securities or voting power of the Company,
common stock of the acquiring entity having twice the exercise
price of the Right. The Rights may be redeemed by the Company at a
price of $0.001 per Right. The Rights expire on February 25, 2007,
and are not presently exercisable.
WARRANTS
At December 31, 1998 and 1997, the Company had outstanding warrants
for the purchase of 22,500 and 37,500 shares of the Company's
common stock, respectively, at prices ranging from $1.40 to $5.20
per share. All of the warrants are currently exercisable and have
expiration dates through 1999. No warrants were granted during
1998 or 1997.
Warrant transactions are summarized as follows:
Years ended
December 31,
--------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
Warrants outstanding at beginning of year 37,500 184,125
Warrants exercised 15,000 146,625
- -----------------------------------------------------------------------------------------------
Warrants outstanding at end of year 22,500 37,500
===============================================================================================
Weighted average price of warrants outstanding at end of year $ 5.20 $ 3.68
===============================================================================================
F-14
TRANSPORT CORPORATION OF AMERICA, INC.
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the stockholders approved, and the Company implemented, an
Employee Stock Purchase Plan ("the Plan"). The purpose of the Plan
is to encourage employees to purchase shares of Common Stock in
the Company thereby providing a greater community of interest
between the Company and its employees. There are 100,000 shares of
the Company's Common Stock reserved for issuance under the Plan,
which terminates on December 31, 2000.
The Plan permits employees to purchase shares of Common Stock of the
Company at a price equal to the lesser of 85% of the market value
of the Common Stock at the commencement or termination dates of
each phase. Each year, during the term of the plan, there are two
six-month phases commencing on January 1 and July 1, respectively.
Employees who have been employed for one year and who are
regularly scheduled to work more than 20 hours per week and who
are less than 5% owners are eligible to participate in the program
via payroll deductions. Purchases are limited to 10% of a
participant's base pay during the respective phase.
During 1998 and 1997, employees purchased 4,389 and 5,280 shares
respectively, at average prices of $12.25 and $9.13 per share,
respectively.
TA REWARDS PROGRAM
During 1997 the Company established an incentive program to reward
employee drivers and independent contractor drivers that achieve
certain performance and safety goals. Under this program, drivers
are awarded points on a quarterly basis for achieving their safety
and performance goals. Drivers may redeem these points for various
rewards, including shares of the Company's common stock. Through
1998, the Company satisfied driver point redemptions for shares of
the Company's common stock by purchasing the shares on the open
market on behalf of the drivers.
In 1998, the Board approved the T.A. Rewards Program - Stock
Component ("TA Rewards"). TA Rewards provides for the issuance of
up to 100,000 shares of the Company's common stock for driver
redemptions of their TA Rewards points.
During 1998, no common shares were issued under this program.
F-15
TRANSPORT CORPORATION OF AMERICA, INC.
STOCK OPTION PLANS
The Company has adopted two stock option plans which allow for the
grant of options to officers and other key employees to purchase
common shares at an exercise price not less than 100% of fair
market value on the date of grant. Officers and other key
employees of the Company who are responsible for, or contribute
to, the management, growth and/or profitability of the business of
the Company, as well as selected consultants under contract to the
Company and non-employee directors are eligible to be granted
awards. No options were granted to consultants during 1998, 1997,
or 1996.
These option plans allow for the grant of up to 725,000 shares. Options
generally vest in cumulative annual increments over periods from
one to four years and expire five years from date of issuance. At
December 31, 1998, the exercise prices of outstanding options
ranged from $9.35 to $18.00, with a weighted average contractual
life of approximately two years.
Option transactions are summarized as follows:
Weighted Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
Options outstanding at beginning of year 240,047 252,437 $ 7.61 $ 7.25
Granted 92,000 6,000 11.42 13.00
Cancelled (30,000) 0 10.44 0
Exercised (108,850) (18,390) 4.38 4.48
- ---------------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 193,197 240,047 $ 10.80 $ 7.61
=================================================================================================================================
Options exercisable at end of year 143,197 221,596 $ 10.93 $ 7.28
=================================================================================================================================
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
Outstanding Options Exercisable Options
------------------------------------------------ ----------------------------------
Exercise Weighted-ave. Weighted Weighted
Price Remaining Average Average
Range Number Contractual Life Exercise Price Number Exercise Price
----- ------ ---------------- -------------- ------ --------------
>
$ 5 - 10 88,020 0.8 years $ 9.35 88,020 $ 9.35
10 - 15 93,177 3.6 years 11.24 43,177 12.17
15 - 20 12,000 4.4 years 18.00 12,000 18.00
-------- --------
193,197 143,197
======== ========
F-16
TRANSPORT CORPORATION OF AMERICA, INC.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting FOR STOCK-BASED
COMPENSATION. Accordingly, no compensation cost has been
recognized with respect to the Company's stock option plans or the
Employee Stock Purchase Plan. Had compensation cost been
determined on the basis of fair value pursuant to the provisions
of SFAS No. 123, net earnings and net earnings per share would
have been reduced to the pro forma amounts indicated below.
1998 1997
- -------------------------------------------------------------------------------
Net earnings:
As reported $ 10,656 $ 7,751
============== ===============
Pro forma $ 10,521 $ 7,680
============== ===============
Net basic earnings per share:
As reported $ 1.46 $ 1.18
============== ===============
Pro forma $ 1.44 $ 1.17
============== ===============
Net diluted earnings per share:
As reported $ 1.42 $ 1.15
============== ===============
Pro forma $ 1.40 $ 1.14
============== ===============
The above pro forma amounts may not be representative of the effects
on reported net earnings for future years. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997:
1998 1997
- -------------------------------------------------------------------------------
Dividend yield 0.00% 0.00%
Expected volatility 52.00% 37.00%
Risk-free interest rate 4.75% 6.21%
Expected lives 5 years 5 years
F-17
TRANSPORT CORPORATION OF AMERICA, INC.
(8) EMPLOYEE BENEFIT PLANS
The Company has a savings retirement plan ("the Plan") for eligible
employees under Section 401(k) of the Internal Revenue Code. The
Plan allows employees to defer up to 16% of their compensation on
a pretax basis. The Company may, at its discretion, match a
portion of the employee deferrals. During 1998, 1997, and 1996 the
Company contributed amounts equal to one-fourth of the employee
deferrals, up to 1% of each participant's compensation. For
participants who are employed as truck drivers with pay based on
actual miles driven, the Company may also elect to contribute
1/2(cent) and 1(cent) per paid mile driven for drivers with over
one and two years of service, respectively. The Company
contributed $506,000 in 1998, $525,000 in 1997, and $323,000 in
1996, to the Plan on behalf of all employees.
F-18
TRANSPORT CORPORATION OF AMERICA, INC.
(9) INCOME TAXES
The provision for income taxes consists of the following:
(In thousands)
Current Deferred Total
- -------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998:
Federal $ 27 $5,474 $5,501
State 106 1,206 1,312
- -------------------------------------------------------------------------------------------------------------------------------
Total $133 $6,680 $6,813
===============================================================================================================================
For the year ended December 31, 1997:
Federal $(21) $4,148 $4,127
State 150 913 1,063
- -------------------------------------------------------------------------------------------------------------------------------
Total $129 $5,061 $5,190
===============================================================================================================================
For the year ended December 31, 1996:
Federal $896 $2,603 $3,499
State 239 630 869
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,135 $3,233 $4,368
===============================================================================================================================
The income tax expense differs from the "expected" tax expense as follows for
the years ended December 31, 1998, 1997, and 1996:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Expected federal tax expense at statutory rates $6,114 $4,529 $3,625
Increases in taxes resulting from:
State income taxes, net of federal benefit 853 691 546
Expenses not deductible for tax purposes 191 216 250
Other (345) (246) (53)
- -------------------------------------------------------------------------------------------------------------------------------
Actual tax expense $6,813 $5,190 $4,368
===============================================================================================================================
F-19
TRANSPORT CORPORATION OF AMERICA, INC.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998
and 1997 are presented below:
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Vacation accrual $ 439 $ 328
Allowance for doubtful accounts 233 125
Net operating loss carryforward 2,890 1,688
Insurance, claims, and damage reserves 2,239 2,051
Alternative minimum tax credit carryforward 2,162 2,137
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 7,963 6,329
- -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Equipment, principally due to differences in depreciation and lease 30,269 22,036
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $22,306 $15,707
- -------------------------------------------------------------------------------------------------------------------
At December 31, 1998, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$7,484,000 which are available to offset future federal taxable
income, if any, through 2013. The Company also has alternative
minimum tax credit carryforwards of approximately $2,162,000 which
are available to reduce future federal regular income taxes, if
any, over an indefinite period.
The Company has reviewed the need for a valuation allowance relating
to the deferred tax assets and has ascertained that no allowance
is needed.
(10) MAJOR CUSTOMERS
Sales to the Company's five largest customers represented 39%, 43%, and
43%, of total revenues for 1998, 1997, and 1996, respectively. One
customer accounted for approximately 14% of sales in 1998 and
1997, and 16% in 1996.
(11) COMMITMENTS
REVENUE EQUIPMENT LEASES
The Company has entered into operating leases for certain revenue
equipment. The aggregate cost of this leased equipment at the
beginning of the leases was approximately $18,197,000.
Approximately $3,715,000 of the equipment is under non-cancelable
operating leases of 36 to 60 months, with the equipment reverting
to the lessor at the end of lease term.
F-20
TRANSPORT CORPORATION OF AMERICA, INC.
Approximately $14,481,000 of the equipment is under TRAC (terminal
rental adjustment clause) operating leases, over periods generally
ranging from 48 to 72 months. Several of these leases allow the
Company to terminate the lease anytime after a minimum lease term,
ranging from 12 to 36 months. In exchange, the Company guarantees
the lessor a predetermined decreasing resale value. The guaranteed
resale value of equipment under TRAC leases, assuming termination
at the end of the non-cancelable minimum lease term, is
approximately $9,325,000 through 1999 which will be reduced by the
sales proceeds of the equipment. The Company typically continues
the lease through to the full term of the lease agreement. The
full term guaranteed termination values vary from 20% to 40% of
the original cost for tractors, van trailers, and
temperature-controlled trailers. Typically the lessor assumes a
portion of the residual risk for the condition of the equipment
upon termination of the contract.
Rental expense under these operating leases was approximately
$3,477,000 in 1998, $4,751,000 in 1997, and $6,438,000 in 1996.
Aggregate future minimum lease payments as of December 31, 1998 for the
non-cancelable portion of revenue equipment under operating leases
are as follows:
Years ending December 31:
- -----------------------------------------------------------------------------
1999 $682,424
2000 292,496
2001 8,201
- -----------------------------------------------------------------------------
Total $983,121
- -----------------------------------------------------------------------------
OTHER LEASES
The Company leases one facility with future minimum lease payments of
$180,261 which expires in 2000 and two facilities with future
minimum lease payments of $104,700 which expire in 1999. The total
facility operating lease expense was $286,108 in 1998, $155,785 in
1997, and $138,300 in 1996.
CAPITAL ADDITIONS
The Company has committed to purchase approximately $32.5 million of
revenue equipment to be delivered during 1999, and approximately
$1.9 million for the construction of a terminal facility in
Atlanta, Georgia, with completion expected in the second quarter
of 1999.
F-21
TRANSPORT CORPORATION OF AMERICA, INC.
GUARANTEE OF INDEBTEDNESS
In 1997, the Company established a program whereby experienced
Company drivers can purchase their own truck. As part of the
program, the driver agrees to make certain commitments to the
Company and to purchase a vehicle meeting certain specifications
established by the Company. In exchange, the company facilitates
the financing of the vehicle by guaranteeing the loans made to
drivers participating in the program.
To accommodate the financing for this program, the Company has
entered into a loan, servicing, and guaranty agreement with a
bank. Under the terms of the agreement, the Company guarantees the
individual driver loans and has the right to repossess the vehicle
in the event a driver defaults on the loan. There were 59 loans
with outstanding balances totaling approximately $3.0 million as
of December 31, 1998, and 13 loans with outstanding balances
totaling $0.8 million as of December 31, 1997. No loans were in
default.
(12) NORTH STAR ACQUISITION
On July 1, 1998, The Company acquired all of the issued and
outstanding capital stock of North Star. The purchase price paid
by the Company consisted of 1.2 million shares of the Company's
Common Stock (valued at $16.89 per share) and $15.8 million in
cash, for a total purchase price of $36.1 million. Additionally,
beginning with the quarter ending June 30, 1999, the Company will
pay $0.0756 per share of the Company's stock still owned by the
sellers of North Star for each quarter through June 30, 2001.
Maximum contingent consideration to be paid over this period is
$816,480.
The acquisition is accounted for using the purchase method of
accounting and, accordingly, the operating results of North Star
have been included in the Company's consolidated financial
statements since the date of acquisition. The total purchase price
for the acquisition has been allocated to tangible and intangible
assets and liabilities based upon management's estimates of their
fair value on the acquisition date. The $23.9 million excess of
purchase price over fair value of net assets acquired has been
recorded as goodwill with amortization on a straight-line basis
over 25 years.
The following unaudited pro forma combined historical results are
based on available information and certain assumptions which
management believes are reasonable and appropriate to give effect
to the North Star acquisition as if the transaction occurred at
the beginning of fiscal 1998 and 1997. No adjustments have been
made to the historical results to reflect anticipated improvements
which may be realized in the future. Accordingly, the pro forma
information may not be indicative of actual results of operations
which would have been obtained, or which may be realized in the
future, if the acquisition had occurred on January 1, 1997.
F-22
TRANSPORT CORPORATION OF AMERICA, INC.
(In thousands, except per share amounts)
1998 1997
- ----------------------------------------------------------------------------
Operating revenues $ 283,275 $ 256,573
Net earnings $ 10,934 $ 9,112
Net earnings per share:
Basic $ 1.38 $ 1.17
Diluted $ 1.34 $ 1.11
- ----------------------------------------------------------------------------
F-23
TRANSPORT CORPORATION OF AMERICA, INC.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998, 1997, and 1996:
(In thousands, except per share amounts)
Quarter
-----------------------------------------------------------------
1998: First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $49,488 $53,075 $74,087 $69,263
Operating income 3,157 4,680 7,885 6,746
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 1,300 $ 2,214 $ 3,940 $ 3,202
Net earnings per common share:
Basic $0.19 $0.33 $0.50 $0.41
Diluted $0.19 $0.33 $0.48 $0.38
=================================================================================================================
Quarter
-----------------------------------------------------------------
1997: First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $43,475 $46,369 $47,100 $49,448
Operating income 2,287 4,199 4,790 4,907
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 988 $ 2,074 $ 2,389 $ 2,300
Net earnings per common share:
Basic $0.15 $0.32 $0.36 $0.35
Diluted $0.15 $0.31 $0.36 $0.34
=================================================================================================================
Quarter
-----------------------------------------------------------------
1996: First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $38,794 $41,225 $42,464 $42,183
Operating income 1,797 3,779 4,332 3,488
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ 645 $ 1,797 $ 2,119 $ 1,733
Net earnings per common share:
Basic $0.10 $0.28 $0.33 $0.27
Diluted $0.10 $0.27 $0.32 $0.26
=================================================================================================================
F-24
TRANSPORT CORPORATION OF AMERICA, INC.
(14) RELATED PARTY TRANSACTIONS
During fiscal 1998, the Company paid MicroMation, Inc. $193,362 for
information technology services. Robert J. Meyers, the Company's
President, COO and CFO, is the founder, former executive officer
and current shareholder of MicroMation, Inc.
F-25