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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
Commission file number 33-99716
AMERITRUCK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2619368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
City Center Tower II, Suite 1101,
301 Commerce Street, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip Code)
(817) 332-6020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------------
1998* 1997*
---- ----
Operating revenue $79,506 $55,668
------- -------
Operating expenses:
Salaries, wages and fringe benefits 30,064 19,216
Purchased transportation 17,966 13,009
Fuel and fuel taxes 9,399 7,485
Operating supplies and expenses 6,734 3,611
Depreciation and amortization of capital leases 5,329 3,718
Claims and insurance 3,041 2,318
Operating taxes and licenses 1,654 1,283
General supplies and expenses 5,069 2,612
Building and office equipment rents 572 462
Amortization of intangibles 566 293
Loss (gain) on disposal of property and equipment (534) 46
------- -------
Total operating expenses 79,860 54,053
------- -------
Operating income (loss) (354) 1,615
Interest expense 6,034 4,494
Amortization of financing fees 289 124
Other income, net (34) (83)
------- -------
Loss before income taxes (6,643) (2,920)
Income tax benefit (2,192) (1,168)
------- -------
Net loss $(4,451) $(1,752)
======= =======
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
1
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands)
March 31, December 31,
1998 1997
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 21 $ 21
Accounts and notes receivable, net 44,040 49,017
Prepaid expenses 14,651 14,782
Repair parts and supplies 2,364 2,123
Deferred income taxes 3,717 3,717
Other current assets 5,244 5,092
-------- --------
Total current assets 70,037 74,752
Property and equipment, net 110,149 117,774
Goodwill, net 59,578 59,971
Other assets 16,060 11,003
-------- --------
Total assets $255,824 $263,500
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 20,494 $ 22,534
Accounts payable and accrued expenses 33,391 31,735
Claims and insurance accruals 3,963 3,496
Other current liabilities 964 986
-------- --------
Total current liabilities 58,812 58,751
Long-term debt 201,789 203,696
Deferred income taxes 2,246 4,410
Other liabilities 6,672 5,887
-------- --------
Total liabilities 269,519 272,744
-------- --------
Commitments and contingencies (Note 5)
Redeemable preferred stock 3,128 3,091
Stockholders' equity (deficiency):
Common stock; $.01 par value; 4,230 shares
issued and outstanding 42 42
Additional paid-in capital 2,763 2,800
Loans to stockholders (1,401) (1,401)
Accumulated deficit (18,227) (13,776)
-------- --------
Total stockholders' deficiency (16,823) (12,335)
-------- --------
Total liabilities and stockholders' deficiency $255,824 $263,500
======== ========
See accompanying notes to consolidated financial statements.
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
1998* 1997*
---- ----
OPERATING ACTIVITIES:
Net loss $(4,451) $(1,752)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of capital leases 5,329 3,718
Amortization of intangibles 566 293
Loss (gain) on disposal of property and equipment (534) 46
Provision (benefit) for deferred income taxes (2,192) (1,168)
Restructuring costs paid (177) -
Other, net (1,363) (293)
Changes in current assets and liabilities:
Accounts and notes receivable, net 3,397 (1,296)
Prepaid expenses (605) (796)
Repair parts and supplies (240) (194)
Other current assets (131) 88
Accounts payable and accrued expenses 2,609 3,444
Claims and insurance accruals 688 (90)
Other current liabilities (22) (50)
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Net cash provided by operating activities 2,874 1,950
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INVESTING ACTIVITIES:
Purchase of property and equipment (980) (1,388)
Proceeds from sale of property and equipment 3,277 3,914
Other, net (89) 189
------- -------
Net cash provided by investing activities 2,208 2,715
------- -------
FINANCING ACTIVITIES:
Revolving line of credit, net 3,816 1,022
Repayment of long-term debt (7,814) (4,183)
Checks in excess of cash balances (776) -
Other, net (308) (128)
------- -------
Net cash used in financing activities (5,082) (3,289)
------- -------
Net increase (decrease) in cash and cash equivalents - 1,376
Cash and cash equivalents, beginning of period 21 734
------- -------
Cash and cash equivalents, end of period $ 21 $ 2,110
======= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 2,991 $ 1,598
Income taxes (net of refunds) 42 39
Property and equipment financed through capital lease
obligations and other debt 35 -
* Comparisons between periods are affected by acquisitions - see Note 2.
See accompanying notes to consolidated financial statements.
3
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AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES AND INTERIM RESULTS
The 1997 Annual Report on Form 10-K for AmeriTruck Distribution Corp.
("AmeriTruck" or the "Company") and its wholly-owned subsidiaries includes a
summary of significant accounting policies and should be read in conjunction
with this Form 10-Q. The statements for the periods presented are condensed
and do not contain all information required by generally accepted accounting
principles to be included in a full set of financial statements. In the
opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of March
31, 1998 and December 31, 1997, and the results of operations and cash flows
for the three-month periods ended March 31, 1998 and 1997 have been
included. The results of operations for any interim period are not
necessarily indicative of the results of operations to be expected for the
entire year. Certain prior year data has been reclassified to conform to
current year presentation.
Separate financial statements of the Company's subsidiaries are not
included because (a) all of the Company's direct and indirect subsidiaries
have guaranteed the Company's obligations under the Indenture, dated as of
November 15, 1995 (the "Indenture"), among the Company, such subsidiaries
(in such capacity, the "Guarantors"), and The Bank of New York, as Trustee,
(b) the Guarantors have fully and unconditionally guaranteed the 12 1/4%
Senior Subordinated Notes due 2005 ("Subordinated Notes") issued under the
Indenture on a joint and several basis, (c) the Company is a holding company
with no independent assets or operations other than its investments in the
Guarantors and (d) the separate financial statements and other disclosures
concerning the Guarantors are not presented because management has
determined that they would not be material.
As of March 31, 1998, the Company's principal subsidiaries were W&L
Services Corp. (" W&L"), Thompson Bros., Inc. ("TBI"), CMS Transportation
Services, Inc. ("CMS"), Scales Transport Corporation ("Scales"), AmeriTruck
Refrigerated Transport, Inc. ("ART"), KTL, Inc. ("KTL"), and AmeriTruck
Logistics Services, Inc. ("ALS"), (the "Operating Companies"). Effective
January 1998, the Company caused the merger of its wholly-owned
subsidiaries, J.C. Bangerter & Sons, Inc. ("Bangerter"), Lynn Transportation
Co., Inc. ("Lynn"), Monfort Transportation Company ("Monfort") and Tran-
Star, Inc. ("Tran-Star") into ART, with ART as the surviving corporation.
All significant intercompany accounts and transactions have been eliminated.
2. ACQUISITIONS
In June 1997, AmeriTruck purchased all the outstanding stock of
Tran-Star, which was owned by Allways Services, Inc. The purchase price of
$2.6 million included $1.6 million in cash and a $1 million note payable.
Prior to its January 1998 merger into ART, Tran-Star was a carrier of
refrigerated and non-refrigerated products. Headquartered in Waupaca,
Wisconsin, Tran-Star operated primarily between the upper midwestern U.S.
and the northeast and southeast, with terminals in Etters and Wyalusing,
Pennsylvania.
In May 1997, AmeriTruck purchased the capital stock of Monfort and Lynn,
both subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15
million was paid in cash. Monfort and Lynn operated primarily as in-house
carriers for the red-meat division of Monfort, Inc., a ConAgra subsidiary,
and the poultry and turkey divisions of ConAgra Poultry Company, a ConAgra
subsidiary. In connection with this acquisition, the Company entered into a
Transportation Services Agreement with subsidiaries of ConAgra. The ConAgra
subsidiaries have agreed to tender freight from Monfort, Inc.'s red-meat
division, ConAgra Poultry Company's poultry and turkey divisions and
Swift-Ekrich, Inc.'s processed meats division in designated lanes and
minimum annual volumes. The term of this
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agreement is four years, with pricing fixed for the first two years and
adjusted prices in the third and fourth years.
The Tran-Star, Monfort and Lynn acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values at the date of acquisition. The total purchase price including cash,
note payable, miscellaneous acquisition costs and liabilities assumed was
$42.4 million for Tran-Star and $35.8 million for Monfort and Lynn. The
excess of the purchase price over fair values of the net assets acquired has
been recorded as goodwill.
3. RESTRUCTURING CHARGE
With the addition of Tran-Star, Monfort and Lynn to the AmeriTruck
organization, the Company is currently organized into four operating groups
to better serve its customers. The AmeriTruck Refrigerated Carrier Group was
formed to offer regional and nationwide, truckload refrigerated service.
This new group combined the resources of ART, Bangerter, Tran-Star, Monfort,
Lynn and the refrigerated operations of TBI. The AmeriTruck Specialized
Carrier Group was formed to service customers with unique needs in
transportation and distribution. This group includes W&L, the largest
interstate hauler of new furniture in the United States, CMS, serving the
medical distribution industry, Scales, offering regional just-in-time dry
van service, and ALS, a freight broker. The AmeriTruck Regional LTL Group
offers less-than-truckload, refrigerated and non-refrigerated service. The
lead carrier in this group is KTL, offering service to and from the Florida
market. The LTL operations of Lynn in Nevada and Southern California were
recently integrated into this group. TBI now focuses on mail transportation
and regional specialized services and comprises the AmeriTruck Mail Services
Group. TBI operates under 17 contracts with the U.S. Postal Service. Most of
these contracts were initially awarded in the 1970's and 1980's. See Notes
to Consolidated Financial Statements-Note 8. Subsequent Event.
In connection with the above reorganization and to eliminate the
duplicate facility and employee costs related to the recently acquired
entities, the Company announced a plan in the second quarter of 1997 to
restructure its refrigerated carrier group. The Company recorded $7.2
million in restructuring costs, which included $2.3 million for employee
termination costs, $4.2 million for duplicate facility costs, including the
impairment of certain long-lived assets, and $650,000 of other costs. In
addition, the Company transferred $6.7 million of property and equipment to
assets held for sale. As of March 31, 1998, the Company has remaining
liabilities recorded of $256,000 related to the restructuring charge.
4. LONG-TERM DEBT
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which
FINOVA has agreed to provide a $60 million credit facility to the Company.
The initial borrowings under the FINOVA Credit Facility were used to
refinance the Company's prior credit facility with NationsBank of Texas,
N.A. and to fund the 1997 acquisitions. Additional borrowings under the
FINOVA Credit Facility can be used for acquisitions, capital expenditures,
letters of credit, working capital and general corporate purposes. Pursuant
to the FINOVA Credit Facility, FINOVA has agreed to provide a $60 million
revolving credit facility, with a $10 million sublimit for the issuance of
letters of credit, maturing on May 5, 2000 (subject to additional one year
renewal periods at the discretion of FINOVA). The FINOVA Credit Facility is
also subject to a borrowing base consisting of eligible receivables and
eligible revenue equipment.
In November 1997 the Company amended the FINOVA Credit Facility to
increase both the total amount of the FINOVA Credit Facility to $64 million
and the borrowing base availability thereunder (the "Temporary
Overadvances"), in each case for a period not to exceed 120 days. The
amendment to the FINOVA Credit Facility provided for the payment of a
$180,000 fee in connection with the Temporary
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Overadvances as well as an additional $180,000 fee in the event that the
Temporary Overadvances were not terminated within 60 days. The Temporary
Overadvances bore interest at 11 percent per annum for the first 60 days,
and thereafter, until the Temporary Overadvances were terminated all
outstanding borrowings under the FINOVA Credit Facility bore interest at 1
percent over the rate otherwise applicable to such advances. In connection
with this amendment to the FINOVA Credit Facility, the Company also issued
$1 million in Subordinated Notes (the "1997 Notes") to certain existing
stockholders. The 1997 Notes bear interest at a rate of 14 percent per annum
and originally matured on April 1, 1998. The 1997 Notes may be converted in
connection with a private equity placement providing gross proceeds to the
Company of at least $10 million (the "Qualified Private Placement") on the
same terms as those offered to other investors in the Qualified Private
Placement. In connection with the 1997 Notes, the Company issued to the
purchasers of the 1997 Notes warrants to a number of shares of the Company's
common stock equal to the aggregate outstanding principal and interest on
the 1997 Notes at the time of exercise divided by two (the "1997 Warrants").
The 1997 Warrants originally became exerciseable in the event a Qualified
Private Placement did not occur prior to April 1, 1998, and the exercise
price would be paid by surrender of the applicable investor's 1997 Note. The
Company has also agreed that, in the event a Qualified Private Placement did
not occur by March 31, 1998, the Company would pay an affiliate of
BancBoston Ventures Inc., a stockholder of the Company, a management fee in
the annual amount of $100,000. The Company used the availability from the
Temporary Overadvances and the proceeds from the 1997 Notes to pay interest
due in November 1997 on the Subordinated Notes and for general corporate
purposes.
In March 1998, the Company further amended the FINOVA Credit Facility to
extend the period during which the Temporary Overadvances were available to
the Company through May 15, 1998 (or, if earlier, the date of any Qualified
Private Placement or the date of any sale of the stock or substantially all
of the assets of TBI yielding gross cash proceeds of at least $10 million)
and to increase the total amount of the FINOVA Credit Facility to $68.5
million solely during the period during which the Temporary Overadvances may
be drawn. The March 1998 amendment provides for the payment of an additional
$280,000 fee to FINOVA. The Qualified Private Placement did not occur by
April 1, 1998. However, the maturity of the 1997 Notes has been extended to
September 30, 1998.
As of March 31, 1998, the Company's borrowing base supported borrowings
of approximately $65.8 million. Revolving credit loans under the FINOVA
Credit Facility bear interest at a per annum rate equal to either the prime
rate plus a margin equal to 1.75 percent or the rate of interest offered in
the London interbank market plus a margin equal to 3.75 percent. The Company
also pays a monthly unused facility fee and a monthly collateral monitoring
fee in connection with the FINOVA Credit Facility. Revolving credit loans
under the FINOVA Credit Facility were $60.1 million at March 31, 1998. There
were also $4.6 million in letters of credit outstanding at March 31, 1998,
leaving $1.1 million available for borrowings.
In May 1998, the Company used the net proceeds from the sale of TBI to
pay down the FINOVA Credit Facility. The Company also amended the FINOVA
Credit Facility to increase both the total amount of the FINOVA Credit
Facility to $62.5 million and the borrowing base availability thereunder
(the "Second Temporary Overadvances"), in each case for a period not to
exceed 120 days. The amendment to the FINOVA Credit Facility provides for
the payment of $160,000 fee in connection with the Second Temporary
Overadvances. While the Second Temporary Overadvances are outstanding, all
loans bear interest at a per annum rate equal to either the prime rate plus
a margin equal to 1.75 percent or the rate of interest offered in the London
interbank market plus a margin equal to 3.75 percent.
The Company's obligations under the FINOVA Credit Facility are
collateralized by substantially all of the unencumbered assets of the
Company and its subsidiaries and are guaranteed in full by each of the
Operating Companies. For purposes of the Indenture, the borrowings under the
FINOVA Credit Facility constitute Senior Indebtedness of the Company and
Guarantor Senior Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and
warranties and events of default and requires compliance with a number of
affirmative, negative and financial covenants, including a limitation on the
incurrence of indebtedness and a requirement that the Company maintain a
specified Current Ratio, Net Worth, Debt Service Coverage Ratio and
Operating Ratio. Certain of these covenants were not met at March 31, 1998.
However, FINOVA waived the Events of Default arising from the breach of
these covenants. The FINOVA Credit Facility also contains an Event of
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Default based on the occurrence of a material adverse change in the
business, assets, operations, prospects or condition, financial or
otherwise, of the Company. Management believes no such Event of Default has
occurred.
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies then owned by
the Company entered into a Loan and Security Agreement, a Financing
Integration Agreement and related documents (collectively, the "Volvo Credit
Facilities") with Volvo Truck Finance North America, Inc. ("Volvo") pursuant
to which Volvo has committed, subject to the terms and conditions of the
Volvo Credit Facilities, to provide (i) a $10 million line of credit
facility (the "Volvo Line of Credit") to the Company and the Operating
Companies, and (ii) up to $28 million in purchase money or lease financing
(the "Equipment Financing Facility") in connection with the Operating
Companies' acquisition of new tractors and trailers manufactured by Volvo GM
Heavy Truck Corporation. Borrowings under the Volvo Line of Credit are
secured by certain specified tractors and trailers of the Company and the
Operating Companies (which must have a value equal to at least 1.75 times
the outstanding amount of borrowings under the Volvo Line of Credit) and are
guaranteed in full by each of the Operating Companies. As of March 31, 1998,
the Operating Companies have pledged collateral which provides for a $9.4
million line of credit. Borrowings under the Volvo Line of Credit bear
interest at the prime rate. The Volvo Line of Credit contains customary
representations and warranties and events of default and requires compliance
with a number of affirmative and negative covenants, including a
profitability requirement and a coverage ratio.
The Equipment Financing Facility was provided by Volvo in connection with
the Operating Companies' agreement to purchase 400 new trucks manufactured
by Volvo GM Heavy Truck Corporation. The borrowings under the Equipment
Financing Facility are collateralized by the specific trucks being financed
and are guaranteed in full by each of the Operating Companies. Borrowings
under this facility bear interest at the prime rate. Financing for an
additional 150 new trucks for approximately $11.3 million was committed
during 1997, all of which was obtained through operating leases.
At March 31, 1998, borrowings outstanding under the Volvo Line of Credit
were $9.4 million. The outstanding debt balance under the Equipment
Financing Facility was $2.5 million at March 31, 1998; however, the
remaining financing under this facility was obtained through operating
leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture,
the borrowings under the Volvo Credit Facilities constitute Senior
Indebtedness of the Company and Guarantor Senior Indebtedness of the
Operating Companies.
5. COMMITMENTS AND CONTINGENCIES
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with
Transamerica Business Credit Corporation ("TBCC") to provide the Company and
its subsidiaries with an arrangement to lease up to 300 new 1998 model
tractors (the "TBCC Lease"). The line under the TBCC Lease will not exceed
$22.8 million based upon a per vehicle cost of $76,000, subject to an unused
line fee of one percent if the Company leases all 300 of the new trucks but
does not use the entire line. The lease term is 48 months and is subject to
a terminal rental adjustment clause at the end of the term. The Company will
treat this lease as an operating lease for accounting purposes. Terms of the
arrangement were set forth in a Master Lease Agreement dated as of August
14, 1997. As of March 31, 1998, the Company had leased the entire 300 trucks
under this agreement.
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Environmental Matters
Under the requirements of the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and certain other laws, the
Company is potentially liable for the cost of clean-up of various
contaminated sites identified by the U.S. Environmental Protection Agency
("EPA") and other agencies. The Company cannot predict with any certainty
that it will not in the future incur liability with respect to environmental
compliance or liability associated with the contamination of sites owned or
operated by the Company and its subsidiaries, sites formerly owned or
operated by the Company and its subsidiaries (including contamination caused
by prior owners and operators of such sites), or off-site disposal of
hazardous material or waste that could have a material adverse effect on the
Company's consolidated financial condition, operations or liquidity.
Other
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
6. OTHER INCOME, NET
Other income consists of the following (in thousands):
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Interest income $ 27 $ 43
Miscellaneous, net 7 40
---- ----
$ 34 $ 83
==== ====
7. REDEEMABLE PREFERRED AND COMMON STOCK
In conjunction with the 1997 acquisitions of Monfort, Lynn and Tran-Star,
the Company issued 3,000 shares of Series A Redeemable Preferred Stock and
727,272 shares of Common Stock with warrants to certain existing
stockholders, directors and executive officers of the Company. The Preferred
Stock was issued at a $1,000 per share for a total purchase price of $3.0
million. Dividends on each share of the Preferred Stock accrue cumulatively
on a daily basis at a rate of 5 percent per annum on the liquidation value
thereof, provided that the rate will increase to 10 percent per annum upon
the earlier of the date of a Disposition Event (as defined) and November 15,
1998. The dividends are payable in kind on the last day of each fiscal
quarter. The Company will redeem all of the Series A Preferred Stock
outstanding on December 31, 2005 at a liquidation value of $1,000 per share.
The Common Stock, along with detached warrants for 1,500,000 shares of
Common Stock, was issued for $2.75 per share ($.01 par value) for a total
purchase price of $2.0 million. The detached warrants can be exercised any
time prior to May 23, 2007 at $2.00 per share.
8. SUBSEQUENT EVENT
On May 1, 1998, AmeriTruck sold its Thompson Bros., Inc. subsidiary
("TBI") to Contract Mail Company for $15.5 million in cash. TBI, having
transferred its refrigerated customers, assets and business to ART, is
primarily involved in contract mail carriage. Net proceeds to the Company,
after payment of certain TBI-related debt and related expenses, were
approximately $12.5 million.
The net assets of TBI were approximately $3 million, resulting in a book
gain on sale of approximately $12.5 million. TBI's revenue attributable to
its contract mail carriage and other remaining businesses is currently
approximately $13 million on an annualized basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the
consolidated financial statements included in Item 1 - "Financial Statements."
Results for the three months ended March 31, 1997 include W&L, TBI, Bangerter,
CMS, Scales, ART, KTL, and ALS for the entire periods. The three months ended
March 31, 1998 also include the Monfort, Lynn and Tran-Star operations, which
were acquired by the Company in 1997 and merged into ART effective January 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Net Loss
For the quarter ended March 31, 1998, the Company had a net loss of $4.5
million compared with a net loss of $1.8 million for the same period in 1997.
The Company eliminated certain unprofitable business inherited from the
companies acquired in 1997 and downsized its equipment fleet and work force. Due
to the necessary timing of such actions, the Company eliminated more revenue in
the first quarter of 1998 than overhead expenses which had a negative impact on
operating results. Results for the first quarter of 1998 were also negatively
impacted primarily by increased costs associated with repairs to the older fleet
of tractors and trailers acquired as part of the Tran-Star acquisition, costs
associated with transitioning to a common computer system, driver recruitment
and training costs, and increased interest costs. The Company is currently in
the process of replacing these tractors and trailers.
Revenues
First quarter revenues for 1998 were $79.5 million, compared with revenues
of $55.7 million for the first quarter of 1997. The $23.8 million increase was
primarily due to the acquisitions of Monfort, Lynn and Tran-Star.
During the first quarter of 1998, the Company and ConAgra have continued to
address the complex issues surrounding this business relationship. While much
progress has been made, the Transportation Services Agreement has still not
reached the contractually committed volumes and prices. As a result, cash flow
for the first quarter has been negatively impacted.
Expenses
The following table sets forth operating expenses as a percentage of revenue
and the related variance from 1998 to 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED VARIANCE
MARCH 31, INCREASE
------------------ INCREASE
1998 1997 (DECREASE)
---- ---- ----------
<S> <C> <C> <C>
Salaries, wages and fringe benefits 37.8% 34.5% 3.3%
Purchased transportation 22.6 23.4 (0.8)
Fuel and fuel taxes 11.8 13.4 (1.6)
Operating supplies and expenses 8.5 6.5 2.0
Depreciation and amortization of capital leases 6.7 6.7 -
Claims and insurance 3.8 4.2 (0.4)
Operating taxes and licenses 2.1 2.3 (0.2)
General supplies and expenses 6.4 4.7 1.7
Building and office equipment rents 0.7 0.8 (0.1)
Amortization of intangibles 0.7 0.5 0.2
Loss (gain) on disposal of property and equipment (0.7) 0.1 (0.8)
----- ---- ----
Operating Ratio 100.4% 97.1% 3.3%
===== ==== ====
</TABLE>
Salaries, wages and fringe benefits for the first quarter of 1998 increased
3.3 percentage points as a percent of revenue. This increase is primarily due
to an increase in driver wages, which occurred because company drivers were used
more extensively and owner operators were used less extensively than in the
first quarter of 1997. The acquisition of Tran-Star, which had primarily a
company-driver work force, contributed to the increased usage of company
drivers. Company driver costs are included in salaries, wages and fringe
benefits while owner operator costs are included in purchased transportation.
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The increase is also due to the Company's elimination of revenue which
progressed faster than the elimination of head count.
Purchased transportation costs decreased 0.8 percentage points as a percent
of revenue when compared with the first quarter of 1997. The decrease is due
primarily to the acquisition of Tran-Star at the end of the second quarter of
1997, which had primarily a company-driver work force. This decrease in
percentage of revenue was partially offset by a higher percentage of equipment
held under operating leases, which resulted in increased equipment rents. This
increase in equipment rents is expected to continue as the Company finances new
equipment purchases primarily with operating leases.
Fuel and fuel taxes for the first quarter of 1998 decreased 1.6 percentage
points as a percent of revenue when compared with the first quarter of 1997.
This decrease is primarily due to lower fuel prices during the first quarter of
1998. This decrease is also due to improved miles per gallon compared with the
first quarter of 1997 due to less severe weather. The decrease was partially
offset due to a higher percentage of fuel being purchased by the Company versus
owner operators, as a result of the Tran-Star acquisition adding primarily a
company-driver work force.
Operating supplies and expenses increased 2.0 percentage points as a
percent of revenue during the first quarter of 1998. This increase is primarily
due to the acquisition of Tran-Star, which had an older fleet of tractors
requiring more routine maintenance. These tractors are currently being retired
and replaced by new tractors. In addition, the acquisitions of Monfort, Lynn
and Tran-Star also contributed to higher outside service costs for trailer
positioning and load/unloading services. Some of these outside services are
being transitioned to company employees.
Claims and insurance expenses for the first quarter of 1998 decreased 0.4
percentage points as a percentage of revenue when compared with the first
quarter of 1997. This decrease is primarily due to a more favorable claims
experience as well as cost savings in purchasing insurance on a combined basis.
General supplies and expenses for the first quarter of 1998 increased 1.7
percentage points as a percent of revenue when compared with the same period in
1997. This increase is primarily due to increased driver recruitment and
training costs, primarily attributable to an unproductive recruiting policy at
Tran-Star which has been changed, as well as increased driver turnover. The
increase is also attributable to added costs for system and mobile
communications, which the Company anticipates should be partially offset in the
future by improved operating efficiencies, although no assurances can be made in
this regard.
Interest expense increased $1.5 million for the quarter ended March 31,
1998 over the same period in 1997. Interest on the revolving lines of credit,
which were used to fund acquisitions, were the primary contributors to this
increase.
CONTINGENCIES
Under the requirements of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and certain other laws, the Company is
potentially liable for the cost of clean-up of various contaminated sites
identified by the U.S. Environmental Protection Agency ("EPA") and other
agencies. The Company cannot predict with any certainty that it will not in the
future incur liability with respect to environmental compliance or liability
associated with the contamination of sites owned or operated by the Company and
its subsidiaries, sites formerly owned or operated by the Company and its
subsidiaries (including contamination caused by prior owners and operators of
such sites), or off-site disposal of hazardous material or waste that could have
a material adverse effect on the Company's consolidated financial condition,
operations or liquidity.
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 1998 and 1997 was $2.9 million and $2.0 million, respectively. The increase
in cash provided by operating activities of $924,000 was primarily attributable
to the collection of accounts and notes receivable during the first quarter of
1998. This source of cash was partially offset by an increase in net loss and
the resulting impact of deferred income taxes.
During the first quarter of 1998, the Company and ConAgra have continued to
address the complex issues surrounding this business relationship. While much
progress has been made, the Transportation Services Agreement has still not
reached the contractually committed volumes and prices. As a result, cash flow
for the first quarter has been negatively impacted.
On May 1, 1998, AmeriTruck sold its Thompson Bros., Inc. subsidiary ("TBI")
to Contract Mail Company for $15.5 million in cash. TBI, having transferred its
refrigerated customers, assets and business to ART, is primarily involved in
contract mail carriage. Net proceeds to the Company, after payment of certain
TBI-related debt and related expenses, were approximately $12.5 million.
The net assets of TBI were approximately $3 million, resulting in a book gain
on sale of approximately $12.5 million. TBI's revenue attributable to its
contract mail carriage and other remaining businesses is currently approximately
$13 million on an annualized basis.
The Company's current business plan indicates that it will need additional
financing to pay down the temporary extension of credit by FINOVA and carryout
its growth strategy. Accordingly, the Company intends to raise additional
financing in 1998. In the event that the Company does not raise additional
financing, the Company may amend its current strategy by selling equipment and
reducing operating levels. Management believes that borrowings available under
its credit facilities, additional equity, additional financing and asset sales
should be sufficient to cover anticipated future cash needs.
Redeemable Preferred and Common Stock
In May 1997, the Company issued 3,000 shares of Series A Redeemable Preferred
Stock and 727,272 shares of Common Stock with warrants to certain existing
stockholders, directors and executive officers of the Company. The issuance was
made in conjunction with the 1997 acquisitions and gross proceeds totaled $5
million. See Notes to Consolidated Financial Statements-Note 7. Redeemable
Preferred and Common Stock.
FINOVA Credit Facility
In May 1997, the Company and its subsidiaries entered into a Loan and
Security Agreement and related documents (collectively, the "FINOVA Credit
Facility") with FINOVA Capital Corporation ("FINOVA") pursuant to which FINOVA
has agreed to provide a $60 million credit facility to the Company. The initial
borrowings under the FINOVA Credit Facility were used to refinance the Company's
prior credit facility with NationsBank of Texas, N.A. and to fund the 1997
acquisitions. Additional borrowings under the FINOVA Credit Facility can be
used for acquisitions, capital expenditures, letters of credit, working capital
and general corporate purposes. Pursuant to the FINOVA Credit Facility, FINOVA
has agreed to provide a $60 million revolving credit facility, with a $10
million sublimit for the issuance of letters of credit, maturing on May 5, 2000
(subject to additional one year renewal periods at the discretion of FINOVA).
The FINOVA Credit Facility is also subject to a borrowing base consisting of
eligible receivables and eligible revenue equipment.
In November 1997 the Company amended the FINOVA Credit Facility to increase
both the total amount of the FINOVA Credit Facility to $64 million and the
borrowing base availability thereunder (the "Temporary Overadvances"), in each
case for a period not to exceed 120 days. The amendment to the FINOVA Credit
Facility provided for the payment of a $180,000 fee in connection with the
Temporary Overadvances as well as an additional $180,000 fee in the event that
the Temporary Overadvances were not terminated within 60 days. The Temporary
Overadvances bore interest at 11 percent per annum for the first 60 days, and
thereafter, until the Temporary Overadvances were terminated all outstanding
borrowings under the FINOVA Credit Facility will bear interest at 1 percent over
the rate otherwise applicable to such advances. In connection with this
amendment to the FINOVA Credit Facility, the Company also issued $1 million in
Subordinated Notes (the "1997 Notes") to certain existing stockholders. The
1997 Notes bear interest at a rate of 14 percent per annum and originally
matured on April 1, 1998. The 1997 Notes may be converted in
11
<PAGE>
connection with a private equity placement providing gross proceeds to the
Company of at least $10 million (the "Qualified Private Placement") on the same
terms as those offered to other investors in the Qualified Private Placement. In
connection with the 1997 Notes, the Company issued to the purchasers of the 1997
Notes warrants to a number of shares of the Company's common stock equal to the
aggregate outstanding principal and interest on the 1997 Notes at the time of
exercise divided by two (the "1997 Warrants"). The 1997 Warrants originally
became exerciseable in the event a Qualified Private Placement did not occur
prior to April 1, 1998, and the exercise price would be paid by surrender of the
applicable investor's 1997 Note. The Company has also agreed that, in the event
a Qualified Private Placement did not occur by March 31, 1998, the Company would
pay an affiliate of BancBoston Ventures Inc., a stockholder of the Company, a
management fee in the annual amount of $100,000. The Company used the
availability from the Temporary Overadvances and the proceeds from the 1997
Notes to pay interest due in November 1997 on the Subordinated Notes and for
general corporate purposes.
In March 1998, the Company further amended the FINOVA Credit Facility to
extend the period during which the Temporary Overadvances were available to the
Company through May 15, 1998 (or, if earlier, the date of any Qualified Private
Placement or the date of any sale of the stock or substantially all of the
assets of TBI yielding gross cash proceeds of at least $10 million) and to
increase the total amount of the FINOVA Credit Facility to $68.5 million solely
during the period during which the Temporary Overadvances may be drawn. The
March 1998 amendment provides for the payment of an additional $280,000 fee to
FINOVA. The Qualified Private Placement did not occur by April 1, 1998. However,
the maturity of the 1997 Notes has been extended to September 30, 1998.
As of March 31, 1998, the Company's borrowing base supported borrowings of
approximately $65.8 million. Revolving credit loans under the FINOVA Credit
Facility bear interest at a per annum rate equal to either the prime rate plus a
margin equal to 1.75 percent or the rate of interest offered in the London
interbank market plus a margin equal to 3.75 percent. The Company also pays a
monthly unused facility fee and a monthly collateral monitoring fee in
connection with the FINOVA Credit Facility. Revolving credit loans under the
FINOVA Credit Facility were $60.1 million at March 31, 1998. There were also
$4.6 million in letters of credit outstanding at March 31, 1998, leaving $1.1
million available for borrowings.
In May 1998, the Company used the net proceeds from the sale of TBI to pay
down the FINOVA Credit Facility. The Company also amended the FINOVA Credit
Facility to increase both the total amount of the FINOVA Credit Facility to
$62.5 million and the borrowing base availability thereunder (the "Second
Temporary Overadvances"), in each case for a period not to exceed 120 days. The
amendment to the FINOVA Credit Facility provides for the payment of $160,000 fee
in connection with the Second Temporary Overadvances. While the Second Temporary
Overadvances are outstanding, all loans bear interest at a per annum rate equal
to either the prime rate plus a margin equal to 1.75 percent or the rate of
interest offered in the London interbank market plus a margin equal to 3.75
percent.
The Company's obligations under the FINOVA Credit Facility are collateralized
by substantially all of the unencumbered assets of the Company and its
subsidiaries and are guaranteed in full by each of the Operating
Companies. For purposes of the Indenture, the borrowings under the FINOVA
Credit Facility constitute Senior Indebtedness of the Company and Guarantor
Senior Indebtedness of the Operating Companies.
The FINOVA Credit Facility contains customary representations and warranties
and events of default and requires compliance with a number of affirmative,
negative and financial covenants, including a limitation on the incurrence of
indebtedness and a requirement that the Company maintain a specified Current
Ratio, Net Worth, Debt Service Coverage Ratio and Operating Ratio. Certain of
these covenants were not met at March 31, 1998. However, FINOVA waived the
Events of Default arising from the breach of these covenants. The FINOVA Credit
Facility also contains an Event of Default based on the occurrence of a material
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Company. Management believes no such Event of
Default has occurred.
Volvo Credit Facilities
In February 1996, the Company and the Operating Companies then owned by the
Company entered into a Loan and Security Agreement, a Financing Integration
Agreement and related documents (collectively, the "Volvo Credit Facilities")
with Volvo Truck Finance North America, Inc. ("Volvo") pursuant to which Volvo
has committed, subject to the terms and conditions of the Volvo Credit
Facilities, to provide (i) a $10 million line of credit facility (the "Volvo
Line of Credit") to the Company and the Operating Companies, and (ii) up to $28
million
12
<PAGE>
in purchase money or lease financing (the "Equipment Financing Facility") in
connection with the Operating Companies' acquisition of new tractors and
trailers manufactured by Volvo GM Heavy Truck Corporation. Borrowings under the
Volvo Line of Credit are secured by certain specified tractors and trailers of
the Company and the Operating Companies (which must have a value equal to at
least 1.75 times the outstanding amount of borrowings under the Volvo Line of
Credit) and are guaranteed in full by each of the Operating Companies. As of
March 31, 1998, the Operating Companies have pledged collateral which provides
for a $9.4 million line of credit. Borrowings under the Volvo Line of Credit
bear interest at the prime rate. The Volvo Line of Credit contains customary
representations and warranties and events of default and requires compliance
with a number of affirmative and negative covenants, including a profitability
requirement and a coverage ratio.
The Equipment Financing Facility was provided by Volvo in connection with the
Operating Companies' agreement to purchase 400 new trucks manufactured by Volvo
GM Heavy Truck Corporation. The borrowings under the Equipment Financing
Facility are collateralized by the specific trucks being financed and are
guaranteed in full by each of the Operating Companies. Borrowings under this
facility bear interest at the prime rate. Financing for an additional 150 new
trucks for approximately $11.3 million was committed during 1997, all of which
was obtained through operating leases.
At March 31, 1998, borrowings outstanding under the Volvo Line of Credit were
$9.4 million. The outstanding debt balance under the Equipment Financing
Facility was $2.5 million at March 31, 1998; however, the remaining financing
under this facility was obtained through operating leases.
The Equipment Financing Facility contains customary representations and
warranties, covenants and events of default. For purposes of the Indenture, the
borrowings under the Volvo Credit Facilities constitute Senior Indebtedness of
the Company and Guarantor Senior Indebtedness of the Operating Companies.
Transamerica Lease Facility
In August 1997, the Company entered into a lease agreement with Transamerica
Business Credit Corporation ("TBCC") to provide the Company and its subsidiaries
with an arrangement to lease up to 300 new 1998 model tractors (the "TBCC
Lease"). The line under the TBCC Lease will not exceed $22.8 million based upon
a per vehicle cost of $76,000, subject to an unused line fee of one percent if
the Company leases all 300 of the new trucks but does not use the entire line.
The lease term is 48 months and is subject to a terminal rental adjustment
clause at the end of the term. The Company will treat this lease as an
operating lease for accounting purposes. Terms of the arrangement were set
forth in a Master Lease Agreement dated as of August 14, 1997. As of March 31,
1998, the Company had leased the entire 300 trucks under this agreement.
Capital Expenditures and Resources
The Company had proceeds from property and equipment dispositions in excess
of capital expenditures of $2.3 million for the three months ended March 31,
1998 compared with $2.5 million for the three months ended March 31, 1997.
During the first quarters of 1998 and 1997, the Company's acquisition of new
tractors and trailers to replace older equipment were primarily financed through
operating leases.
During 1998, the Company plans to purchase approximately 350 to 400 new
trucks, to replace existing tractors. These equipment purchases and commitments
will likely be financed primarily with operating leases.
In June 1997, AmeriTruck purchased all the outstanding stock of Tran-Star,
Inc. ("Tran-Star"), which was owned by Allways Services, Inc. The purchase
price of $2.6 million included $1.6 million in cash and a $1 million note
payable. Prior to its January 1998 merger into ART, Tran-Star was a carrier of
refrigerated and non-refrigerated products. Headquartered in Waupaca,
Wisconsin, Tran-Star operated primarily in between the upper midwestern U.S. and
the northeast and southeast, with terminals in Etters and Wyalusing,
Pennsylvania.
13
<PAGE>
In May 1997, AmeriTruck purchased the capital stock of Monfort Transportation
Company ("Monfort") and Lynn Transportation Co., Inc. ("Lynn"), both
subsidiaries of ConAgra, Inc. ("ConAgra"). The purchase price of $15 million
was paid in cash. Monfort and Lynn operated primarily as in-house carriers for
the red meat division of Monfort, Inc., a ConAgra subsidiary, and the poultry
and turkey divisions of ConAgra Poultry Company, a ConAgra subsidiary. In
connection with this acquisition, the Company entered into a Transportation
Services Agreement with subsidiaries of ConAgra. The ConAgra subsidiaries have
agreed to tender freight from Monfort, Inc.'s red meat division, ConAgra Poultry
Company's poultry and turkey divisions and Swift-Ekrich, Inc.'s processed meats
division in designated lanes and minimum annual volumes. The term of this
agreement is four years, with pricing fixed for the first two years and adjusted
prices in the third and fourth years.
The Tran-Star, Monfort and Lynn acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition. The total purchase price including cash, note
payable, miscellaneous acquisition costs and liabilities assumed was $42.4
million for Tran-Star and $35.8 million for Monfort and Lynn. The excess of
the purchase price over fair values of the net assets acquired has been recorded
as goodwill.
Opportunistic Acquisitions
The Company will pursue opportunistic acquisitions to broaden its geographic
scope, to increase freight network density and to expand into other specialized
trucking segments. Through acquisitions, the Company believes it can capture
additional market share and increase its driver base without adopting a growth
strategy based on widespread rate discounting and driver recruitment, which the
Company believes would be less successful. The Company believes its large size
relative to many other potential acquirers could afford it greater access to
acquisition financing sources such as banks and capital markets. AmeriTruck has
entered into revolving credit facilities, the Volvo Line of Credit and the
FINOVA Credit Facility, which has given AmeriTruck the ability to pursue
acquisitions that the Company could not otherwise fund through cash provided by
operations. In addition to revolving credit facilities, the Company may finance
its acquisitions through equity issuances, seller financing and other debt
financings. However, any acquisitions will be subject to approval by FINOVA and
meeting the tests for debt incurrence under the Indenture for the Subordinated
Notes, which could restrict the Company's ability to incur additional
indebtedness to finance acquisitions.
The Company is a holding company with no operations of its own. The
Company's ability to make required interest payments on the Subordinated Notes
depends on its ability to receive funds from the Operating Companies. The
Company, at its discretion, controls the receipt of dividends or other payments
from the Operating Companies.
OTHER MATTERS
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings.
Extended periods of escalating costs or fuel price increases without
compensating freight rate increases would adversely affect the Company's results
of operations. According to a Department of Energy survey, reported by the
American Trucking Association, the average price of diesel fuel for the first
quarter of 1998 was $1.09 compared with $1.26 for the first quarter 1997. The
Company's fuel prices are slightly below the national average due to the
Company's ability to buy fuel at volume discounts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Expenses."
Year 2000
The Company is in the process of evaluating its primary accounting and
operational systems for the Year 2000 problem. During 1997, the Company began
consolidating the accounting and operational processing of several operating
companies onto a centralized set of applications and hardware located at
Electronic Data Systems Corporation ("EDS"). An internal study is currently
under way to determine the full
14
<PAGE>
scope and related costs of the Year 2000 problem with respect to other systems
the Company maintains to ensure that the Company's systems continue to meet its
internal needs and those of its customers. As a part of the internal study, the
Company will also address evaluation of key vendors and customers to determine
the impact, if any, on the Company's business. The internal study and the
resulting work requirements of the study are expected to be completed by the end
of 1998, although there can be no assurance that all steps will be completed in
a timely manner until the full scope of the Year 2000 problem is evaluated. The
Company currently does not believe that the Year 2000 problem will have a
material impact on the Company's financial condition or results of operations,
although the ultimate impact could be material depending on the results of the
aforementioned internal study.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings (including
this Form 10-Q) or press releases, or officers of the Company make public oral
statements with respect to the Company, that may be considered forward-looking
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements in this
Form 10-Q include statements concerning future cost savings, projected levels of
capital expenditures and the timing of deliveries of new trucks and trailers,
the Company's financing and equity plans, the Company's ability to meet its
future cash needs from borrowings under its credit facilities, from cash
generated from operations, asset dispositions, and future equity issuances, the
Company's Transportation Services Agreement with subsidiaries of ConAgra, driver
recruitment and training and the Company's pursuit of opportunistic
acquisitions. These forward-looking statements are based on a number of risks
and uncertainties, many of which are beyond the Company's control. The Company
believes that the following important factors, among others, could cause the
Company's actual results for its 1998 fiscal year and beyond to differ
materially from those expressed in any forward-looking statements made by, on
behalf of, or with respect to, the Company: the Company's ability to obtain
additional equity financing or raise additional cash through asset sales, the
adverse impact of inflation and rising fuel costs; the Company's substantial
leverage and its effect on the Company's ability to pay principal and interest
on the Subordinated Notes and the Company's ability to incur additional
financing or equity to fund its operations, to pursue other business
opportunities and to withstand any adverse economic and industry conditions; the
risk that the Company will not be able to integrate the Operating Companies'
businesses on an economic basis or that any anticipated economies of scale or
other cost savings will be realized; the ability of the Company to identify
suitable acquisition candidates, complete acquisitions or successfully integrate
any acquired businesses; competition; the ability of the Company to attract and
retain qualified drivers; and the Company's dependence on key management
personnel.
These and other applicable risk factors are discussed in more detail in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 and
other filings the Company has made with the Securities and Exchange Commission
and are incorporated by reference.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, singularly or collectively, are
considered to be material by management of the Company.
ITEM 5. OTHER INFORMATION
On May 1, 1998, AmeriTruck sold its Thompson Bros., Inc. subsidiary
("TBI") to Contract Mail Company for $15.5 million in cash. TBI, having
transferred its refrigerated customers, assets and business to ART, is primarily
involved in contract mail carriage. Net proceeds to the Company, after payment
of certain TBI-related debt and related expenses, were approximately $12.5
million.
The net assets of TBI were approximately $3 million, resulting in a book
gain on sale of approximately $12.5 million. TBI's revenue attributable to its
contract mail carriage and other remaining businesses is currently approximately
$13 million on an annualized basis.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The following exhibits are filed as part of this report:
Exhibit Number Description
-------------- -----------
10.4 Fourth Amendment to Loan and Security Agreement, dated
as of March 12, 1998, between the Company and FINOVA
Capital Corporation.
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company and Jurisdictions of
Incorporation
27 Financial Data Schedule
B. Reports on Form 8-K
During the first quarter of 1998, there were no reports filed on
Form 8-K.
Items 2, 3, and 4 of Part II were not applicable and have been omitted.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERITRUCK DISTRIBUTION CORP.
By: /s/ Michael L. Lawrence
-----------------------------------
Michael L. Lawrence
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth H. Evans, Jr.
----------------------------------
Kenneth H. Evans, Jr.
Treasurer and Chief Financial and
Accounting Officer
Date: May 15, 1998
<PAGE>
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
EXHIBIT INDEX
Page
Exhibit Number Description Number
- -------------- ----------- ------
10.4 Fourth Amendment to Loan and Security Agreement,
dated as of March 12, 1998, between the Company
and FINOVA Capital Corporation
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company and Jurisdictions of
Incorporation
27 Financial Data Schedule
<PAGE>
EXHIBIT 12
AMERITRUCK DISTRIBUTION CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)
(Unaudited)
Three Months Ended
March 31,
-------------------
1998* 1997*
---- ----
Earnings:
Loss before income taxes and extraordinary items $(6,643) $(2,920)
------- -------
Fixed charges:
Interest expense and amortization of debt discount
and premium on all indebtedness 6,034 4,494
Portion of rent under long-term operating leases
representative of an interest factor 1,429 683
Redeemable preferred stock dividend requirements 55 -
------- -------
Total fixed charges 7,518 5,177
------- -------
Earnings before income taxes and fixed charges $ 875 $ 2,257
======= =======
Ratio of earnings to fixed charges (1) - -
======= =======
(1) The Company's earnings were insufficient to cover fixed charges by $6,643
and $2,920 for the three months ended March 31, 1998 and 1997,
respectively.
* Comparisons between periods are affected by acquisitions see Note 2
contained in the unaudited Notes to Consolidated Financial Statements.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
Jurisdiction of
Company Organization
------- -------------
W&L Services Corp. North Carolina
Best Way Motor Lines, Inc. North Carolina
W&L Motor Lines, Inc. North Carolina
CMS Transportation Services, Inc. Georgia
Scales Transport Corporation Georgia
Scales Leasing Company, Inc. Georgia
AmeriTruck Refrigerated Transport, Inc. Georgia
KTL, Inc. Florida
AmeriTruck Logistics Services, Inc. Delaware
AmeriTruck Equipment Corp. Delaware
AmeriTruck Operations Services, Inc. Delaware
Ameri-Truck, Ltd., Inc. Ohio
<PAGE>
EXHIBIT 10.4
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement (this
"Amendment"), is made and entered into effective as of the 12th day of March,
1998 by and between FINOVA CAPITAL CORPORATION, a Delaware corporation
("Lender") and AMERITRUCK DISTRIBUTION CORP., a Delaware corporation
("Borrower"). This Amendment modifies and amends that certain Loan and Security
Agreement, dated May 5, 1997, between Lender and Borrower (the "Agreement").
All terms used herein with initial capital letters, unless otherwise
specifically defined herein, shall have the same meanings as set forth in the
Agreement. All references to the Agreement shall include the Schedule.
R E C I T A L S:
WHEREAS, Borrower has requested that Lender extend the Additional
Availability Period so that Borrower may have sufficient time to consummate a
private placement of its capital stock for Twenty Million Dollars ($20,000,000);
WHEREAS, in connection therewith, Borrower and Lender desire to amend
the Agreement in certain respects;
NOW, THEREFORE, in consideration of the foregoing premises and other
valuable consideration, the parties hereto agree as follows:
1. Amendment to Schedule. Subject to the terms and conditions of
Section 2 below, the Agreement is amended as follows:
(a) The definition of "Additional Availability Period" set forth in
Section 18.1 of the Agreement is amended and restated as follows:
"Additional Availability Period" means the period commencing on
November 13, 1997 and ending on the earliest of (A) May 15, 1998, (B) the
date a Qualified Private Placement is consummated, (C) the date a Qualified
Thompson Bros. Sale is consummated, and (D) the date Borrower notifies
Lender in writing of its desire to terminate the Additional Availability
Period.
(b) The definition of "Qualified Private Placement" set forth in
Section 18.1 of the Agreement is amended and restated as follows:
"Qualified Private Placement" means any non-public sale of shares of
any class of Borrower's capital stock yielding gross cash proceeds to
Borrower of at least Ten Million Dollars ($10,000,000).
(c) Section 18.1 of the Agreement shall be amended to add the
following definition in the appropriate alphabetical order:
<PAGE>
"Qualified Thompson Bros. Sale" means any sale of the stock or
substantially all of the assets of Thompson Bros., Inc. yielding Borrower
gross cash proceeds of at least Ten Million Dollars ($10,000,000).
(d) Section 1.1 of the Schedule to the Agreement is amended and
restated in its entirety as follows:
TOTAL FACILITY (Section 1.1): Sixty Million Dollars ($60,000,000);
provided, that during the Additional
Availability Period, the Total Facility
shall be Sixty-Eight Million Five Hundred
Thousand Dollars ($68,500,000)
(e) Section 1.2 of the Schedule to the Agreement is amended and
restated in its entirety as follows:
LOANS (SECTION 1.2):
REVOLVING LOANS: a revolving line of credit
(The "Revolving Loans") consisting of loans
against Eligible Receivables and against
Eligible Equipment in an aggregate
outstanding principal amount not to exceed
the lesser of:
(a) Total Facility
(b) the sum of:
(i) an amount equal to eighty-five
percent (85%) of the net amount
of the Eligible Receivables that
are billed; plus
(ii) an amount (not to exceed the
lesser of (A) Four Million
Dollars ($4,000,000) and (B) an
amount equal to three (3) working
days' revenue (based on the most
recent monthly financials)) equal
to seventy (70%) of Eligible
Receivables that are unbilled
less than five (5) Business Days;
plus
(iii) an amount equal to the Equipment
Advance Rate multiplied by the
Orderly Liquidation Value of the
Eligible Equipment; plus
(iv) during the Additional
Availability Period only, an
amount equal to five
-2-
<PAGE>
percent (5%) of the net amount of
the Eligible Receivables that are
billed; plus
(v) during the Additional
Availability Period only, an
amount equal to the product of
(A) the amount by which eighty
percent (80%) exceeds the
Equipment Advance Rate multiplied
by (B) the Orderly Liquidation
Value of the Eligible Equipment;
less
(vi) the aggregate undrawn face amount
of all Letters of Credit issued
under Section 1.4 of this
Agreement; less
(vii) the amount of the Landlord
Reserve and such other reserves
as Lender, in its reasonable
credit judgment, deems proper
from time to time based on the
results of its examinations,
Appraisals or other credit or
collateral considerations which
indicate a deterioration in
Eligible Receivables or Eligible
Equipment from the date hereof,
such that additional reserves for
Eligible Receivables and/or
Eligible Equipment are warranted.
Notwithstanding the foregoing, (A) the loans against
Eligible Equipment shall not exceed Thirty-Five
Million Dollars ($35,000,000) at any time, (B) the
loans against the availability described in clauses
(iv) and (v) shall not exceed Eight Million Five
Hundred Thousand Dollars ($8,500,000) and (C) the
availability described in clauses (iv) and (v) above
shall not be available at any time other than during
the Additional Availability Period. The Revolving
Loans shall be segregated into two tranches:
revolving loans under tranche A (the "Revolving A
Loans") and revolving loans under tranche B (the
"Revolving B Loans"). The maximum outstanding
principal amount of Revolving A Loans is Thirty
Million Dollars ($30,000,000) and the maximum
outstanding principal amount of Revolving B Loans is
Thirty Million Dollars ($30,000,000); provided, that
during the Availability Period, the maximum
outstanding principal amount of Revolving
-3-
<PAGE>
B Loans shall be Thirty-Eight Million Five Hundred
Thousand Dollars ($38,500,000). With respect to each
request for a Revolving Loan or Letter of Credit,
Borrower shall designate whether such request is for
a Revolving A Loan (or under the tranche for
Revolving A Loans in the case of Letters of Credit)
or a Revolving B Loan (or under the tranche for
Revolving B Loans in the case of Letters of Credit).
With each request for a Revolving B Loan (or a
Letter of Credit to be issued under the tranche for
Revolving B Loans), Borrower shall provide Lender
with a certificate of the chief financial officer of
Borrower, in form and substance satisfactory to
Lender that such Revolving B Loan or Letter of
Credit, as applicable, will not result in a breach
or violation of the Indenture, and at the request of
Lender, with an opinion of Borrower's counsel that
such Revolving B Loan or Letter of Credit, as
applicable, will not result in a breach or violation
of the Indenture.
(f) Section 3.1(E) of the Schedule to the Agreement is amended and
restated in its entirety as follows:
E. Fees for Additional Availability Period.
Borrower has previously paid to Lender an
Additional Availability Facility Fee equal to
Three Hundred Thirty Thousand Dollars
($330,000). In addition to the foregoing,
Borrower shall pay to Lender another Additional
Availability Facility Fee equal to Two Hundred
Eighty Thousand Dollars ($280,000) which shall
be payable as follows: (i) Ninety Thousand
Dollars ($90,000) on March 12, 1998, (ii)
$90,000 on April 12, 1998 and (iii) One Hundred
Thousand Dollars ($100,000) on May 15, 1998;
provided that upon termination of the
Additional Availability Period, the entire
unpaid Additional Availability Facility Fee
shall be immediately due and payable.
2. Intentionally Omitted.
3. Other Agreements. Prior to the end of the Additional Availability
Period, Borrower agrees to enter into, and to cause its operating subsidiaries
to enter into, blocked account and lockbox agreements, each in form and
substance reasonably satisfactory to Lender, and consistent with drafts
previously reviewed and approved by Borrower, with
-4-
<PAGE>
Lender and NationsBank of Texas, N.A. Borrower also agrees that, in lieu of
compensating Lender for prepaying a LIBOR Rate Portion prior to the end of an
Interest Period as provided in Section 3.1(A)(vi)(e)(2), if at any time the
aggregate unpaid principal balance of the Revolving Loans is less than the
aggregate LIBOR Rate Options for LIBOR Rate Portions requested by Borrower (the
amount by which such Revolving Loans are less than such aggregate LIBOR Rate
Options being referred to as the "LIBOR Deficiency"), the most recent LIBOR Rate
Option shall be converted to a Base Rate Option retroactive to the first day of
the Interest Period pertaining to such LIBOR Rate Option and the portion of the
Revolving Loans applicable to such LIBOR Rate Option shall (from the first day
of such Interest Period) bear interest at a per annum rate equal to two and
three-quarters percent (2.75%) in excess of the Base Rate; provided, that if the
LIBOR Deficiency is less than Two Million Dollars ($2,000,000), instead of
converting the most recent LIBOR Rate Option to a Base Rate Option as provided
above, Borrower shall pay to Lender a fee of Two Hundred Fifty Dollars ($250)
for each day the LIBOR Deficiency is less than Two Million Dollars ($2,000,000)
but greater than Zero (0). Further, Borrower agrees that it will at all times
maintain Base Rate Loans of at least Two Million Dollars ($2,000,000). Finally,
Borrower agrees to cooperate fully with Taylor & Martin and Lender in connection
with an Appraisal to be conducted by Taylor & Martin.
4. Confirmation of Liens. This Amendment in no way acts as a release
or relinquishment of any of the liens, security interests, rights or remedies
securing payment of the Loans or of the enforcement thereof. Such liens,
security interests, rights and remedies are hereby ratified, confirmed,
preserved, renewed and extended by Borrower in all respects.
5. Events of Default. The Events of Default specified in the
Agreement and the other Loan Documents shall continue to be the Events of
Default under the Loans except as otherwise specifically agreed herein to the
contrary. Lender's remedies with respect to the occurrence of an Event of
Default shall continue to be as set forth in the Loan Documents.
6. Reaffirmation of the Loan Documents. All terms, conditions and
provisions of the Agreement and the other Loan Documents are hereby reaffirmed
and continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby.
7. Representations and Warranties. Borrower represents and warrants
to Lender that the execution and delivery by Borrower of this Amendment has been
duly and properly made and authorized. The Loan Documents and this Amendment
each constitute valid and binding obligations of Borrower, enforceable in
accordance with their respective terms.
8. Benefit of the Amendment. The terms and provisions of this
Amendment and the other Loan Documents shall be binding upon and inure to the
benefit of Lender and Borrower and their respective successors and assigns,
except that Borrower shall
-5-
<PAGE>
not have any right to assign its rights under this Amendment or any of the Loan
Documents or any interest therein without the prior written consent of Lender.
9. Choice of Law. The Loan Documents and this Amendment shall be
performed and construed in accordance with the laws of the State of Arizona.
10. Entire Agreement. Except as modified by this Amendment, the Loan
Documents remain in full force and effect. The Loan Documents, as modified by
this Amendment, embody the entire agreement and understanding between Borrower
and Lender, and supersede all prior agreements and understandings between said
parties relating to the subject matter thereof.
11. Counterparts; Telecopy Execution. This Amendment may be executed
in any number of separate counterparts, each of which, when taken together,
shall constitute one and the same agreement, admissible into evidence,
notwithstanding the fact that all parties have not signed the same counterpart.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile shall also deliver a manually executed counterpart of this
Amendment, but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the day, month, and year first above written.
FINOVA CAPITAL CORPORATION, a Delaware
corporation
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
AMERITRUCK DISTRIBUTION CORP., a
Delaware corporation
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
-6-
<PAGE>
REAFFIRMATION OF GUARANTORS
DATED MARCH 12, 1998
Each of the undersigned hereby (i) confirms that it has read the
foregoing Consent and First Amendment Agreement, and (ii) reaffirms its
obligations under the Continuing Guaranty that it executed in favor of FINOVA
Capital Corporation.
AMERITRUCK EQUIPMENT CORP.
AMERITRUCK LOGISTICS SERVICES, INC.
AMERITRUCK REFRIGERATED TRANSPORT, INC.
J.C. BANGERTER & SONS, INC.
CMS TRANSPORTATION SERVICES, INC.
KTL, INC.
SCALES TRANSPORTATION CORPORATION
SCALES LEASING COMPANY, INC.
THOMPSON BROS., INC.
W&L SERVICES CORP.
W&L MOTOR LINES, INC.
AMERITRUCK OPERATIONS SERVICES, INC.
BEST WAY MOTOR LINES, INC.
BILLINGS TRUCKING CORPORATION
BLS INVESTMENTS, INC.
CAS SERVICE COMPANY
CAS TRANSPORTATION, INC.
FRONTIER FREIGHT, INC.
MONFORT TRANSPORTATION COMPANY
LYNN TRANSPORTATION CO.
TRANS-STAR, INC.
PRO-TRANS SERVICES, INC.
By
--------------------------------------
Name
------------------------------------
Title of each Guarantor
-----------------------------------
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITRUCK
DISTRIBUTION CORP.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDING
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 45,511
<ALLOWANCES> 1,471
<INVENTORY> 2,364
<CURRENT-ASSETS> 70,037
<PP&E> 153,355
<DEPRECIATION> 43,206
<TOTAL-ASSETS> 255,824
<CURRENT-LIABILITIES> 58,812
<BONDS> 222,283
3,128
0
<COMMON> 42
<OTHER-SE> (16,865)
<TOTAL-LIABILITY-AND-EQUITY> 255,824
<SALES> 0
<TOTAL-REVENUES> 79,506
<CGS> 0
<TOTAL-COSTS> 79,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,034
<INCOME-PRETAX> (6,643)
<INCOME-TAX> (2,192)
<INCOME-CONTINUING> (4,451)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,451)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
