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, 1999
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: 1-14181
TRANSPORTATION COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0562800
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THREE RIVERWAY
SUITE 200
HOUSTON, TEXAS 77056
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 332-2500
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 [ ]
The number of shares outstanding of the registrant's common stock, as of
May 13, 1999, was 17,727,815.
<PAGE>
TRANSPORTATION COMPONENTS, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets of Transportation Components, Inc. at
March 31, 1999 (Unaudited) and December 31, 1998........................ 3
Unaudited Consolidated Statements of Operations of Transportation
Components, Inc. for the three months ended March 31, 1999 and March
31, 1998................................................................ 4
Unaudited Consolidated Statements of Cash Flows of Transportation
Components, Inc. for the three months ended March 31, 1999 and March
31, 1998................................................................ 5
Notes to Unaudited Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 9
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signature................................................................ 16
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<PAGE>
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Current assets: (UNAUDITED) (NOTE 1)
Cash and cash equivalents .............................. $ 2,693 $ 4,090
Accounts receivable, net of allowance for bad debts of
$1,988 and $1,978 .......................................... 41,265 38,474
Receivables from related parties ....................... 82 92
Notes receivable, current .............................. 948 962
Inventories ............................................ 73,204 71,354
Prepaid expenses and other ............................. 1,711 2,027
Deferred tax asset ..................................... 3,317 3,439
--------- ---------
Total current assets .............................. 123,220 120,438
Property and equipment, net ................................ 12,581 12,604
Notes receivable, net ...................................... 1,731 1,854
Notes receivable from related parties ...................... 831 822
Goodwill, net .............................................. 81,546 81,832
Other assets ............................................... 1,210 1,355
--------- ---------
Total assets ...................................... $ 221,119 $ 218,905
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .................. $ 43,179 $ 41,342
Payables to related parties ............................ 1,774 1,764
Current portion of long-term debt ...................... 1,582 1,651
Other current liablities ............................... 365 237
--------- ---------
Total current liablities .......................... 46,900 44,994
Long-term debt, less current portion ....................... 57,040 59,091
Deferred tax liability ..................................... 3,224 2,875
Payables to related parties ................................ 14,077 14,068
--------- ---------
Total liablities .................................. 121,241 121,028
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par, 5,000,000 shares authorized,
none issued .......................................... -- --
Common stock, $0.01 par, 102,000,000 shares authorized,
17,727,815 shares outstanding ........................ 177 177
Additional paid-in capital ............................. 102,393 102,414
Retained deficit ....................................... (2,692) (4,714)
--------- ---------
Total stockholders' equity ........................ 99,878 97,877
--------- ---------
Total liabilities and stockholders' equity ........ $ 221,119 $ 218,905
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues ........................................... $ 78,242 $ --
Cost of sales ...................................... 53,763 --
------------ ------------
Gross profit ................................... 24,479 --
Selling, general and administrative expenses ....... 19,831 4,850
------------ ------------
Income (loss) from operations ...................... 4,648 (4,850)
Other income (expense):
Interest expense ............................... (1,248) --
Other income, net .............................. 228 --
------------ ------------
Income (loss) before income taxes .................. 3,628 (4,850)
Provision for income taxes ......................... 1,668 --
------------ ------------
Net income (loss) .................................. $ 1,960 $ (4,850)
============ ============
Income (loss) per share - Basic .................... $ 0.11 $ (1.48)
============ ============
Income (loss) per share - Diluted .................. $ 0.11 $ (1.48)
============ ============
Number of shares used in the per share calculations:
Basic .......................................... 17,727,815 3,269,217
Diluted ........................................ 19,328,648 3,269,217
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................ $ 1,960 $(4,850)
Adjustments to reconcile net income
(loss) to net cash provided by
operating
activities:
Depreciation and amortization ................ 1,227 --
Provision for bad debts ...................... 136 --
Gain on sale of assets ....................... 12 --
Compensation expense related to
issuance of common stock to
management and consultants ................... -- 4,850
Changes in operating assets and
liabilities:
Accounts receivable and notes
receivable .................................. (2,522) --
Inventories .................................. (1,804) --
Other assets ................................. 139 (2,631)
Accounts payable and accrued
expenses .................................... 2,208 2,631
------- -------
Net cash provided by operating
activities .................................. 1,356 --
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment ................................... (727) --
Other ........................................ 110 --
------- -------
Net cash used in investing
activities .................................. (617) --
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of long term debt ............. (2,141) --
Proceeds from issuance of common
stock, net of offering costs ................ -- 7
------- -------
Net cash (used in) provided by
financing activities ........................ (2,141) 7
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......... 5 --
------- -------
Net increase (decrease) in cash and
cash equivalents ................................ (1,397) 7
Cash and cash equivalents, beginning
of period ....................................... 4,090 5
------- -------
Cash and cash equivalents, end of
period........................................... $ 2,693 $ 12
======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Transportation Components, Inc., a Delaware corporation also known as
TransCom USA ("TransCom", and collectively with its subsidiaries, the
"Company"), was founded in October 1997 to become a leading national distributor
of replacement parts and supplies for commercial trucks, trailers and other
heavy duty vehicles and equipment. Prior to its initial public offering (the
"IPO"), TransCom had not conducted any operations. Concurrent with the
consummation of its IPO on June 24, 1998, TransCom acquired nine companies (the
"Founding Partner Companies") in separate merger transactions. After the IPO,
TransCom acquired an additional nine companies (the "Purchased Companies") in
the third and fourth quarters of 1998.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presenation have been included. All significant intercompany transactions and
balances have been eliminated. Operating results for the three months ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
the disclosure of contingent assets and liabilities known to exist as of the
date of the financial statements are published and (iii) the reported amount of
revenues and expenses recognized during the periods presented. Uncertainties
with respect to such estimates and assumptions are inherent in the preparation
of financial statements. The Company regularly reviews all significant estimates
affecting its consolidated financial statements. Adjustments made with respect
to the use of estimates often relate to improved information not previously
available. The accompanying consolidated balance sheets include preliminary
allocations of the respective purchase price paid for the companies acquired
using the "purchase" method of accounting and, accordingly, is subject to final
adjustment.
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<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the periods indicated (in thousands, except for
share and per share data):
THREE MONTHS ENDED
MARCH 31,
1999 1998
----------- -----------
NET INCOME (LOSS)
Net income (loss) ....................... $ 1,960 $ (4,850)
Add interest on 5% convertible debt
(assumed converted), net of federal
income tax effect ....................... 116 --
----------- -----------
Adjusted net income (loss) .............. $ 2,076 $ (4,850)
=========== ===========
BASIC
Basic weighted average shares ........... 17,727,815 3,269,217
=========== ===========
DILUTED
Basic weighted average shares ........... 17,727,815 3,269,217
Effect on Dilutive securities
Options ............................. 1,195 --
Warrants ............................ -- --
Convertible debt .................... 1,599,638 --
----------- -----------
Diluted weighted average shares ......... 19,328,648 3,269,217
=========== ===========
NET INCOME (LOSS) PER SHARE
Basic ................................... $ 0.11 $ (1.48)
=========== ===========
Diluted ................................. $ 0.11 $ (1.48)
=========== ===========
3. LONG TERM OBLIGATIONS
Long-term debt obligations consist of the following (in thousands):
MARCH 31, DECEMBER 31,
1999 1998
----------- ----------
Revolving credit facility.................... $54,500 $56,300
Notes payable to a financial institution..... 3,742 4,024
Other........................................ 380 418
---------- ----------
Total long-term debt......................... 58,622 60,742
Less: current portion....................... (1,582) (1,651)
---------- ----------
$57,040 $59,091
========== ==========
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<PAGE>
TRANSPORTATION COMPONENTS, INC.
4. COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 130, "Reporting Comprehensive Income", which requires companies to
display comprehensive income and its components in the financial statements.
Comprehensive income, which encompasses net income (loss) and currency
translation adjustments, is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
------- -------
Net income (loss) attributable to common
stockholders ............................... $ 1,960 $(4,850)
Currency translation adjustments ........... 62 --
------- -------
Comprehensive income (loss) ................ $ 2,022 $(4,850)
======= =======
5. SEGMENT INFORMATION
TransCom classifies its business into two reportable segments based on
geographic areas: "Domestic" (revenues generated from customers for use within
the United States) and "International" (revenues generated from customers for
use outside the United States - Canada, Mexico, South America, Central America,
Australia, New Zealand, Europe and Asia). All international operations have been
aggregated into one reportable segment because their operations are similar in
the nature of the product and production process, type of customer, and
distribution method. Operating income by segment is calculated using direct cost
of goods and services, direct selling, general and administration expenses, and
allocating general office expenses based on segment revenues.
Information as to the operations of TransCom's reportable segments is as
follows (in thousands):
THREE MONTHS ENDED MARCH 31, 1999 DOMESTIC INTERNATIONAL INTERSEGMENT TOTAL
Revenues .......................... $70,151 $ 8,155 $ (64) $78,242
======= ======= ======= =======
Operating income .................. 3,915 753 (20) 4,648
======= ======= ======= =======
Identifiable assets ............... 185 36 221
======= ======= =======
Depreciation and amortization
expense ........................... 1,054 173 1,227
======= ======= =======
Capital expenditures .............. 638 85 727
======= ======= =======
Information as to TransCom's operations in different geographical areas
is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED ALL OTHER
STATES MEXICO CANADA INTERNATIONAL(1) TOTAL
THREE MONTHS ENDED MARCH 31, 1999 ------- ------- ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $70,151 $ 4,544 $2,628 $919 $78,242
Long-lived assets................. 77,087 11,385 9,427 -- 97,899
</TABLE>
- ----------------------
(1) Includes South America, Central America, Australia, Europe and Asia.
-8-
<PAGE>
TRANSPORTATION COMPONENTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS SOME "FORWARD-LOOKING STATEMENTS" WHICH
GIVE THE COMPANY'S CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. SUCH
STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMS SUCH AS
"BELIEVES," "EXPECTS," "MAY," "ESTIMATES," "WILL," "SHOULD," "PLANS" OR
"ANTICIPATES" OR OTHER SIMILAR WORDS IN ANY DISCUSSION OF FUTURE OPERATING OR
FINANCIAL PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF ANY NUMBER OF FACTORS, MOST OF WHICH ARE BEYOND THE CONTROL OF
MANAGEMENT. IN PARTICULAR, THE COMPANY HAS IDENTIFIED SPECIFIC RISKS AND
UNCERTAINTIES RELATED TO THE COMPANY'S BUSINESS UNDER "ITEM 1. BUSINESS - RICK
FACTORS" ON PAGE 9 OF THE COMPANY'S ANNUAL REPORT OR FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL OF THE
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING statements. THIS DISCUSSION IS PROVIDED AS PERMITTED BY THE
PRIVATE LITIGATION SECURITIES LITIGATION REFORM ACT OF 1995.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto in this
Report, and the Company's audited consolidated financial statements contained in
the Form 10-K for the year ended December 31, 1998. Any capitalized terms used
but not defined in this Item have the same meaning given to them in the Form
10-K.
OVERVIEW AND SIGNIFICANT DEVELOPMENTS
The following discussion is based upon the historical consolidated
financial information for the Company, which includes the operations of the nine
original companies (the "Founding Partner Companies") from the date of their
acquisition on June 24, 1998, and of the nine subsequent acquisitions (the
"Purchased Companies") from their respective acquisition dates in the third and
fourth quarters of 1998.
RESULTS OF OPERATIONS. During the quarter ended March 31, 1999, the
Company had net income of $2.0 million, or $0.11 per diluted share, compared to
a net loss of $4.9 million, or $(1.48) per diluted share, for the first quarter
of 1998.
The results for the three months ended March 31, 1998 include a
non-recurring, non-cash compensation charge of $4.9 million related to common
stock issued to the Company's management and consultants to the Company.
The Company's revenues in the first quarter of 1999 were $78.2 million.
Approximately $56 million of these revenues were contributed by the Founding
Partner Companies with the remaining approximately $22 million of revenues being
contributed by the Purchased Companies.
OTHER EVENTS. During 1998, one of the Founding Partner Companies recorded
approximately $13 million of revenues from sales of parts, equipment and
services to two major oilfield service companies. As a result of the overall
slowdown in the oilfield services industry, the Company expects sales to these
two companies in 1999 to decline significantly from 1998 levels, especially
after the first quarter of 1999.
OPERATING STRATEGY. The Company has shifted its focus in the near term
from aggressive acquisition growth to integrating its existing 18 companies. In
the near future, the Company will concentrate on:
o INCREASING PURCHASING SYNERGIES. The Company expects to realize
significant cost savings through purchasing economies of scale. The
Company is in the process of implementing product line commonality among
its 18 companies that will increase volume to selected vendors. The
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<PAGE>
increased volume generated from the Company's size and common vendors will
provide greater purchasing discounts for the Company. The purchasing
synergies began to be material in the fourth quarter of 1998, and are
expected to increase in significance throughout 1999.
o ACHIEVING GEOGRAPHIC AND COMPANY-WIDE OPERATING EFFICIENCIES. The
Company believes that its geographic concentrations in California and
Florida will enable the Company to achieve operating efficiencies within
these geographic areas. Other efficiencies will benefit the entire
Company. These efficiencies include:
o The ability to provide greater product availability, decrease
duplicative inventory, and develop distribution efficiencies
within a region.
o The opportunity to cross-sell products and services to the
customers of its companies within each region.
o The opportunity to be a single-source, preferred provider for
replacement parts and installation and repair services for
national and regional fleet services.
o The opportunity to identify those "best practices" that can
be successfully implemented throughout the Company's
operations.
o The opportunity to identify those "best practices" that can
be successfully implemented throughout the Company's
operations.
o INSTALLING COMPANY-WIDE INFORMATION TECHNOLOGY SYSTEMS. The Company
is planning to install common operating and financial systems among the
operating facilities over the next 18 months. These systems are described
in more detail below under "Information Technology Systems and Year 2000
Strategy." These systems are expected to provide timely, accurate and
uniform information to the Company's management which will enable the
Company to provide better service to its customers and operate more
efficiently with a lower cost structure. While management estimates that
it will take approximately 18 months to fully implement these systems
throughout the Company, the Company expects to begin realizing some
benefits from these in the second half of 1999.
o CENTRALIZING APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company is
working to realize cost savings by consolidating administrative functions
such as purchasing, financing, insurance, risk management, employee
benefits, marketing, accounts receivable and accounts payable. While the
consolidation of financing and insurance has already been substantially
implemented, the consolidation of the other areas is in various stages of
being implemented.
o OPERATING ON A DECENTRALIZED BASIS. The Company presently manages
its 18 companies on a decentralized basis, with local management retaining
primary responsibility for day-to-day operations, profitability and growth
of the business. The Company believes that, while maintaining strong
operating and financial controls, a decentralized structure helps to
retain the entrepreneurial spirit in the companies and allows the Company
to capitalize on the considerable local market knowledge, goodwill, name
recognition and customer relationships possessed by each of the companies.
-10-
<PAGE>
GENERAL
On June 24, 1998, TransCom consummated its initial public offering ("IPO")
and the mergers (the "Mergers") of nine companies (the "Founding Partner
Companies"). After the IPO, TransCom acquired an additional nine companies (the
"Purchased Companies") in separate merger transactions. TransCom, the Founding
Partner Companies and the Purchased Companies are hereinafter referred to as the
Company.
From October 1997 through March 1998, the Company sold an aggregate of
1,106,829 shares of Common Stock to management, directors and certain
consultants of the Company for $0.01 per share. As a result, the Company
recorded a non-recurring, non-cash compensation charge of $3.1 million and $4.9
million during 1997 and the first quarter of 1998, respectively, representing
the difference between the amount paid for the shares and the estimated fair
value of the shares on the date of the sale.
The Mergers were accounted for using the purchase method of accounting.
Accordingly, the excess of the fair value of the Merger consideration paid of
$82.9 million over the fair value of the net assets acquired by TransCom from
the Founding Partner Companies and Purchased Companies was recorded as
"goodwill". The accompanying consolidated balance sheets include preliminary
allocations of the respective purchase price paid for the companies acquired
using the "purchase" method of accounting and, accordingly, is subject to final
adjustment. The goodwill will be amortized over its estimated useful life of 40
years as a non-cash charge to operating income, which is not deductible for tax
purposes.
RESULTS OF OPERATIONS--COMBINED
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------
1999 % 1998 %
-------- -------- -------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Revenues .............................. $ 78,242 100.0 $ -- --
Cost of sales ......................... 53,673 68.7 -- --
-------- -------- -------- ------
Gross profit ...................... 24,479 31.3 -- --
Selling, general and administrative ... 19,831 25.4 4,850 --
-------- -------- -------- ------
Income (loss) from operations ..... 4,648 5.9 (4,850)
Interest expense ...................... (1,248) (1.6) -- --
Other income .......................... 228 .3 -- --
-------- -------- -------- ------
Income (loss) before income taxes . $ 3,628 4.6 $ (4,850) --
======== ======== ======== ======
</TABLE>
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1998
The Company was formed in October 1997 and had no operations prior to the
IPO in June 1998, other than non-cash compensation charges and other start-up
expenses. Accordingly, the results of operations for the three months ended
March 31, 1999 are not comparable in any respect to the results of operations
for the three months ended March 31, 1998.
REVENUES. There were no revenues during the three months ended March 31,
1998 compared to $78.2 million of revenues for the three months ended March 31,
1999. All of the 1999 revenues are from the Founding Partner Companies which
were acquired as of June 24, 1998, and the Purchased Companies which were
acquired in the second half of 1998.
GROSS PROFIT. There was no gross profit for the three months ended March
31, 1998 compared to $24.5 million of gross profit for the three months ended
March 31, 1999. All of the 1999 gross profit is
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<PAGE>
associated with the Founding Partner Companies which were acquired as of June
24, 1998, and the Purchased Companies which were acquired in the second half of
1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $14.9 million from $4.9 million for the three months ended
March 31, 1998 to $19.8 million for the three months ended March 31, 1999.
Approximately $18.1 million of the increase is associated with the operations of
the Founding Partner Companies which were acquired as of June 24, 1998, and the
Purchased Companies which were acquired in the second half of 1998. The
Company's establishment as a public company in 1998 resulted in approximately
$1.2 million of general office and management expenses in 1999 whereas no such
corporate expenses are reflected in 1998 since the Company was not yet public.
Amortization of goodwill accounted for $.5 million of the increase. The
non-recurring, non-cash compensation charges of $4.9 million during the first
quarter of 1998 is related to common stock issued to the Company's management
and consultants to the Company.
INTEREST EXPENSE. There was no interest expense for the three months ended
March 31, 1998 compared to $1.2 million of interest expense for the three months
ended March 31, 1999. The 1999 interest expense is associated with the
consideration paid and debt assumed in connection with the acquisition of the
Founding Partner Companies and the Purchased Companies, and debt incurred to
provide general working capital.
OTHER INCOME. Other income was $.2 million for the three months ended
March 31, 1999. Other income in 1999 includes $62,000 of interest income and
$107,000 from gains on foreign currency translation and transaction adjustments
associated with the Company's operations in Mexico.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $1.4 million in net cash from operating activities
in the three months ended March 31, 1999. Net cash used for investing activities
was $.6 million for the three months ended March 31, 1999, primarily relating to
the purchase of information technology and vehicles. Net cash used for financing
activities was $2.1 million for the year ended March 31, 1999. The cash used for
financing activities in 1999 consisted primarily of $1.8 million of repayments
on the Company's line of credit and $.3 million of repayments of debt acquired
with the acquisition of the Founding Partner Companies and the Purchased
Companies. At March 31, 1999, the Company had cash of $2.7 million, working
capital of $76.3 million and total debt of $74.5 million.
The Company anticipates that over the near term, its cash flow from
operations will provide cash in excess of the Company's normal working capital
needs. Planned capital expenditures for equipment are expected to be funded from
cash flow from operations and supplemented as necessary by borrowings from the
Company's line of credit or other sources of financing.
The Company will require additional capital to fund any future
acquisitions. At this time, the Company does not plan to grow through
acquisitions in the near term unless the market price of the Company's common
stock rises to levels that will make acquisitions, using the Company's common
stock as consideration, accretive to the Company's earnings or the Company
generates excess cash flow. The Company also may pursue additional equity or
debt financing to fund future acquisitions, although there can be no assurances
that additional financing would be available on terms attractive to the Company.
INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000 STRATEGY
IMPLEMENTATION OF NEW INFORMATION TECHNOLOGY SYSTEMS. Each of the TransCom
companies currently has separate information technology systems that use a
variety of software and computer systems
-12-
<PAGE>
for operations and accounting. Over the next 18 months, however, TransCom plans
to install common information technology systems among all of its companies to
track and manage inventory and provide financial reporting. The information
systems to be installed will include the following:
o An advanced management information system from Karmak, Inc. that
has been specifically designed for the heavy duty parts industry.
This operating system is presently used at 33 of the Company's
branch locations and will be used to purchase, monitor and allocate
inventory on a real-time basis throughout the Company's branch
locations.
o A financial reporting system from ROSS Systems, Inc. which will
centralize the financial reporting of all of the TransCom
operations, and provide more timely and more detailed financial
information to management.
o An interface to be developed between the Karmak management
information system and the ROSS financial system which will greatly
enhance the utility of both systems and provide an integrated system
for management's use.
o A common wide area network that will connect all of the Company's
branch locations.
o An Oracle data warehouse which will collect valuable sales/margin
and customer information from all of the Company's operations.
These systems will be implemented as quickly as possible, but are not
expected to be fully operational at all of the Company's locations until the
second half of 2000. Management expects to start realizing some of the benefits
from these systems in the second half of 1999. The total expenditures for the
new information systems are estimated at $4.0 million. Funding for these
expenditures will come from operating cash flows and borrowings under the
Company's Credit Facility as necessary.
EXPECTED BENEFITS OF NEW INFORMATION TECHNOLOGY SYSTEMS. Once
implemented, the new information technology systems are expected to provide
the following benefits to the Company:
o An integrated system which will automate the sales, purchasing,
inventory management, accounts receivable and payable, and financial
reporting processes of the Company.
o The capability for Electronic Data Interchange with vendors and
customers that will further reduce costs for both the vendors and
TransCom.
o Help the Company increase service capabilities to customers, manage
inventory more efficiency and reduce administrative costs.
o Provide the Company with the necessary technology infrastructure to
fully integrate its operations and position the Company for future
growth.
YEAR 2000 STRATEGY. Both the Karmak management information system and the
ROSS financial system have been certified by the vendors as being Year 2000
compliant. The Company has evaluated its existing operating and financial
systems for Year 2000 compliance and has found that most of its branch locations
will need to take some actions to be Year 2000 compliant. For a number of the
locations, the Company will need to implement the new systems to make such
locations Year 2000 compliant. Accordingly, the implementation schedule for the
new systems will be partially based on the need to bring
-13-
<PAGE>
certain locations into Year 2000 compliance. The Company believes that all of
its locations will be Year 2000 compliant by the end of 1999.
The Company is in the preliminary stages of assessing the Year 2000
compliance of its non-information technology systems, such as telephone systems,
and the extent to which the Company's suppliers are Year 2000 compliant. The
Company does not believe that the Year 2000 compliance of its customers will
have any material effect on the Company. The Company expects to complete this
assessment by the end of the second quarter of 1999 and then develop and
implement any necessary plans to address deficiencies. Finally, the Company is
in the preliminary stages of developing a contingency plan for disruptions
caused by Year 2000 issues, and plans to finish such plan by the end of the
third quarter of 1999.
Since the Company is substantially replacing its information technology
systems, the Company does not believe that it can segregate the portion of its
overall $4.0 million technology systems budget that is directly attributable to
Year 2000 compliance measures. This assessment of costs, however, may change as
the Company continues its assessment of the Year 2000 issues facing the Company.
The Company faces significant risks in implementing its company-wide
information systems as well as developing and implementing a Year 2000 strategy.
There can be no assurance that the Company will be able to coordinate and
integrate the information systems economically or that the Company will not
experience delays, disruptions and unanticipated expenses in doing so. There can
also be no assurances that the Company will successfully develop and implement a
Year 2000 plan. Furthermore, any future acquisitions will further complicate the
Company's ability to implement its company-wide information systems and its Year
2000 strategy. Any failure with respect to such implementation could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is developing a comprehensive contingency plan to address Year
2000 issues with respect to the Company's internal information technology
systems and those of its customers, vendors and other third parties. The
Company's contingency plans will include the use of vendors and other third
parties that are Year 2000 compliant and the use of alternative data processing
systems or temporary manual information systems as necessary. The contingency
plan is expected to be completed and approved by management within the next
three months.
FOREIGN CURRENCY FLUCTUATIONS
A portion of the Company's consolidated revenues are billed and collected
in Mexican pesos and Canadian dollars. Additionally, substantially all of the
operating expenses related to foreign locations are incurred in a foreign
currency. Consequently, the Company's reported financial results are affected by
fluctuation of foreign currencies against the U.S. dollar. The Company
periodically performs foreign currency hedging to reduce its foreign currency
transaction exposures.
SEASONALITY
Weather extremes cause increased parts wear and breakdowns of trucks and
trailers; however, extreme weather, particularly during winter months, could
inhibit general business activity. These seasonal trends may cause fluctuations
in the Company's earnings. Additionally, quarterly results may be materially
affected by the timing of acquisitions, variations in the margins of products
sold and services performed during any particular quarter, the timing and
magnitude of acquisition assimilation projects and regional economic conditions.
Accordingly, the Company's operating results in any particular quarter may not
be indicative of the results that can be expected for any other quarter or for
the entire year.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation that management considers to
be of a material nature.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
10.1 Amendment No. 1 dated March 31, 1999 to the
Credit Agreement with The First National Bank of
Chicago, as agent and the Lenders party thereto.
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None
-15-
<PAGE>
SIGNATURE
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, who has signed this report on behalf of
the Registrant and as the principal financial officer of the Registrant.
TRANSPORTATION COMPONENTS, INC.
By: /s/ MAC MCCONNELL
Mac McConnell, Senior Vice President
Date: May 14, 1999 and Chief Financial Officer
-16-
EXHIBIT 10.1
AMENDMENT NO. 1
This Amendment No. 1 (this "Amendment"), dated as of March 31, 1999, is
among Transportation Components, Inc., d/b/a TransCom USA, a Delaware
corporation (the "Borrower"), the Lenders party to the Credit Agreement (defined
below) and The First National Bank of Chicago, as Agent.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to that
certain Credit Agreement dated as of June 24, 1998 (the "Credit Agreement") and
the other Loan Documents referred to therein; and
WHEREAS, the Borrower, the Lenders and the Agent desire to amend the
Credit Agreement in order to amend certain provisions thereof,
NOW, THEREFORE, in consideration of the premises and the undertakings set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1 . DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. AMENDMENT. The first sentence of Section 7.4(B) of the Credit
Agreement is hereby amended to read in its entirety as follows:
"(B) TOTAL DEBT TO EBITDA RATIO. The Borrower shall not at any
time permit the ratio (the "LEVERAGE RATIO") of (i) Total Debt of
the Borrower and its consolidated Subsidiaries to (ii) EBITDA of the
Borrower and its consolidated Subsidiaries, to be greater than (x)
for the fiscal quarters ending March 31, 1999, and June 30, 1999,
3.25 to 1.00, and (y) for all other fiscal quarters, 3.
00 to 1. 00. "
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
Lenders to enter into this Amendment, the Borrower hereby represents and
warrants to the Agent and the Lenders as of the date of this Amendment that:
(a) There exists no Default or Unmatured Default and the
execution of this Amendment shall not create a Default or Unmatured
Default.
(b) The representations and warranties contained in Article VI
of the Credit Agreement are true and correct as of the date of this
Amendment.
4. EFFECT ON THE CREDIT AGREEMENT. Except as expressly amended hereby, all
of the representations, warranties, terms, covenants and conditions of the
Credit Agreement and the other Loan Documents (a) shall remain unaltered, (b)
shall continue to be, and shall remain, in full force and effect in accordance
with their respective terms, and (c) are hereby ratified and confirmed in all
respects. Upon the effectiveness of this Amendment, all references in the Credit
Agreement (including references in the Credit Agreement as amended by this
Amendment) to "this Agreement" (and all indirect references such as "hereby",
"herein", "hereof" and "hereunder") shall be deemed to be references to the
Credit Agreement as amended by this Amendment.
5. LEGAL EXPENSES. The Borrower agrees to reimburse the Agent for
reasonable legal fees and expenses incurred by attorneys for the Agent (who may
be employees of the Agent) in connection with the preparation, negotiation and
consummation of this Amendment and the transactions contemplated herein.
<PAGE>
6. MISCELLANEOUS.
(a) This Amendment may be executed in counterparts and by the
different parties hereto on separate counterparts each of which,
when so executed and delivered, shall be deemed an original, and all
of which taken together shall constitute one and the same agreement.
(b) This Amendment shall be effective as of the date first
above written; PROVIDED, THAT, the Agent has received executed
counterparts of this Amendment from the Borrower, the Agent and the
Required Lenders.
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders that sign
below have executed this Amendment as of the date first above written.
TRANSPORTATION COMPONENTS, INC.,
as the Borrower
By: /s/ MAC MCCONNELL
Name: Mac McConnell
Title: Senior Vice President & CFO
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent and as a Lender
By: /s/ CORY M. OLSEN
Name: Cory M. Olsen
Title: Executive Vice President
SOUTHTRUST BANK, NATIONAL ASSOCIATION
By: /s/ DANIEL GORMAN, JR.
Name: Daniel Gorman, Jr.
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ RICHARD L. NICHOLS, JR.
Name: Richard L. Nichols, Jr.
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ J. SCOTT JESSUP
Name: J. Scott Jessup
Title: Vice President
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
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