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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 30, 2000 there were outstanding 17,693,638 shares of common stock
of the Registrant. The aggregate market value on such date of the voting stock
of the Registrant held by non-affiliates was an estimated $17.25 million.
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TRANSPORTATION COMPONENTS, INC.
TABLE OF CONTENTS
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PAGE
PART I
Item 1. Business................................................................................................1
Item 2. Properties.............................................................................................11
Item 3. Legal Proceedings......................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders....................................................13
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters...............................14
Item 6. Selected Financial Data................................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................................20
Item 8. Financial Statements and Supplementary Data............................................................21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................43
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................................43
Item 11. Executive Compensation.................................................................................43
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................43
Item 13. Certain Relationships and Related Transactions.........................................................43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................44
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS SOME "FORWARD-LOOKING STATEMENTS"
WHICH GIVE OUR CURRENT EXPECTATIONS OR FORECASTS OF FUTURE EVENTS. THESE
STATEMENTS APPEAR IN A NUMBER OF PLACES, INCLUDING ITEM 1. "BUSINESS," ITEM 3.
"LEGAL PROCEEDINGS" AND ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS". THESE STATEMENTS CAN BE
IDENTIFIED BY THE USE OF TERMS SUCH AS "BELIEVE," "EXPECT," "MAY," "ESTIMATE,"
"WILL," "SHOULD," "INTEND" OR "ANTICIPATE" AND OTHER SIMILAR WORDS IN ANY
DISCUSSION OF FUTURE OPERATING OR FINANCIAL PERFORMANCE. FROM TIME TO TIME, WE
MAY ALSO PROVIDE ORAL OR WRITTEN FORWARD-LOOKING STATEMENTS IN OTHER MATERIALS
WE RELEASE TO THE PUBLIC.
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 VARIOUS
FACTORS. IN PARTICULAR, WE HAVE IDENTIFIED SPECIFIC RISKS AND UNCERTAINTIES
RELEVANT TO OUR BUSINESS UNDER "ITEM 1. BUSINESS - RISK FACTORS" ON PAGE 9 OF
THIS REPORT. THESE MAY NOT BE ALL THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
VARY MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THIS DISCUSSION IS PROVIDED
AS PERMITTED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of our definitive proxy statement, to be filed with the
Securities and Exchange Commission under Regulation 14A not later than 120 days
after the close of our fiscal year, are incorporated by reference under Part
III.
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PART I
ITEM 1. BUSINESS
Transportation Components, Inc., also known as TransCom USA, is a
distributor throughout North America of replacement parts and supplies for
commercial trucks, trailers and other heavy duty vehicles and equipment. To
complement our parts distribution business, we also provide customers with
value-added services, such as parts installation and repair, fleet maintenance
management, machine shop services and remanufacturing of brake shoes, fuel
injectors and turbo chargers. We distribute a broad selection of parts for
braking systems and suspension and steering systems, as well as axles, wheels
and rims, trailer parts, drive train components, hydraulic components and engine
parts. These parts are used for regular preventative maintenance, such as
replacement of worn brake shoes, belts, hoses and filters, and for "as-needed"
repairs of damaged or out-of-warranty vehicle parts.
We purchase heavy duty parts from component manufacturers, inventory these
parts in 96 facilities across the United States, Mexico and Canada and
distribute them to over 22,000 customers. We also export heavy duty parts to
customers located in countries in South and Central America and the Pacific Rim.
Our customers include private vehicle fleets operated by businesses that perform
their own maintenance and repairs, independent repair shops, resellers,
municipal and other government entities, specialty original equipment
manufacturers, referred to as OEMs, and other end users.
On June 24, 1998, we completed our initial public offering and
simultaneously acquired nine separate companies engaged in the heavy duty parts
distribution and repair industry. These nine companies had 68 operating
facilities located across the United States and Mexico, and pro forma combined
revenues in 1997 of approximately $208 million. We then acquired an additional
nine companies in the third and fourth quarters of 1998 that added 27 additional
locations in the United States and Canada. These additional nine companies added
combined annualized revenues of approximately $87 million.
INDUSTRY OVERVIEW
The heavy duty parts and repair industry consists of: (1) component
manufacturers, (2) OEMs and OEM-authorized dealerships, (3) independent
distributors and (4) repair shops and other end users. We believe this industry
includes approximately 14,000 participants in the United States, consisting of
11,500 independent parts distributors and repair shops and 2,500 OEM-authorized
dealerships. Based on the number of independent distributors and repair shops
and the acquisition activity in the industry, we believe that the heavy duty
parts and repair industry is highly fragmented and in the early stages of
consolidation.
To service their customers, independent distributors, like us, typically
carry a large volume of inventory, including parts from many different component
manufacturers, to service a wide variety of vehicles and equipment. By
maintaining large and deep inventories, independent distributors strive to
deliver parts to customers on the same day on a more cost-effective basis then
OEM-authorized dealerships. In contrast, OEM-authorized dealerships typically
inventory parts for use primarily in vehicles assembled by their OEMs.
The heavy duty parts and repair industry is experiencing the same trends
that have influenced other distribution industries, such as integrated
single-source suppliers, strategic alliances, supply chain management, enhanced
management information systems, and most recently, the formation of an
internet-based service parts trading exchange. These trends have led to shorter
delivery cycles, increasing use of electronic data interchange, or EDI,
internet, "partnering" relationships with customers, expanding product
offerings, vendor-managed inventory, a growing number of regional and national
accounts and other types of value-added services to meet customer demand for
more services from their suppliers.
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COMPETITIVE STRENGTHS
We believe the following factors give us a competitive advantage in our
heavy duty parts and repair business:
o SIZE AND CRITICAL MASS - which gives us purchasing and other
economies of scale, and greater leverage with component parts
manufacturers.
o GEOGRAPHICALLY DIVERSE OPERATIONS - enabling us to effectively
service large customers across regional and national markets.
o STRONG CUSTOMER RELATIONSHIPS - providing us with repeat business
and the opportunity to cross-sell our services and products.
o EXPERIENCED MANAGEMENT - who hold a substantial amount of our
outstanding common stock, including executive management with
extensive parts distribution experience and local management with
many years of experience in the heavy duty parts and repair industry
and established reputations in their local markets.
o EXPERIENCED SALES STAFF - enabling us to provide superior service to
customers, because salespeople in the heavy duty industry must
possess knowledge of the various vehicle and parts manufacturers and
the specifications of a broad range of vehicle parts to determine
properly a customer's parts needs. Unlike automobiles manufactured
to standard models, virtually all trucks are manufactured to
individual specifications.
o STRONG VENDOR RELATIONSHIPS - which, in addition to supplying parts,
also provide us additional marketing support, training and expertise
to assist with sales growth and customer support.
o COMPANY-WIDE ADVANCED INFORMATION SYSTEMS - providing us the
information to improve our distribution efficiencies and our ability
to purchase and manage inventory. It also allows for better
communication among our branches to service customers on a
consistent basis, and provides our associates with a shared database
of information to allow them to perform their jobs more efficiently.
STRATEGY
ACQUISITION STRATEGY. We believe the heavy duty industry is highly
fragmented and provides an excellent opportunity to create value through
consolidation. Our initial strategy was to aggressively grow through
acquisitions and then, after achieving adequate geographic coverage and critical
mass, to increase the focus on integrating the acquired companies by installing
common systems and centralizing most administrative functions. This acquisition
strategy was based on using our common stock for all, or a substantial portion
of, the consideration for new acquisitions. Soon after our initial public
offering, our stock price declined below the initial public offering price. As a
result, the nature of the consideration paid for the nine additional companies
acquired in the second half of 1998 consisted primarily of cash and subordinated
debt because we were not willing to use our common stock and thereby dilute our
existing shareholders. The market price for our common stock remains below
levels at which we are willing to issue additional shares for acquisitions.
Accordingly, we do not plan to grow through acquisitions in the near term. We
may pursue additional debt or equity financing to finance future acquisitions,
but additional financing may not be available or on terms we consider
attractive.
OPERATING STRATEGY. During 1999, we focused on integrating our operations.
The key elements of our operating strategy include:
o OFFERING COMMON PRODUCT LINES (LINE COMMONALITY) - In the heavy duty
aftermarket, there are generally several vendors for each product
line a distributor carries for sale to its customers. Before we
acquired them, each of our acquired companies purchased product from
many of
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these vendors and other sources. As a result, we used multiple
vendors for each product line. After our formation, we reduced the
number of our vendors and realized significant cost savings based on
the substantial increase in volume of our purchases from the
selected vendors. We call the process of selecting preferred vendors
"line commonality." In addition to cost savings, line commonality
has enabled us to better manage inventories and to offer common
product lines to national and regional customers. We expect to
achieve greater purchasing synergies in 2000.
o COMPANY-WIDE INFORMATION TECHNOLOGY SYSTEMS - At the beginning of
1999, our goal was to install common operating and financial systems
over an 18-month period ending in mid-2000. We accelerated this
timetable in 1999 and were able to complete the majority of the base
system installations by the end of 1999. In 2000, our focus will be
to ensure the systems are properly interfaced and that each branch
applies similar processes and procedures to generate consistent
information. These systems include:
o An operating system for inventory management from Karmak, Inc.
specifically designed for the heavy duty parts industry. This
software was used in 33 of our branch locations before we
acquired them. In 1999, the Karmak system was installed in an
additional 40 locations and is now installed at all locations
in the United States except for 11 branches with specific
needs not currently addressed by the Karmak software. These
locations will remain on their existing operating software
until the appropriate enhancements have been made. With most
locations on the Karmak system, we will have consistent
information to analyze operating results and compare activity
at branch locations. The current version of the Karmak
software limits the number of branches that can be grouped
into one company. We expect a new version by the summer of
2000 that will enable us to maintain all branches under one
company.
o A common financial reporting system from ROSS Systems, Inc. is
used throughout our branches. An interface has been developed
between the Karmak operating system and the ROSS financial
system providing an integrated system for management
reporting. 65 of the US locations had implemented the ROSS
system by the end of 1999. We anticipate all locations in the
United States will be on the ROSS system by the end of the
second quarter in 2000. While the foreign operations will not
adopt the ROSS system in the near term, their financial
information will be uploaded into ROSS for consolidation
purposes.
o We installed an Oracle data warehouse to allow management to
analyze sales, gross margin, inventories, payroll and customer
information for all locations using the Karmak operating
software.
o A wide area network that connects 80 of our locations. We
expect that an additional six locations will be on the wide
area network by the end of the second quarter of 2000. We have
recently designed and installed an enhanced version of a
website on the wide area network to serve as the foundation
for our Intranet. We plan to begin using the Intranet during
the second quarter of 2000. The Intranet, when fully
functional, will serve as a common source of information for
operating results, news, scheduled activities, product
information, marketing programs and policies and procedures
for all branch locations.
We made significant progress in 1999 installing common systems throughout
most of our branch locations. In 2000, our focus will be on refining the
installed software and interfaces and developing standard policies and
procedures in an effort to generate consistent information. We expect the
systems, when fully implemented and consistently applied, to provide timely,
accurate and uniform information to our management. As a result, we will be able
to better service our customers and operate more efficiently
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with a lower cost structure. We believe the systems will provide us with the
necessary technology infrastructure to fully integrate our operations and
position us for future growth.
At the request of several of our customers in 1999, we began to receive
orders and send invoices electronically via EDI and the internet. Certain
vendors offered us additional purchase discounts if we issue purchase orders and
receive invoices in an electronic format. We believe a significant amount of
information in the future will be exchanged electronically among us and our
customers and vendors.
CENTRALIZING ADMINISTRATIVE FUNCTIONS. We are working to realize cost
savings by consolidating administrative functions such as financing, insurance,
risk management, employee benefits, accounts payable, purchasing and fixed
assets. During 1998, we centralized most of our financing and property and
casualty insurance functions. During 1999, we centralized payroll and
standardized employee benefits such as health insurance, flexible benefit plans
and the 401(k) program for all domestic employees. In addition, during 1999, we
transferred to Houston the accounts payable function from several branch
locations. We centralized invoice payments for about 25 of our larger vendors
and the purchasing function for several of the Florida branch locations. We
estimate that most of our remaining United States branch office accounts payable
and purchasing functions will be centralized during 2000. During 1999, we also
centralized the accounting for fixed assets.
We failed to realize significant cost savings during 1999 from
centralizing our administrative functions due to the costs to train and staff
our administrative office. We expect that significant administrative costs at
our branch locations can be eliminated or reduced during the second half of
2000.
IMPLEMENTING AN EFFICIENT AND EFFECTIVE MULTI-UNIT OPERATING STRUCTURE.
The 18 companies formerly operated as separate entities and continued to operate
with a large degree of autonomy in 1998 and most of 1999. During that period
local management had responsibility for substantially all functions including
finance and accounting, purchasing, marketing, selling, and day-to-day
operations. In connection with our integration plan, certain functions will be
centralized that we believe can be performed more effectively and cost
efficiently including, purchasing, finance and accounting, and employee
benefits. In addition, because of having line commonality, we will be able to
centralize most of our marketing functions. We believe the centralization of
these functions will enable local management to concentrate on the important
functions of selling and customer relations, day to day operations and the
growth and profitability of the business. To further support our field operating
management, we recently implemented a new regional structure that organizes the
operating management into four areas including three geographic regions and a
fourth division which includes our international operations and the specialty
companies. The new organizational structure establishes clear lines of
communication and authority and responsibilities for profitability and growth.
The new structure will also enable us to better implement common processes and
procedures and other company programs.
ACHIEVING GEOGRAPHIC AND COMPANY-WIDE OPERATING EFFICIENCIES. We
believe our geographic concentrations in California, Florida and the central
United States will enable us to achieve operating efficiencies within these
geographic areas. These efficiencies include:
o The ability to provide greater product availability and decrease redundant
inventory within a region. We also believe we will develop distribution
efficiencies within a geographical region, including more cost-effective
delivery of products from component manufacturers to the branch locations.
o The opportunity to cross-sell products and services to the customers within
each region. We also believe we will be able to cross-sell our products and
services to customers by leveraging the specialized and diverse product,
service and marketing expertise of the individual companies.
o The opportunity to be a single-source, preferred provider for replacement
parts and installation and repair services for national and regional fleet
services. Based on the success of the national vehicle fleet services
provided by several of our branches, we believe demand exists from large
vehicle fleets to use the services of independent distributors capable of
providing comprehensive services on a
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regional or national basis. Many of our branches provide services to
companies with nationwide locations.
o The opportunity to identify those "best practices" that can be successfully
implemented throughout our operations.
o The opportunity to eliminate other duplicate costs such as rent and wages.
During 1999, we consolidated branch operations in southern California and
Florida to eliminate overlapping coverage. We are currently in the process of
consolidating our two Ft. Wayne, Indiana branches.
OPERATIONS AND SERVICES
PARTS DISTRIBUTION BUSINESS. We distribute replacement parts for
commercial trucks and trailers and other types of specialized heavy duty
vehicles and equipment. We purchase heavy duty parts from component
manufacturers, inventory these parts in 96 facilities across the United States,
Mexico and Canada and distribute them to over 22,000 customers. We also export
parts and supplies to customers located in Australia and New Zealand and
countries in South and Central America and Southeast Asia.
We maintain a large volume and wide selection of inventory to increase
customers' access to the parts they need on a timely basis. As a result of our
broad product selection, we believe that we have established a reputation with
our customers as being more likely than our competitors to have requested parts
in stock. To complement our parts distribution business, we also provide
customers with value-added services, such as parts installation and repair,
fleet maintenance management, training, machine shop services and
remanufacturing. These services allow customers to reduce expenses by reducing
parts and labor costs for repairs, decreasing the capital required for parts
inventory and minimizing the lost productivity caused by vehicle breakdowns.
COMPREHENSIVE PARTS PRODUCT LINE. Our broad product line includes parts
for braking systems and suspension and steering systems, as well as axles,
wheels and rims, trailer parts, drive train components, hydraulic components and
engine parts. The parts range from frequently replaced "wear items" such as
brake shoes, brake pads and filters, to transmissions that have relatively
lengthy useful lives. The parts are installed in vehicles such as
tractor-trailers, construction vehicles, waste disposal trucks, buses, light
duty trucks and other types of specialized vehicles and equipment. We also
provide parts for various types of off-road vehicles and equipment that support
the oil field service, construction, mining, timber and agriculture industries,
as well as the U.S. military and commercial airlines. We also sell parts for use
in various industrial applications that use brakes, clutches, cables and other
components similar to those used in vehicles. We provide customers with
replacement parts not covered by the OEM warranty, either because the warranty
period has expired or the part was never covered by a warranty. The warranties
provided for new equipment sold by an OEM generally are "pass through"
warranties from the original component manufacturer for each major component.
The length of the warranty on covered components varies based on the reasonable
expected useful life of the component.
CUSTOMERS. Our customers include regional and national private fleets
operated by businesses such as Halliburton and Dowell, and common carrier and
rental fleets, including United Parcel Service of America, Inc., Roadway Package
System, Inc. and U-Haul International, Inc. We also distribute parts to
independent repair shops, resellers, municipal and other government entities,
specialty OEMs and other end users. Our typical customer is a regional fleet
operator that operates from ten to 100 trucks. A customer's typical vehicle will
experience frequent stop-and-go travel subjecting vehicle parts to heavier wear
which leads to more frequent repair and replacement. We have a diverse customer
base of more than 22,000 customers, with no single customer accounting for more
than 5% of our revenues in 1999 and 1998.
DELIVERY OF PARTS TO CUSTOMERS. Most of our branches have a fleet of
vehicles for delivery of parts directly to customers. For typical customers, we
will make one or more daily scheduled stops for delivery of ordered parts and
pick-up of worn parts for repair. If a customer makes infrequent purchases, a
requested stop will be added to the regular routes of our vehicles. If a
customer requests expedited service, we will provide special delivery services.
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VALUE-ADDED SERVICES. To complement our parts distribution business,
several of our branches provide commercial vehicle parts installation and repair
services. These branches employ mechanics and technicians who can diagnose and
make needed repairs using inventoried parts. As part of our value-added
services, we offer machine shop services to repair and rebuild parts for
customers. In some cases, we advise the customer when particular vehicles need
scheduled maintenance.
Several of our branches can remanufacture damaged or worn parts for sale
to customers. When finished, the remanufactured part meets either the original
specifications or specifications acceptable to the customer and is resold at a
discount to new parts with a company-specified warranty. We remanufacture brake
shoes, turbo chargers, drive axles, transmissions, steering gears, fuel
injectors and fuel pumps.
We provide the following value-added distribution services:
o Distributor for component manufacturers interested in outsourcing
the distribution of a low-volume or discontinued item. In exchange
for purchasing the annual production (in the case of low-volume
components) or last-call production (in the case of discontinued
components), we obtain a significant purchase discount.
o Fleet maintenance management services in which we develop a
customized database to record all the component parts used on the
individual vehicles in a customer's fleet to enable us to provide a
replacement part on a timely basis.
o Supplier of specialty OEMs with assemblies of component parts on a
just-in-time basis.
o Supplier of just-in-time inventory for one of our national fleet
customers by warehousing frequently needed parts, such as brake
repair kits and shipping these parts upon request to the fleet's
various maintenance centers.
o We recently signed a licensing agreement to market software known as
the Systems Manager of Assets and Resources in Transportation
("SMART") to our customers with repair facilities. SMART tracks
replacement parts inventory, automate parts reordering, manage work
orders and schedule preventative maintenance. SMART also provides
the customer with management reports to operate more effectively and
profitably.
SPECIALTY SERVICES. In addition to their distribution business, some of
our branches are also involved in our niche businesses, including:
o Our Oklahoma City branch assembles specialty truck beds and trailers
for vehicles such as oil field service trucks. We begin with a truck
cab and chassis or a trailer chassis built by an OEM. Per customer
specifications, the branch obtains specialized equipment from
various manufacturers and assembles it onto the truck bed or
trailer. After assembly and delivery of the new specialty trucks and
trailers, the branch provides replacement parts and service to these
customers.
o Our branches located in Binghamton, New York and Scranton,
Pennsylvania sell new and used Mack trucks through their Mack truck
dealerships and provide service and parts.
o Our Fort Wayne, Indiana branch sells new and used truck trailers and
bodies, performs truck body fabrication work and installs truck
beds.
o Our Nashville, Tennessee branch remanufactures diesel engine fuel
injectors and other related parts and distributes them across the
United States, Canada and overseas.
o Our branches in Hawaii distribute auto parts.
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SUPPLIERS
We purchase heavy duty parts directly from over 300 component
manufacturers, but are not materially dependent on any one supplier. Most of our
18 companies were members of one of the major industry marketing groups that
obtained volume discounts from component manufacturers. At the end of 1998, we
withdrew from these marketing groups. We are now working directly with the
various component manufacturers to obtain discounts and rebates that reflect our
greatly increased purchasing power. In virtually all cases, we have obtained
volume discounts from the component manufacturers at least equal to those
available to marketing groups.
We are working to install line commonality for specific parts among all of
our branches. Historically, the various branches reduced our purchasing power by
buying different and competing brands for most parts. We will continue to
negotiate with specific manufacturers to obtain better pricing in exchange for
our commitment to purchase all or most of our needs for specific parts from a
specific manufacturer. The change to line commonality has increased our
purchasing power and reduced purchasing costs.
We began centralizing our purchasing, replenishment and vendor payment
functions in 1999, which is expected to bring further cost efficiencies. By
centralizing the replenishment and maintenance functions, we believe we can
reduce replenishment costs. In addition, the Karmak system will allow us to
better manage our inventory levels among our branch locations.
COMPETITION
The heavy duty parts and repair industry is highly-fragmented and
competitive. The principal competitive factors are availability and quality of
parts, services and price. We compete with other independent distributors on a
regional and local basis, OEMs and OEM-authorized dealerships (such as Navistar,
Freightliner, Mack, Peterbilt, Kenworth and Volvo), independent repair shops and
component manufacturers who sell to large fleet owners.
We believe that the heavy duty parts and repair industry is in the early
stages of consolidation. We have faced stiff competition for acquisition
candidates from other companies that are pursuing a similar consolidation
strategy. During 1998, venture capital groups formed two new companies that
began acquiring companies in the industry. Both groups primarily offer cash
consideration and have acquired a number of acquisition candidates that we
pursued. In 1999, these two companies combined to form Fleetpride. In addition,
in the second quarter of 1998, Autozone, Inc. acquired TruckPro, an independent
distributor of heavy duty parts based in Arkansas. Autozone may continue to
enter other markets through acquisitions or by opening new branch locations.
Finally, in the fourth quarter of 1998, Genuine Parts Company, which operates
the National Auto Parts Association ("NAPA"), acquired UAP, Inc. a Canadian
company with a significant heavy duty parts operation. Genuine Parts Company may
continue to enter other markets through acquisitions or opening new branch
locations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to many federal, state and local regulations
protecting the environment, workplace, health and safety. In particular, our
operations are subject to extensive federal, state and local laws and
regulations governing waste disposal, air emissions, water discharges, the
handling of hazardous substances, environmental protection, remediation,
workplace exposure and other matters. Hazardous materials we use in our
operations include various fuels, solvents, cleaners, lubricants, and comparable
materials commonly used in the operation and servicing of vehicles and/or the
remanufacturing of vehicle parts. Improper disposal, spills or releases of these
materials could result in substantial liabilities to us, including the cost of
environmental remediation. Our management believes we are in substantial
compliance with all such laws, and does not currently anticipate that we will be
required to expend substantial amounts in the foreseeable future in order to
meet current environmental or workplace health and safety requirements.
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EMPLOYEES (ASSOCIATES)
As of December 31, 1999, we employed approximately 1,790 people. Of these,
approximately 260 were in administration, 584 were in sales and 946 were in
service and warehousing. We believe the expertise of our sales force is a
competitive advantage. Unlike automobiles manufactured to standard models, heavy
duty trucks are manufactured to individual specifications. A salesperson must be
familiar with the various brands and specifications for truck parts to determine
properly a customer's parts needs. This knowledge and expertise is generally
gained through on-the-job training.
In the United States, approximately 73 associates at four sites are
members of labor unions. In Mexico, approximately 84 associates at nine sites
are members of a labor union.
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RISK FACTORS
LIMITED COMBINED OPERATING HISTORY; ABILITY TO INTEGRATE OPERATIONS. Prior
to our creation, the individual companies operated as separate entities and
continued to operate in that manner with a large degree of autonomy throughout
1998 and 1999. To manage ourselves on a profitable basis, we must institute
common systems, management structure and procedures. We are attempting to
aggressively integrate our operating and financial reporting systems, promote
line commonality and centralize many of our administrative functions such as
finance, insurance, payroll, employee benefits, fixed assets, accounts payable,
marketing and purchasing. We may not be able to fully and successfully institute
these common systems, product lines and centralize the various administrative
functions in a timely and cost effective manner. In addition, our management
group may not be able to successfully manage our branches as a combined entity
and effectively implement our operating and growth strategies.
RISKS ASSOCIATED TO LIQUIDITY. As a distributor of heavy duty truck parts
we require significant amounts of working capital to fund inventories and
accounts receivable. Additional cash is required for capital items such as
delivery vehicles, information technology and warehouse equipment. We also
require cash to pay our lease obligations and to service our debt. In March
2000, our internal cash flow projections indicated we will violate certain
financial ratios required by our credit facility at March 31, 2000. As a result,
we requested and received an amendment which cured the projected covenant
violations as of March 31, 2000. Our internal cash flow projections indicate we
will be in compliance with all restrictive covenants of the credit facility for
the remainder of 2000. However, we cannot be sure that the assumptions contained
in our internal cash flow projections will be achieved. Our credit facility
matures on June 24, 2001. Because we prefer for amounts borrowed under the
credit facility to be classified in our balance sheet as long-term, we intend to
renew and extend the credit facility as of June 30, 2000. However, we cannot be
sure that we will be able to renew and extend the credit facility and interest
costs may be higher and the conditions more restrictive on any renewed facility.
RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGIES. A key element
of our strategy is to increase the revenues and profitability of our branch
locations and any future acquired business. Another key component of our initial
strategy was to operate the branches on a decentralized basis, with local
management retaining responsibility for day-to-day operations, profitability and
the internal growth of the individual branches. During 1999 and the first
quarter of 2000, we began to shift from operating on a decentralized to a
centralized basis, and we are now reorganizing our management structure. If we
are not successful in the shift to a more centralized basis and do not implement
proper overall business controls, we could have inconsistent operating and
financial practices at our branches, and our overall profitability could suffer.
Our internal growth will be affected by, among other factors, our ability to:
o increase sales to existing customers;
o attract new customers;
o hire and retain associates;
o open additional facilities;
o reduce operating and overhead expenses;
o respond to competition from other distributors;
o remodel existing facilities.
Many of these factors may be beyond our control, and our strategies may not be
successful or we may not be able to generate cash flow sufficient to fund our
operations and support internal growth.
RISKS FOR IMPLEMENTATION OF INFORMATION TECHNOLOGY SYSTEMS. We are now
implementing common operating and financial systems in all of the branches. We
could experience delays, disruptions and unanticipated expenses during the
implementation process. Until these information technology systems have been
fully implemented, we may not achieve the full anticipated operating
efficiencies and competitive advantages expected of these systems.
RISKS RELATED TO ACQUISITION STRATEGY. One of our original growth
strategies was to increase our revenues and the markets we serve through the
acquisition of additional parts distribution companies. We have faced strong
competition for acquisition candidates, which has limited our acquisition
opportunities and resulted in higher acquisition prices. We expect continuing
competition for acquisition candidates, and our competitors may have greater
financial resources and might be willing to pay higher prices than we are
willing to pay for the same acquisition opportunities. In addition, as discussed
below under Acquisition Financing Risks, our ability to grow through
acquisitions is limited by our ability to finance future acquisitions.
9
<PAGE>
We also cannot be sure that we can integrate successfully any acquired
businesses with our other operations without substantial costs, delays or other
operational or financial problems. Further, acquisitions involve special risks
which could adversely affect our business, financial condition and results of
operations. These special risks include:
o failure of the acquired businesses to achieve the expected results
and therefore justify our investment;
o diversion of management's attention from operational matters;
o our inability to retain key personnel of the acquired businesses;
and
o risks associated with unanticipated events or liabilities.
ACQUISITION FINANCING RISKS. We had intended to use our common stock for a
substantial portion of the consideration for future acquisitions. Our common
stock, however, has not maintained a sufficient market value to use it for
acquisitions since issuances at current levels would be dilutive to our existing
stockholders. Accordingly, we were required to use more of our cash resources
and subordinated debt for the nine acquisitions completed in the third and
fourth quarters of 1998. Our ability to use cash and additional debt to finance
acquisitions, however, is limited by financial covenants in our credit facility
that prohibit us from increasing our total debt in excess of specified levels of
historical cash flow. In addition, using cash and subordinated debt for
acquisitions limits our financial flexibility and requires us to seek additional
capital through future debt or equity financings. When we seek additional debt
or equity financing, we cannot be certain it will be available to us at all or
on acceptable terms. Accordingly, our ability to grow through acquisitions will
be limited unless (1) the market price of our common stock rises to levels that
will make acquisitions accretive to our earnings, (2) we can generate excess
cash flow, or (3) we can secure additional debt or equity financing on
acceptable terms.
RISKS OF IMPROVED PARTS QUALITY IN THE COMPONENT MANUFACTURING INDUSTRY.
The quality and useful lives of parts manufactured for heavy duty vehicles and
equipment is improving. Over time, this trend results in less frequent parts
replacement which reduces the demand for our products and services. Moreover, we
expect the improved quality of original parts to allow component manufacturers,
OEMs and OEM-authorized dealerships to provide customers with extended vehicle
and parts warranties. If warranty coverage of parts is extended, vehicle owners
would likely return to the OEM-authorized dealership from which they purchased
the vehicle for longer periods of time to have warranty repair service performed
or parts replaced. In addition, improved quality of replacement parts may extend
the replacement cycles of heavy duty parts. If parts replacement cycles
increase, we could experience a decrease in the frequency with which customers
require replacement parts and repair service.
COMPETITION RISKS. The parts and heavy duty repair industry is
highly-fragmented and very competitive. The principal competitive factors are
availability and quality of parts, services and price. We compete with a large
number of independent distributors on a regional and local basis, some of which
may have greater financial resources than we do, and several of which are public
companies. We also face increased competition from OEMs and OEM-authorized
dealerships who offer many of the same parts to owners of vehicles and fleets,
particularly during the warranty period. Our existing and new competitors may
have lower overhead cost structures and may be able to provide their parts and
services at lower rates than we can. Consequently, we may encounter significant
competition in our efforts to achieve both our internal growth objectives and
the operating strategy to increase our profitability.
DEPENDENCE ON KEY PERSONNEL. Our operations depend on the continued
efforts of our executive officers and on the senior and key management personnel
at our branches and regions. We cannot guarantee that any key member of
management at the general office, region or branch level will continue in such
capacity. The loss of key personnel or the inability to hire and retain
qualified associates could have an adverse effect on our business, financial
condition and results of operations. We do not maintain key man life insurance.
10
<PAGE>
ECONOMIC FACTORS. Many of our products are sold to customers in industries
that experience fluctuations in demand based on economic conditions, energy
prices, consumer demand and other factors. For example, the Oklahoma City branch
assembles specialty truck equipment for companies in the oil field service
industry, and experienced a significant reduction of business in 1999 because of
the business slowdown in that industry. Also, the trucking industry has
historically been highly cyclical as a result of various economic factors such
as economic recession and downturns in customers' business cycles and shipping
requirements. We have no control over these economic factors. We may not be able
to increase or maintain our level of sales in periods of economic stagnation or
downturn.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. Our operations are
subject to various environmental laws and regulations, including those dealing
with the handling and disposing of waste products, hazardous substances, fuel
storage and air quality. As a result of past and future operations at our
facilities, we may be required to incur environmental remediation costs and
other cleanup expenses. In addition, we cannot be certain that we will be able
to identify or be indemnified for all potential environmental liabilities
relating to any acquired business.
FOREIGN CURRENCY FLUCTUATIONS. A portion of our revenues are billed and
collected in a foreign currency. Additionally, substantially all of the
operating expenses related to foreign locations are incurred in a foreign
currency. Consequently, our reported financial results are affected by
fluctuations of foreign currencies against the U.S. dollar. We periodically
perform foreign currency hedging to reduce our foreign currency transaction
exposure.
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. Unusually warm weather during
the winter months will inhibit the need for our parts and services. These
seasonal trends may cause fluctuations in our 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, our 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.
ITEM 2. PROPERTIES.
We operate 83 facilities in the United States, nine in Mexico and four in
Canada. We own six of these facilities and the remaining facilities are leased.
These facilities are used as warehouses, repair shops and office space. A number
of these leases are with related parties. Generally, leases range from five to
ten years and are on terms we believe to be commercially reasonable. We also
lease our executive and administrative offices in Houston, Texas. We believe
that our facilities will be adequate for our expected needs over the next
several years. To maximize available capital, we generally intend to continue to
lease most of our properties.
11
<PAGE>
The following table sets forth the geographic locations of our heavy duty
parts and repair facilities in the United States, Mexico and Canada:
STATE/COUNTRY CITY
- ------------- ----
Alabama Birmingham
Arizona Phoenix
California Freemont, City of Commerce, Rancho Dominguez, Corona, Oakland,
Ontario, Placentia, Rialto, South San Francisco, San Jose, South
Gate and Stockton
Colorado Denver
Florida Clearwater, Daytona Beach, Fort Lauderdale, Fort Myers, Fort
Pierce, Miami (3), Ocala (1), Orlando (3), Pembroke, Sunrise,
Tallahassee, Tampa and West Palm Beach
Hawaii Honolulu (3), Kapaa and Lihue
Iowa Des Moines
Illinois Litchfield
Indiana Fort Wayne (2), Gary, Portage and South Bend
Kansas Overland Park
Minnesota Brainerd, Eagan (2), Mahtomedi, Red Wing and St. Paul
Missouri Columbia, Kansas City, Rolla and St. Louis (2)
Nevada Las Vegas and Sparks
New York Binghamton, Deposit, Elmira, Homer, Rochester, Syracuse, Utica,
Watertown and Schenectady
North Dakota Fargo
Oklahoma Oklahoma City (2)
Pennsylvania Pittston and Scranton
South Dakota Sioux Falls
Tennessee Johnson City, Memphis, Knoxville and Nashville
Texas Laredo
Washington Vancouver
Wisconsin Appleton, Black River Falls and Milwaukee (2)
Mexico Aguascalientes, Mexico City, Guadalajara, Torreon, Culiacan ,
Cordoba, Tijuana, Monterrey and Coatzacoalcos
Canada Winnipeg, Dryden, Thunder Bay and Regina
12
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We operate a fleet of approximately 500 owned or leased trucks, trailers
and other support vehicles. We believe these vehicles generally are
well-maintained and adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are sued in the ordinary course of business. There
are currently no legal proceedings that, in management's opinion, would have a
material adverse effect on our operating results or financial condition if
adversely determined.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has traded on The New York Stock Exchange since June 19,
1998 under the symbol TUI. The following table sets forth the high and low sale
prices for the common stock for the period from June 19, 1998, the date of our
initial public offering, through December 31, 1999.
HIGH LOW
------- ------
1998:
June 19, 1998 to September 30, 1998 $ 11.50 $ 6.38
October 1, 1998 to December 31, 1998 $ 6.50 $ 3.38
1999:
January 1, 1999 to March 31 1999 $ 5.50 $ 2.88
April 1, 1999 to June 30, 1999 $ 4.25 $ 3.13
July 1, 1999 to September 30, 1999 $ 3.69 $ 2.50
October 1, 1999 to December 31, 1999 $ 3.00 $ 2.31
At March 28, 2000, we had approximately 194 stockholders of record.
We have never declared or paid a cash dividend on our common stock. We
intend to retain all of our earnings, if any, to finance the expansion of our
business and for general corporate purposes, including future acquisitions and
do not anticipate paying any cash dividends on our common stock for the
foreseeable future. In addition, our credit facility includes restrictions on
our ability to pay dividends without the consent of the lender.
SALES OF UNREGISTERED SECURITIES
We sold no unregistered securities in 1999.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
We acquired nine companies at the time of our initial public offering on
June 24, 1998. During the third and fourth quarters of 1998, we acquired nine
additional companies. All 18 acquisitions were accounted for as purchases. The
following selected historical financial data has been derived from our audited
financial statements for the years ended December 31, 1999 and 1998 and the
period from inception (October 9, 1997) to December 31, 1997. The historical
financial statement data reflects all 18 acquisitions as of their acquisition
dates. The selected historical financial data below should be read in
conjunction with the audited historical Consolidated Financial Statements of
Transportation Components, Inc. and the related Notes included in Item 8.
"Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 9,
YEAR ENDED DECEMBER 31, 1997) TO
---------------------------- DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................. $ 310,527 $ 133,713 $ --
Operating income (loss) .................. 13,045 2,444 (3,108)
Net income (loss) ........................ 4,163 (1,606) (3,108)
DECEMBER 31,
--------------------------------------------
BALANCE SHEET DATA 1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Working capital ......................... $ 73,751 $ 75,444 $ 26
Total assets ............................ 224,570 218,905 342
Total debt, including current portion ... 76,166 76,574 --
Stockholders' equity .................... 101,979 97,877 26
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS SECTION CONTAINS STATEMENTS, WHICH ARE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SEE
DISCLOSURE PRESENTED ON THE INSIDE OF THE FRONT COVER OF THIS REPORT FOR
CAUTIONARY INFORMATION WITH RESPECT TO FORWARD-LOOKING STATEMENTS. IN
PARTICULAR, WE HAVE IDENTIFIED SPECIFIC RISKS AND UNCERTAINTIES RELEVANT TO OUR
BUSINESS UNDER "ITEM 1. BUSINESS - RISK FACTORS" ON PAGE 9 OF THIS REPORT. THESE
MAY NOT BE ALL OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY
FROM THE FORWARD-LOOKING STATEMENTS.
The following discussion and analysis should be read in conjunction with
Item 6. "Selected Financial Data," and the Consolidated Financial Statements and
related Notes in Item 8. "Financial Statements and Supplementary Data."
OVERVIEW
During 1999, we focused on integrating our operations. We installed common
operating and financial systems and a wide area network in the majority of our
branch locations. We centralized payroll and standardized employee benefits such
as health insurance, flexible benefit plans and the 401(k) program for all
domestic associates. In addition, we transferred the accounts payable function
from several branches to the general office in Houston. We centralized invoice
payments for approximately 25 of our larger vendors. We transferred the
purchasing function for several of our Florida branches to the general office.
We estimate that the accounts payable and purchasing functions for most of our
remaining domestic branches will be centralized during 2000.
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<PAGE>
We failed to realize significant cost savings during 1999 from
centralizing our administrative functions, as described above, due to the costs
to staff and train our general office. We built the infrastructure to centralize
the branch administrative functions before significant costs could be reduced at
the branches. Additionally, we incurred costs to train our associates on the
recently installed common operating and financial systems. During the fourth
quarter of 1999, we recorded approximately $0.9 million of charges for severance
costs associated with our centralization of administration and other headcount
reductions. We expect that significant administrative costs at our branch
locations can be eliminated or reduced during the second half of 2000. We expect
these administrative cost reductions will result in additional severance costs.
We believe the heavy duty truck parts industry has slowed during 1999 from
the record levels experienced in 1997 and 1998. Our revenue level in 1999
declined slightly from 1998. During 1998, our Oklahoma City branch recorded
substantial revenues from two major oilfield service companies, primarily under
contracts to fabricate specialty equipment. As a result of the overall slowdown
in the oilfield services industry, the branch's sales have declined from $12.7
million in the second half of 1998 to $5.5 million in the second half of 1999.
While this operation has downsized its workforce in response to the lower sales,
it has gone from being very profitable in 1998 to a slightly above break-even
operation during 1999.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(OCTOBER 9, 1997) TO
YEARS ENDED DECEMBER 31, DECEMBER 31, 1997
------------------------------------------------------- -------------------------
1999 % 1998 % 1997 %
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 310,527 100.0 $ 133,713 100.0 $ -- --
Cost of Sales ....................... 215,482 69.4 93,352 69.8 -- --
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit .................... 95,045 30.6 40,361 30.2 -- --
Selling, general and administrative . 79,788 25.7 37,101 27.8 3,108 --
Amortization of goodwill ............ 2,212 0.7 816 0.6 -- --
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations ... 13,045 4.2 2,444 1.8 (3,108) --
Interest expense .................... (5,511) (1.8) (1,913) (1.4) -- --
Other income ........................ 997 0.3 517 0.4 -- --
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes $ 8,531 2.7 $ 1,048 0.8 $ (3,108) --
========== ========== ========== ========== ========== ==========
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER
31, 1998
We were formed in October 1997 and had no operations prior to our initial
public offering in June 1998, other than non-cash compensation charges and other
start-up expenses. The 1998 results include the original nine companies from
their date of acquisition on June 24, 1998, and the nine additional companies
from the dates of acquisition during the second half of 1998. The 1999 results,
however, include the results of all eighteen companies for the full year.
ACCORDINGLY, THE RESULTS OF OPERATIONS FOR 1999 HAVE LIMITED COMPARABILITY TO
THE RESULTS OF OPERATIONS FOR 1998.
REVENUES. Revenues increased from $133.7 million in 1998 to $310.5 million
in 1999. Substantially all of this increase is the result of revenues from all
eighteen companies being included only from the dates of acquisition in 1998.
GROSS PROFIT. Gross profit increased from $40.4 million in 1998 to $95.0
million in 1999. Most of the increase in gross profit is the result of gross
profit of all eighteen companies being included only from the dates of
acquisition in 1998. As a percentage of revenues, gross profit increased from
30.2% in 1998 to 30.6% in 1999. The increase in gross profit percentage is
primarily a result of improved pricing from vendors resulting from the shift to
line commonality. Much of the improved pricing is in the form of rebates which
can be paid monthly, quarterly or annually.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $42.7 million
from $37.1 million in 1998 to $79.8 million in 1999. The majority of the
increase relates to the SG&A expenses of all 18 companies being included only
from the dates of acquisition in 1998. General office
16
<PAGE>
expenses were approximately $6.0 million in 1999 compared to approximately $1.8
million in 1998. SG&A expenses as a percentage of sales declined from 27.8% for
1998 to 25.7% for 1999 primarily as a result of the non-recurring, non-cash
compensation charges of $4.9 million recorded during the first quarter of 1998
related to common stock issued to management and consultants, partially offset
by the increase in general office expenses.
INTEREST EXPENSE. Interest expense increased from $1.4 million in 1998 to
$5.5 million in 1999. The increase is associated with the consideration paid and
debt assumed in connection with the acquisition of the eighteen companies in
1998 and debt incurred in 1998 to provide general working capital.
OTHER INCOME. Other income increased from $.5 million in 1998 to $1.0
million in 1999. The increase is primarily the result of 1998 including the
results of all 18 companies only from the dates of acquisition. Other income in
1999 includes $0.4 million of interest related income and $0.2 million of gains
on foreign currency transaction adjustments associated with our operations in
Mexico.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM
INCEPTION (OCTOBER 9, 1997) TO DECEMBER 31, 1997
We were formed in October 1997 and had no operations before our initial
public offering in June 1998, other than non-cash compensation charges and other
start-up expenses. Accordingly, the results of operations for 1997 are not
comparable in any respect to the results of operations for 1998.
REVENUES. There were no revenues during the period from inception (October
9, 1997) to December 31, 1997 compared to $133.7 million of revenues for the
year ended December 31, 1998. All of the 1998 revenues are from the original
nine companies which were acquired as of June 24, 1998, and the nine additional
companies acquired in the second half of 1998.
GROSS PROFIT. There was no gross profit for the period from inception
(October 9, 1997) to December 31, 1997, compared to $40.4 million of gross
profit for the year ended December 31, 1998. All of the 1998 gross profit is
associated with the original nine companies acquired as of June 24, 1998, and
the nine additional companies acquired in the second half of 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $34.0 million from $3.1 million for the period from inception
(October 9, 1997) to December 31, 1997 to $37.1 million in 1998. Approximately
$30 million of the increase is associated with the operations of the original
nine companies acquired as of June 24, 1998, and the nine additional companies
acquired in the second half of 1998. Our becoming a public company in 1998
resulted in approximately $1.8 million of general office and management expenses
in 1998, but no such corporate expenses are reflected in 1997 since we were not
yet public. The non-recurring, non-cash compensation charges of $3.1 million and
$4.9 million during 1997 and the first quarter of 1998, respectively, related to
common stock issued to our management and consultants. These compensation
changes account for $1.8 million of the increase in selling, general and
administrative expense in 1998 over 1997.
INTEREST EXPENSE. There was no interest expense in 1997 compared to $1.9
million of interest expense for the year ended December 31, 1998. The 1998
interest expense is associated with debt assumed in connection with the
acquisition of the original nine companies, the consideration and assumed debt
to acquire the nine additional companies, and debt incurred to provide general
working capital.
OTHER INCOME. Other income was $517,000 for the year ended December 31,
1998. Other income in 1998 includes $155,000 of interest income and a $318,000
gain on termination of a deferred compensation agreement resulting from the
death of the beneficiary under such agreement. Such gains, however, were
partially offset by losses of $171,000 from foreign currency translation and
transaction adjustments associated with operations in Mexico.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As a distributor of heavy duty truck parts we require significant amounts
of working capital to fund inventories and accounts receivable. Additional cash
is required for capital items such as delivery vehicles, information technology
and warehouse equipment. We also require cash to pay our lease obligations and
to service our debt.
We provided $4.8 million in net cash from operating activities for the
year ended December 31, 1999. Net cash used for investing activities was $5.5
million for the year ended December 31, 1999, primarily relating to the purchase
of information technology systems, delivery vehicles and two branch operations.
At December 31, 1999, we had cash of $2.9 million, working capital of $73.8
million and total debt of $76.2 million compared to $4.1 million, $75.4 million
and $76.6 million at December 31, 1998, respectively.
On June 24, 1998, we entered into a three-year revolving credit facility
which provides for a line of credit up to $75 million. The credit facility
matures on June 24, 2001, bears interest at either LIBOR plus an applicable
margin based on the ratio of funded debt to cash flows (as defined), or the
bank's prime rate, at our option. An annual commitment fee of up to 1/4% is
payable on any unused portion of the credit facility. The credit facility may be
used to fund acquisitions, capital expenditures and working capital
requirements. Under the terms of the credit facility, we are required to comply
with various affirmative and negative covenants including: (1) the maintenance
of certain financial ratios, (2) restrictions on additional indebtedness, (3)
restrictions on liens, guarantees and dividends, (4) obtaining lender's consent
with respect to certain individual acquisitions, (5) the maintenance of a
specified level of consolidated net worth, and (6) a restriction that total debt
may not exceed a specified level of our earnings before interest, taxes,
depreciation and amortization. In addition, our credit facility includes
restrictions on our ability to pay dividends.
Effective September 30, 1999, we entered into an Amended and Restated
Credit Agreement, or Credit Facility. The primary changes were to modify two of
the financial covenants, increase the interest rates payable by 75 to 150 basis
points, and provide that the collateral for the loan will be a pledge of our
assets other than real estate and vehicles. The maximum borrowing capacity of
$75.0 million and the termination date of June 24, 2001 were not changed. As of
December 31, 1999, we are in compliance with the financial covenants in our
Credit Facility. At December 31, 1999, $0.3 million was available for borrowings
under the most restrictive covenants under the Credit Facility.
Our internal cash flow projections indicated we will violate certain
financial ratios required by our Credit Facility at March 31, 2000. As a result,
we requested and received an amendment which cured the projected covenant
violations as of March 31, 2000. Our internal cash flow projections indicate we
will be in compliance with all restrictive covenants of the Credit Facility for
the remainder of 2000. However, we cannot be sure that the assumptions contained
in our internal cash flow projections will be achieved.
Our Credit Facility matures on June 24, 2001. Because we prefer for
amounts borrowed under the Credit Facility to be classified in our balance sheet
as long-term, we intend to renew and extend the Credit Facility as of June 30,
2000. However, we cannot be sure that we will be able to renew and extend the
Credit Facility and interest costs may be higher and the conditions more
restrictive on any renewed facility.
Our internal cash flow projections indicate our cash flow from operations
will provide cash in excess of our normal working capital needs. Planned capital
expenditures for 2000 of approximately $2.1 million are expected to be funded
from cash flow from operations and supplemented as necessary by borrowings from
the Credit Facility or other sources of financing.
We will require additional capital to fund any future acquisitions. At
this time, we do not plan to grow through acquisitions in the near term unless
the market price of our common stock rises to levels that will make acquisitions
accretive to our earnings or we generate excess cash flow. We also may pursue
additional equity or debt financing to fund future acquisitions, although we may
not be able to obtain additional financing on attractive terms.
18
<PAGE>
IMPACT OF YEAR 2000
In the prior year, we installed the Karmak management information system
and the ROSS financial system at a number of our locations. We are not aware of
any material problems resulting from Year 2000 issues, either with our products,
our internal systems, or the products and services of third parties. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
Because we substantially replaced our information technology systems
during 1999, we do not believe that we can segregate the portion of our overall
$3.6 million in technology systems expenditures that were directly attributable
to Year 2000 compliance measures.
FOREIGN CURRENCY FLUCTUATIONS
A portion of our consolidated revenues are billed and collected in a
foreign currency. Additionally, substantially all of the operating expenses
related to foreign locations are incurred in a foreign currency. Consequently,
our reported financial results are affected by fluctuation of foreign currencies
against the U.S. dollar. We periodically perform foreign currency hedging to
reduce our foreign currency transaction exposures.
INTERNATIONAL BUSINESS
We derive approximately 9% of our revenues from our operations in Mexico,
approximately 2% of our revenues from exporting heavy duty parts and supplies to
customers in countries in South and Central America, Southeast Asia and the
Pacific Rim and approximately 4% of our revenues from our operations in Canada.
The risks of doing business in foreign countries include currency exchange rate
fluctuations, potential adverse changes in the diplomatic relations of foreign
countries with the United States, hostility from local populations, adverse
effects of currency exchange controls, restrictions on the withdrawal of foreign
investment and earnings, government policies against businesses owned by
non-nationals, expropriations of property, the potential instability of foreign
governments and the risk of insurrections that could result in uninsured losses.
Our international operations also are subject to economic uncertainties,
including, among others, risks of renegotiation or modification of existing
agreements or arrangements with governmental authorities, exportation and
transportation tariffs, foreign exchange restrictions and changes in taxation
structure.
SEASONALITY
Weather extremes cause increased parts wear and breakdowns of trucks and
trailers; however, extreme weather, particularly in winter months, could inhibit
general business activity. These seasonal trends may cause fluctuations in our
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, our
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.
19
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily from interest rates and foreign
currency exchange rates. We actively monitor our exposure to market risks and
continue to develop and use appropriate risk management techniques. Accordingly,
we may enter into certain derivative financial instruments such as interest rate
caps or swaps and foreign currency futures contracts or obligations. We do not
use derivative financial instruments for trading or to speculate on changes in
interest rates or foreign currency exchange rates.
The sensitivity analyses below, which hypothetically illustrate our
potential market risk exposure, estimate the effects of hypothetical sudden and
sustained changes in the applicable market conditions on 1999 earnings. The
sensitivity analyses presented do not consider any additional actions we might
take to mitigate our exposure to such changes. The market changes, assumed to
occur as of January 1, 1999, include a 100 basis point change in market interest
rates and a 10% weakening of all other currencies relative to the U.S. dollar.
The hypothetical changes and assumptions may be different from what actually
occurs in the future.
INTEREST RATES - As of December 31, 1999, we had no derivative financial
instruments to manage interest rate risk. Accordingly, we are exposed to
earnings and fair value risk due to changes in interest rates with respect to
our long-term obligations. As of December 31, 1999, approximately 82% of our
long-term obligations were floating rate obligations. The detrimental effect on
our earnings of the hypothetical 100 basis point increase in interest rates
described above would be approximately $0.6 million before income taxes. This
effect is primarily due to the floating rate borrowings under our revolving
credit facility.
FOREIGN CURRENCY EXCHANGE RATES - Our earnings and cash flows are subject
to fluctuations due to changes in foreign currency exchange rates. We manage its
exposure to changes in exchange rates by buying or selling currency futures
contracts and options. Our risk management objective is to reduce our exposure
to the effects of changes in exchange rates on the value of our accounts
receivable denominated in foreign currency on a monthly basis. To a certain
extent, foreign exchange rate changes may affect business practices and/or
pricing strategies of non-U.S. based competitors. Our foreign currency risk
policies entail entering into foreign currency futures contracts only to manage
risk - not for speculative investments.
A hypothetical 10% weakening of the average exchange rate for 1999 of all
other currencies relative to the U.S. dollar would have reduced our sales and
operating income by $4.0 million and $0.5 million, respectively. The
hypothetical change in exchange rates ignores the effect this movement may have
on other variables, including competitive risk. If it were possible to quantify
this competitive impact, the results could well be different than the effects of
the sensitivity analysis shown above.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
TRANSPORTATION COMPONENTS, INC.
Report of Independent Public Accountants.................................... 22
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998...... 23
Consolidated Statements of Operations for the years ended December 31, 1999
and 1998 and the period from inception (October 9, 1997) to December 31,
1997...................................................................... 24
Consolidated Statements of Stockholders' Equity for the period from
inception (October 9, 1997) to December 31, 1999.......................... 25
Consolidated Statements of Cash Flows for the years ended December 31, 1999
and 1998 and the period from inception (October 9, 1997) to December 31,
1997...................................................................... 26
Notes to Consolidated Financial Statements.................................. 27
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Transportation Components, Inc.:
We have audited the accompanying consolidated balance sheets of
Transportation Components, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, cash flows and stockholders' equity for the years ended December 31,
1999 and 1998 and the period from inception (October 9, 1997) to December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Transportation Components, Inc. and subsidiaries as of December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
the years ended December 31, 1999 and 1998 and the period from inception
(October 9, 1997) to December 31, 1997, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 2000
22
<PAGE>
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 2,859 $ 4,090
Accounts receivable, net ....................................... 40,029 38,111
Receivables from related parties ............................... 508 455
Notes receivable, current ...................................... 732 962
Inventories .................................................... 67,203 71,354
Prepaid expenses and other ..................................... 2,941 2,027
Deferred tax asset ............................................. 5,447 3,439
--------- ---------
Total current assets ...................................... 119,719 120,438
Property and equipment, net ........................................ 14,532 12,604
Notes receivable, net .............................................. 752 1,854
Notes receivable from related parties .............................. 858 822
Goodwill, net ...................................................... 87,358 81,832
Other assets ....................................................... 1,351 1,355
--------- ---------
Total assets ............................................... $ 224,570 $ 218,905
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......................... $ 42,459 $ 41,342
Payables to related parties .................................... 1,762 1,764
Current portion of long-term debt .............................. 743 1,651
Other current liabilities ...................................... 1,004 237
--------- ---------
Total current liabilities .................................. 45,968 44,994
Long-term debt, less current portion ............................... 61,173 59,091
Deferred tax liability ............................................. 2,962 2,875
Payables to related parties ........................................ 12,488 14,068
--------- ---------
Total liabilities .......................................... 122,591 121,028
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,
17,782,054 and 17,727,815 shares issued, respectively ........ 178 177
Additional paid-in capital ..................................... 102,522 102,414
Treasury stock, at cost - 121,411 shares at December 31, 1999 .. (304) --
Cumulative translation adjustments ............................. 134 --
Retained deficit ............................................... (551) (4,714)
--------- ---------
Total stockholders' equity ................................. 101,979 97,877
--------- ---------
Total liabilities and stockholders' equity ............. $ 224,570 $ 218,905
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE>
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 9,
YEAR ENDED DECEMBER 31, 1997) TO
--------- --------- DECEMBER 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues ........................................... $ 310,527 $ 133,713 $ --
Cost of sales ...................................... 215,482 93,352 --
--------- --------- ---------
Gross profit ................................... 95,045 40,361 --
Selling, general and administrative expenses ....... 79,788 37,101 3,108
Amortization of goodwill ........................... 2,212 816 --
--------- --------- ---------
Income (loss) from operations ...................... 13,045 2,444 (3,108)
Other income (expense)
Interest expense ............................... (5,511) (1,913) --
Other income, net .............................. 997 517 --
--------- --------- ---------
Income (loss) before provision for income taxes .... 8,531 1,048 (3,108)
Provision for income taxes ......................... 4,368 2,654 --
--------- --------- ---------
Net income (loss) .................................. $ 4,163 $ (1,606) $ (3,108)
========= ========= =========
Income (loss) per share - Basic .................... $ 0.24 $ (0.15) $ (0.95)
========= ========= =========
Income (loss) per share - Diluted .................. $ 0.24 $ (0.15) $ (0.95)
========= ========= =========
Number of shares used in the per share calculations:
Basic .......................................... 17,703 10,448 3,269
Diluted ........................................ 17,707 10,448 3,269
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE>
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN TREASURY
SHARES AMOUNT CAPITAL STOCK
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Capitalization (October 9, 1997) 108,119 $ 1 $ -- $ --
Shares issued to sponsor ........... 2,054,269 21 -- --
Shares issued to management,
consultants and directors ........ 432,329 4 3,108 --
Net loss ................... -- -- -- --
----------- ----------- ----------- -----------
BALANCE, December 31, 1997 ............. 2,594,717 26 3,108 --
Shares issued to management,
consultants and directors ........ 674,500 7 4,850 --
Shares issued in connection with the
initial public offering .......... 5,750,000 57 35,050 --
Warrants issued in connection with
the initial public offering ...... -- -- 723 --
Shares issued in connection with
acquisitions ....................... 8,708,598 87 58,683 --
Net loss ................... -- -- -- --
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 ............. 17,727,815 177 102,414 --
Issuance of shares for employee
benefits ....................... 72,828 1 157 46
Receipt of treasury stock .......... (140,000) -- -- (350)
Costs of the initial public offering -- -- (49) --
Cumulative translation adjustments . -- -- -- --
Net income ................. -- -- -- --
----------- ----------- ----------- -----------
BALANCE, December 31, 1999 ............. 17,660,643 $ 178 $ 102,522 $ (304)
=========== =========== =========== ===========
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION RETAINED STOCKHOLDERS'
ADJUSTMENTS DEFICIT EQUITY
----------- ----------- -----------
<S> <C> <C> <C>
Initial Capitalization (October 9, 1997) $ -- $ -- $ 1
Shares issued to sponsor ........... -- -- 21
Shares issued to management,
consultants and directors ........ -- -- 3,112
Net loss ................... -- (3,108) (3,108)
----------- ----------- -----------
BALANCE, December 31, 1997 ............. -- (3,108) 26
Shares issued to management,
consultants and directors ........ -- -- 4,857
Shares issued in connection with the
initial public offering .......... -- -- 35,107
Warrants issued in connection with
the initial public offering ...... -- -- 723
Shares issued in connection with
acquisitions ....................... -- -- 58,770
Net loss ................... -- (1,606) (1,606)
----------- ----------- -----------
BALANCE, December 31, 1998 ............. -- (4,714) 97,877
Issuance of shares for employee
benefits ....................... -- -- 204
Receipt of treasury stock .......... -- -- (350)
Costs of the initial public offering -- -- (49)
Cumulative translation adjustments . 134 -- 134
Net income ................. -- 4,163 4,163
----------- ----------- -----------
BALANCE, December 31, 1999 ............. $ 134 $ (551) $ 101,979
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
<PAGE>
TRANSPORTATION COMPONENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER 9,
YEAR ENDED DECEMBER 31, 1997 TO
--------------------- DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................... $ 4,163 $ (1,606) $ (3,108)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization ............................................... 5,032 1,907 --
Provision for bad debts ..................................................... 315 223 --
Gain on disposal of assets .................................................. (48) (113) --
Deferred tax provision (benefit) ............................................ 2,580 (604) --
Compensation expenses related to issuance of common stock
to management, consultants, directors and associates .................... 204 4,850 3,108
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable and notes receivable .................................... (1,319) 1,072 --
Inventories ................................................................. (5,268) 134 --
Other assets ................................................................ 300 (861) 337
Accounts payable and accrued expenses ....................................... (1,185) 1,448 (337)
-------- -------- --------
Net cash provided by operating activities ............................... 4,774 6,450 --
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ........................................ (5,445) (2,515) --
Sales of property and equipment ............................................. 339 1,743 --
Cash paid for acquisitions, net of cash acquired ............................ (436) (41,341) --
-------- -------- --------
Net cash used in investing activities ................................... (5,542) (42,113) --
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of long term debt ............................... (489) 4,641 --
Proceeds from issuance of common stock, net of offering costs ............... -- 35,107 5
-------- -------- --------
Net cash provided by (used in) financing activities ..................... (489) 39,748 5
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................................... 26 -- --
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ............................ (1,231) 4,085 5
-------- -------- --------
Cash and cash equivalents, beginning of period .................................. 4,090 5 --
-------- -------- --------
Cash and cash equivalents, end of period ........................................ $ 2,859 $ 4,090 $ 5
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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 the IPO on June 24, 1998, TransCom acquired nine companies in
separate merger transactions. During the third and fourth quarters of 1998,
TransCom acquired an additional nine companies. During 1999, the Company
acquired two small heavy duty parts distributors which have been integrated into
the Company as two branches.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of TransCom and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
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 the financial statements are published and (iii) the
reported amount of revenues and expenses recognized during the periods
presented. The Company reviews all significant estimates affecting its
consolidated financial statements on a recurring basis and records the effect of
any necessary adjustments prior to their publication. Adjustments made with
respect to the use of estimates often relate to improved information not
previously available. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of financial statements.
The accompanying December 31, 1998 balance sheet included preliminary
allocations of the respective purchase price paid for the companies acquired
using the purchase method of accounting and accordingly, was subject to final
adjustment. During 1999, the Company completed the valuation of the acquired
assets and liabilities of each of its 1998 acquired companies. These final
allocations resulted in an increase in goodwill of $7.8 million and were based
on additional valuation information as to the assets and liabilities acquired.
CASH FLOW INFORMATION - The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
Cash paid for interest and taxes during 1999 was $5.2 million and $5.1
million, respectively. Cash paid for interest and taxes during 1998 was $1.5
million and $2.0 million, respectively. There were no amounts paid for interest
and taxes during 1997. During 1999, approximately $42,000 of interest was
capitalized as part of the cost of the Company's company-wide information
systems. No interest was capitalized during 1998 or 1997.
ACCOUNTS RECEIVABLE - The Company grants credit to its customers in the
ordinary course of business. The Company performs ongoing credit evaluations of
its customers and credit losses.
NOTES RECEIVABLE - The Company finances the purchase of vehicles for
customers who meet certain financial qualifications. Notes receivable that
management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding unpaid principal
balances reduced by any charge-off or specific valuation adjustment.
27
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based upon past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current economic conditions.
INVENTORIES - Inventories consist primarily of purchased parts stated at
the lower of cost or market, utilizing the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets. Leasehold improvements are capitalized and amortized over the lesser of
the life of the lease or the estimated life of the asset. Costs related to
repairs and maintenance are expensed as incurred, while costs related to
betterments are capitalized and amortized over the estimated useful life of the
asset.
INVESTMENT - The Company participates in a 50% owned unconsolidated joint
venture which owns and operates several automotive parts retail outlets. The
investment in joint venture is accounted for under the equity method. Sales to
the joint venture for 1999 and for the period from acquisition (June 24, 1998)
to December 31, 1998 were $1,443,000 and $1,424,000, respectively. As of
December 31, 1999 and 1998, the Company had receivables of approximately
$425,000 and $363,000, respectively, related to such sales.
GOODWILL - Goodwill represents the excess of cost over the estimated fair
value of identifiable assets of the businesses acquired using the "purchase"
method of accounting. Goodwill is stated at cost, net of accumulated
amortization, and is being amortized over a 40 year life using the straight-line
method. Accumulated amortization totaled $3,028,000 and $816,000, respectively,
as of December 31, 1999 and 1998.
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." Management continually evaluates whether events or
circumstances have occurred that indicate that the remaining estimated useful
lives of property and equipment, other identifiable intangible assets and
goodwill may warrant revision or that the remaining balances may not be
recoverable. The Company has not recorded any impairment losses with respect to
goodwill, other long-lived assets or other intangible assets during 1999, 1998
or 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying amounts of notes payable approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK - Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. The Company maintains cash
balances at financial institutions, which may at times be in excess of federally
insured levels.
The Company provides goods and services to a broad range of geographical
regions. The Company's credit risk primarily consists of receivables from a
variety of customers, including common carriers, independent repair shops,
resellers, specialty OEMs and commercial and industrial companies. The Company
reviews its accounts receivable and provides allowances as deemed necessary.
REVENUE RECOGNITION - The Company recognizes revenue from part sales when
products are shipped. Service revenues are recognized when repairs are
completed. Truck sales are recognized upon passage of title and, in the case of
credit sales, upon execution of the loan agreement and receipt of a designated
minimum down payment.
28
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
taxes are recognized for the future tax consequences of differences between the
tax bases of assets and liabilities and their financial reporting amounts based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Provision for income taxes represents the amount of taxes
payable and the applicable changes in deferred tax assets and liabilities.
FOREIGN CURRENCY TRANSLATION - In accordance with SFAS No. 52, "Foreign
Currency Translation," the U.S. dollar has been determined to be the functional
currency for TransCom's operations in Mexico, which were acquired in June 1998.
Transaction gains and losses from operations in Mexico are reported in "other
expense, net" in the accompanying consolidated financial statements. The gains
for the periods ended December 31, 1999 and 1998 were approximately $81,000 and
$109,000 respectively.
The Canadian dollar has been determined to be the functional currency for
TransCom's operations in Canada, which were acquired in November 1998.
Translation gains and losses from operations in Canada are reported as a
component of comprehensive income. There were no significant Canadian
transaction gains or losses for the periods ended December 31, 1999 and 1998.
EARNINGS PER SHARE - Basic and diluted earnings per share are calculated
in accordance with SFAS No. 128, "Earnings per Share." All earnings per share
amounts for all periods presented conform to the requirements of Statement No.
128.
The 3,269,217 shares of common stock issued in connection with the
organization of TransCom, including shares issued to management, were considered
to be issued and outstanding from the date of inception without regard to the
date such shares were actually issued. The 5,750,000 shares issued in connection
with the IPO and the 8,708,598 shares issued in connection with the entities
acquired using the "purchase" method of accounting have been included in the
earnings per share computation only from their respective dates of issuance.
STOCK BASED COMPENSATION -SFAS No. 123, "Accounting for Stock-Based
Compensation," allows entities to choose between the fair value based method of
accounting for employee stock options or similar equity instruments and the
intrinsic, value-based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No 25 ("APB No. 25"), "Accounting for Stock issued to
Employees." The Company has elected to account for the stock options or similar
equity instruments given to employees using the intrinsic, value-based method of
accounting prescribed in APB No 25.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No.130 requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial methodology
that includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income from operations. The
Company has adopted SFAS No. 130 effective January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." This
statement requires disclosure related to each segment of an enterprise's
operations similar to that required under current standards with addition of
quarterly disclosure requirements and a finer partitioning of geographic
disclosures. The Company has adopted SFAS No. 131 for the fiscal year ending
January 1, 1998.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The SOP, which has
been adopted prospectively as of January 1, 1999, requires the
29
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. The effect of adopting the SOP on net income
for the year ended December 31, 1999 was not material.
In April 1998, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued by the AICPA. SOP 98-5 requires that all non-governmental entities
expense costs of start-up activities as those costs are incurred. The Company
has adopted SOP 98-5 as of January 1, 1999. The effect of adopting the SOP on
net income for the year ended December 31, 1999 was not material.
RECLASSIFICATIONS - Certain reclassifications have been made in the
accompanying consolidated financial statements for the year ended December 31,
1998 to conform with the presentation used in the December 31, 1999 consolidated
financial statements.
2. BUSINESS COMBINATIONS
Concurrent with the completion of its IPO on June 24, 1998, TransCom
acquired nine companies, which are engaged in the distribution of replacement
parts and supplies for commercial trucks, trailers and other types of
specialized heavy duty vehicles and equipment. The companies acquired were
Charles W. Carter Co. headquartered in Placentia, California; Transportation
Components Co. headquartered in St. Paul, Minnesota; Gear & Wheel, Inc.
headquartered in Orlando, Florida; Amparts International, Inc. headquartered in
Laredo, Texas; The Cook Brothers Companies, Inc. headquartered in Binghamton,
New York; Plaza Automotive, Inc. headquartered in St. Louis, Missouri; Universal
Fleet Supply, Inc. headquartered in Fremont, California; Perfection Equipment
Company, Inc. headquartered in Oklahoma City, Oklahoma; and Drive Line, Inc.
headquartered in Sunrise, Florida. The acquisition of each of these companies
was accounted for using the "purchase" method of accounting in accordance with
APB No 16. The aggregate consideration paid by TransCom to acquire these
companies was approximately $58.6 million in cash (including the payoff of
acquired debt) and 7.5 million shares of common stock. Simultaneously with the
completion of the IPO, the Company issued warrants exercisable within five years
to purchase 669,894 shares of common stock.
Subsequent to the IPO, TransCom acquired nine additional companies using
the "purchase" method of accounting. The acquisition of Parts Pacific
headquartered in Los Angeles, California was completed in September 1998. The
acquisitions completed in October and November 1998 included Brake Service and
Equipment Co. of Florida, Inc. headquartered in Miami, Florida; DSS/Pro Diesel,
Inc. headquartered in Nashville, Tennessee; Fleet Products, Inc. headquartered
in Tampa, Florida; Hicks Enterprises headquartered in Commerce, California;
Hoosier Trailer & Truck Equipment, Inc. headquartered in Fort Wayne, Indiana;
Marc Industries headquartered in West Palm Beach, Florida; Phelps Holding, Inc.
headquartered in Portage, Indiana, and Wes-T-Rans Limited headquartered in
Winnipeg, Canada. The aggregate consideration paid by TransCom for these
companies consisted of approximately $33.5 million in cash (including the payoff
of acquired debt), 1.2 million shares of common stock, and $15.2 million in
subordinated convertible notes.
During 1999, the Company acquired the assets of two small distributors for
which the aggregated purchase price was approximately $700,000. The pro forma
revenues and net income of these two operations is immaterial.
The Company has recorded the excess of the purchase price over the
estimated fair value of identifiable assets acquired in connection with the
acquisitions as "goodwill" in the accompanying consolidated balance sheets. The
results of operations of the acquired companies are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
30
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The unaudited pro forma data below reflect the results of operations for
TransCom and the 1998 acquisitions, assuming the transactions were completed on
January 1, 1997. The proforma results presented are not necessarily indicative
of actual results which might have occurred had the operations and management
teams been combined at the beginning of the periods presented.
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
Revenues................................ $ 314,044 $ 292,498
Net income.............................. 8,475 8,333
Net income per share - diluted.......... $ 0.46 $ 0.45
Weighted average shares used in the
per share
Calculations.......................... 19,468,847 19,454,058
Pro forma adjustments included in the preceding table reflect (a) the
reduction in certain related party rental and lease expenses which has been
contractually agreed to prospectively; (b) the reduction in salaries, bonuses
and benefits to the owners of the acquired companies which they have
contractually agreed to prospectively and the reversal of the non-cash
compensation charge related to the issuance of 674,500 and 2,594,717 shares of
common stock to management of and consultants to TransCom in 1998 and 1997,
respectively, partially offset by a charge for recurring salary expenses of
management; (c) the amortization of goodwill recorded as a result of the
acquisitions over a forty-year estimated life; (d) the assumed reductions in
interest expense due to the refinancing of the outstanding indebtedness in
conjunction with the acquisitions offset by an assumed increase in interest
expense incurred in connection with financing the acquisitions; (e) the
pre-acquisition results of operations for subsidiaries or affiliates of the
acquired companies which were acquired by the acquired companies prior to the
related acquisition by TransCom, as if those previous acquisitions were
completed as of January 1, 1997; (f) certain other nonrecurring expenses with
respect to the acquired companies, such as expenses associated with compensation
plans which were terminated in conjunction with the acquisitions of their
respective companies; (g) the incremental interest expense and amortization of
deferred financing costs incurred as a result of the issuance of the Notes and
the Credit Facility (as defined in Note 5), net of the repayment of outstanding
indebtedness of the Company; and (h) the incremental provision for federal and
state income taxes for all entities being combined.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED YEAR ENDED DECEMBER 31,
USEFUL LIVES -------------------------
IN YEARS 1999 1998
------------ ------- --------
<S> <C> <C>
Land.................................................. -- $ 965 $ 967
Vehicles.............................................. 3-10 4,715 3,963
Building and improvements............................. 5-40 1,972 1,955
Office furniture, fixtures and equipment.............. 3-10 5,608 2,323
Leasehold improvements................................ 3-40 1,389 1,352
Machinery and equipment............................... 3-10 3,875 3,135
------- --------
18,524 13,695
Less - Accumulated depreciation....................... (3,992) (1,091)
------- --------
$14,532 $ 12,604
======= ========
</TABLE>
31
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts receivable consist of the following (in thousands):
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
-------- --------
Accounts receivable, trade ..................... $ 33,235 $ 33,567
Accounts receivable, other ..................... 1,710 2,346
Purchase rebates ............................... 6,670 4,176
-------- --------
41,615 40,089
Less - Allowance for doubtful accounts ......... (1,586) (1,978)
-------- --------
$ 40,029 $ 38,111
======== ========
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------
1999 1998
------- -------
Balance at beginning of year ........................... $1,978 $ --
Allowance for doubtful accounts of the
acquired companies at acquisition dates .............. -- 1,931
Additions charged to cost and expenses ................. 315 223
Deductions for uncollectible receivables written off ... (722) (219)
Bad debt recoveries .................................... 15 43
------- -------
$ 1,586 $ 1,978
======= =======
Notes receivable consist of the following (in thousands):
DECEMBER 31,
-----------------------
1999 1998
------- -------
Installment notes receivable ................... $ 1,619 $ 2,859
Due from employees ............................. 16 53
------- -------
1,635 2,912
Less - current maturities ...................... (732) (962)
------- -------
Notes receivable, net .......................... 903 1,950
Less - Allowance for doubtful notes............. (151) (96)
------- -------
$ 752 $ 1,854
======= =======
Installment notes receivable represent amounts that are due beyond one year
from balance sheet dates bearing interest at varying amounts, from 7.75% to
14.25% and are secured primarily by new or used vehicles.
Inventories consist of the following (in thousands):
DECEMBER 31,
--------------------------
1999 1998
------- -------
Parts inventory .......................... $63,664 $68,831
Trucks, new and used ..................... 3,539 2,523
------- -------
$67,203 $71,354
======= =======
32
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
------------------
1999 1998
------- --------
Accounts payable, trade........................ $33,468 $ 28,462
Accrued salaries and employee benefits......... 4,062 3,733
Accrued insurance.............................. 981 425
Accrued interest............................... 553 494
Accrued taxes.................................. 984 4,643
Accrued other.................................. 2,411 3,585
------- --------
$42,459 $ 41,342
======= ========
5. LONG TERM OBLIGATIONS
Long-term debt obligations consist of the following (in thousands):
DECEMBER 31,
-----------------------
1999 1998
-------- --------
Revolving credit facility .................. $ 60,100 $ 56,300
Notes payable to a financial institution ... 1,355 4,024
Other ...................................... 461 418
-------- --------
Total long-term debt ....................... 61,916 60,742
Less - current portion ..................... (743) (1,651)
-------- --------
$ 61,173 $ 59,091
At December 31, 1999, future principal payments of long-term debt are as
follows (in thousands):
Year Ending December 31 -
2000......................... 743
2001......................... 60,621
2002......................... 355
2003......................... 90
2004......................... 10
Thereafter................... 97
-------
$61,916
=======
CREDIT FACILITY
On June 24, 1998 the Company entered into a three-year revolving credit
facility which provides for a line of credit up to $75 million. The credit
facility matures on June 24, 2001, bears interest at either LIBOR plus an
applicable margin based on the ratio of funded debt to cash flows (as defined),
or at the bank's prime rate, at the Company's option. An annual commitment fee
of up to 1/4% is payable on any unused portion of the credit facility. The
credit facility is to be used to fund acquisitions, capital expenditures and
working capital requirements. Under the terms of the credit facility, the
Company is required to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions, (v) the maintenance of a specified level of consolidated net worth
and (vi) a restriction that total debt may not exceed a specified multiple of
the Company's earnings before interest, taxes and depreciation. In addition, the
credit facility includes restrictions on the ability of the
33
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company to pay dividends. Borrowings under the credit facility are secured by
the pledge of all of the capital stock of each of the Company's material
subsidiaries (as defined).
Effective September 30, 1999, the Company entered into an Amended and
Restated Credit Agreement (the "Credit Facility"). The primary changes were to
modify two of the financial covenants, increase the interest rates payable by 75
to 150 basis points, and provide that the collateral for the loan is a pledge of
the Company's assets other than real estate and vehicles. The maximum borrowing
capacity of $75.0 million and the termination date of June 24, 2001 were not
changed. The Company was in compliance with the financial covenants in its
credit facility at December 31, 1999.
Under the most restrictive covenants of the Credit Facility $0.3 million
was available for borrowings at December 31, 1999. The weighted average interest
rates on the borrowings under the Credit Facility as of December 31, 1999 and
1998 were 8.6% and 6.6%, respectively.
Effective March 30, 2000, the Company amended the Credit Facility. The
primary changes were to modify certain of the financial covenants at March 31,
2000. The purpose of the amendment was to cure a projected covenant violation at
March 31, 2000.
NOTES PAYABLE TO A FINANCIAL INSTITUTION
The Company has an arrangement with a lending institution to finance its
new and used truck inventory. The notes are payable in monthly installments of
approximately $57,000, including interest ranging from 6.67% to 10.25%. The
notes are secured by certain vehicles, machinery and equipment, and are due at
various dates through 2003. The outstanding balance at December 31, 1999 and
1998 was $1.4 million and $4.0 million, respectively.
6. PAYABLES - RELATED PARTIES
Long-term payables to related parties consists of the following (in
thousands):
DECEMBER 31,
---------------------
1999 1998
------- ---------
Convertible debt........................... $13,635 $15,223
Deferred compensation payable to a
former owner............................. 515 509
Note payable to a stockholder at
7% payable upon demand................... 100 100
------- ---------
Payables - related parties................. 14,250 15,832
Less - current maturities.................. (1,762) (1,764)
------- ---------
$12,488 $14,068
======= =======
The convertible subordinated notes were issued during 1998 to certain
former owners of the acquired companies as partial consideration of the
acquisition purchase price. The notes bear interest at 5% and are convertible by
the holder into shares of common stock, at any time after one year of issuance,
at an average conversion price of $9.52 per share. Most of the notes are
redeemable by the Company, as to 50% of the principal, at any time after two
years of issuance. Interest on the notes is paid quarterly.
34
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1999, future principal payments of long-term payables
related parties are as follows (in thousands):
Year Ending December 31 -
2000........................ $1,762
2001........................ 12,016
2002........................ 20
2003........................ 20
2004........................ 19
Thereafter.................. 413
-------
$14,250
=======
7. INCOME TAXES
The Company's pretax income (loss) is made up of the following (in
thousands):
PERIOD FROM
INCEPTION
(OCTOBER 9,
YEAR ENDED DECEMBER 31, 1997) TO
--------------------- DECEMBER 31,
1999 1998 1997
------ ------ --------
Domestic................ $6,827 $ 593 $(3,108)
Foreign................. 1,704 455 --
------ ------ --------
$8,531 $1,048 $(3,108)
====== ====== ========
The Company follows SFAS No. 109, "Accounting for Income Taxes," which
provides for a liability approach to accounting for income taxes. The components
of the provision for income taxes are as follows (in thousands):
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------ ------
Federal --
Current................................ $1,280 $2,900
Deferred............................... 2,482 (545)
------ ------
3,762 2,355
------ ------
State --
Current................................ 508 358
Deferred............................... 98 (59)
------ ------
606 299
------ ------
Total provision.......................... $4,368 $2,654
====== ======
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
------ ------
Federal income tax at statutory rates ................ $2,986 $ 367
State income taxes, net of federal income
tax benefit .......................................... 394 299
Additional foreign income tax provision .............. 73 7
Change in valuation allowance ........................ 154 --
Nondeductible expenses:
Stock compensation ............................... -- 1,698
Amortization of goodwill ......................... 747 277
Other ............................................ 14 6
------ ------
Total provision ...................................... $4,368 $2,654
====== ======
35
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The significant items giving rise to the deferred tax assets (liabilities)
are as follows (in thousands):
DECEMBER 31,
-------------------
1999 1998
------- -------
Deferred tax assets -
Allowance for doubtful accounts .......... $ 676 $ 797
Property and equipment ................... -- 12
Inventory ................................ 2,239 --
Accrued liabilities ...................... 830 483
Deferred compensation .................... 292 375
State loss carryforwards ................. 305 --
Net operating loss carry forward ......... 120 572
------- -------
Total deferred tax assets ............ 4,462 2,239
------- -------
Deferred tax liabilities -
Inventory ................................ -- (165)
Property and equipment ................... (695) --
Other .................................... (1,008) (974)
------- -------
Total deferred tax liabilities ....... (1,703) (1,139)
------- -------
Valuation allowance .......................... (274) (536)
------- -------
Net deferred tax assets .......... $ 2,485 $ 564
======= =======
As of December 31, 1999 the Company's Mexican subsidiary has net operating
loss ("NOL") carryforwards of approximately $340,000 available to reduce future
Mexican income taxes. These carryforwards begin to expire in 2004. However,
because Mexican tax laws limit the time during which these carryforwards may be
applied against future taxes, the Company's Mexican subsidiary may not be able
to take full advantage of the NOL for income tax purposes. As the Company's
Mexican subsidiary has incurred tax losses in recent years, a valuation
allowance has been established to partially offset the Mexican NOL deferred tax
asset at December 31, 1999. Additionally, deferred income taxes were not
provided on the undistributed foreign earnings of the foreign subsidiaries
because such undistributed earnings are expected to be reinvested indefinitely.
8. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
In connection with the organization and initial capitalization of the
Company, the Company issued 108,119 shares of common stock at $.01 per share to
Notre Capital Ventures II, L.L.C. ("Notre"). Notre incurred $20,535 of expenses
on behalf of the Company for which the Company issued 2,054,269 shares to Notre
in November 1997.
In November 1997, the Company sold a total of 432,329 shares of common
stock to management and directors of and consultants to the Company at a price
of $0.01 per share. As a result, the Company recorded a nonrecurring, noncash
compensation charge of $3.1 million, representing the difference between the
amount paid for the shares and the estimated fair value of the shares. During
the first quarter of 1998, the Company sold an additional 674,500 shares to
management of the Company at a price of $0.01 per share. As a result, the
Company recorded a nonrecurring, noncash compensation charge of $4.9 million,
representing the difference between the amount paid for the shares and the
estimated fair value of the shares.
36
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
TransCom effected a 108.1194-for-one stock dividend in April 1998, for
each share of common stock of the Company then outstanding. In addition, the
Company increased the number of authorized shares of common stock to 100,000,000
and authorized 5,000,000 shares of $.01 par value preferred stock.
On June 24, 1998, the Company sold 5,000,000 shares of common stock to the
public at $8.00 per share. The net proceeds to the Company from the IPO (after
deducting underwriting commissions and IPO costs) were $29.5 million. Of this
amount, $15.7 million was used to pay the cash portion of the purchase prices of
the companies acquired in connection with the IPO.
In connection with the IPO, the Company granted its underwriters an option
to sell an additional 750,000 shares at $8.00 per share. On June 30, 1998, the
underwriters exercised this option. Net proceeds to the Company from this sale
of shares were $5.6 million after deducting underwriting commissions.
On June 24, 1998, the Company issued 7,493,394 shares of common stock to
acquire the companies in connection with the IPO. The Company issued five-year
warrants to purchase 669,894 shares of common stock at an exercise price of
$6.12 per share. From the IPO date to December 31, 1998, the Company issued an
additional 1,215,204 shares of common stock as a portion of the consideration to
acquire nine additional companies.
During 1999, the Company issued 72,828 shares of common stock to the
Company's 401(k) plan as the Company's matching contribution. Also during 1999,
the Company received 140,000 shares of common stock in settlement of an
indemnification claim against the former shareholders of a company which was
acquired in 1998. The shares received have been recorded as treasury stock and
valued at the fair market value at the settlement date. The gain on the receipt
of the shares has been recorded in other income.
RESTRICTED VOTING COMMON STOCK
In April 1998, the Company authorized 2,000,000 shares of $.01 par value
restricted voting common stock ("Restricted Common Stock") and the primary
stockholder exchanged 1,912,388 shares of common stock for an equal number of
shares of Restricted Common Stock. The holders of Restricted Common Stock are
entitled to elect one member of the Company's board of directors and to
represent 0.75 of one vote for each share on all other matters on which they are
entitled to vote. Holders of Restricted Common Stock are not entitled to vote on
the election of any other directors.
Each share of Restricted Common Stock will automatically convert to common
stock on a share-for-share basis (a) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and /or 4946 of the Internal Revenue Code of 1986, as amended), (b) in the event
any person acquires beneficial ownership of 15% or more of the total number of
outstanding shares of common stock of the Company, (c) in the event any person
offers to acquire 15% or more of the total number of outstanding shares of
common stock of the Company, (d) in the event a majority of the aggregate number
of votes which may be cast by the holders of outstanding shares of common stock
and Restricted Common Stock entitled to vote approve such conversion. After June
30, 2000, the board of directors may elect to convert any remaining shares of
Restricted Common Stock into shares of common stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of common stock.
37
<PAGE>
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution savings plan for its
associates. The Company matches a portion of the amount deferred by
participating associates. The Company's contribution to the plan during 1999 and
1998 was approximately $440,467 and $233,000, respectively. On July 1, 1999 the
Company began issuing the Company's common stock for the matching contribution.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and equipment under non-cancelable
operating leases. Rent expense for the years ended December 31, 1999 and 1998
was approximately $6.2 million and $2.5 million, respectively. Concurrent with
the acquisitions of certain companies, the Company entered into various
agreements with previous owners to lease land and buildings used in the
Company's operations. The terms of these leases range from one to ten years and
provide for certain escalations in the rental expenses each year. Included in
the 1999 and 1998 rent expense above is approximately $2.5 million and $1.3
million, respectively, of rent paid to these related parties. The following
represents future minimum rental payments under non-cancelable operating leases
(in thousands):
Year Ending December 31 -
2000........................ 5,776
2001........................ 5,220
2002........................ 4,591
2003........................ 3,260
2004........................ 1,813
Thereafter.................. 3,992
-------
$24,652
=======
LITIGATION
The Company is from time to time party to litigation in the ordinary course
of business. There are currently no pending legal proceedings that, in
management's opinion, would have material adverse effect on the Company's
operating results or financial condition. The Company maintains various
insurance coverages in order to minimize financial risk associated with certain
claims. The Company has provided accruals for probable losses and legal fees
associated with certain of these actions in the accompanying consolidated
financial statements.
INSURANCE
The Company carries a broad range of insurance coverage, including
business auto liability, general liability, workers' compensation, excess
liability, commercial property and an umbrella policy.
11. STOCK OPTION PLANS
LONG-TERM INCENTIVE PLAN
In March 1998, the Company's stockholders approved the Company's 1998
Long-Term Incentive Plan (the "Incentive Plan") which provides for the granting
or awarding of incentive or non-qualified stock options, stock appreciation
rights, restricted or deferred stock, dividend equivalents or other incentive
awards to directors, officers, key employees and consultants to the Company.
An aggregate of the greater of 2,500,000 or 15% of the total outstanding
shares of the Company's common stock are authorized to be issued under the
Incentive Plan. Options granted generally are at fair
38
<PAGE>
market value on the date of grant and become exercisable in five equal annual
installments beginning on the first anniversary of the date of grant. The
options expire ten years from the date of grant if unexercised.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1998 Non-Employee Directors' Stock Plan (the "Directors'
Stock Plan") provides for the granting of options to non-employee directors of
the Company to purchase shares of the Company's common stock at the fair market
value on the date of grant. An aggregate of 250,000 shares of common stock are
authorized to be issued under the Directors' Stock Plan. The granted options
become exercisable immediately upon grant. The options expire at the earlier of
(i) ten years from the date of grant or (ii) one year after the non-employee
director ceases to serve as a director of the Company.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at the beginning
of the year ................... 2,126 $ 7.50 -- $ --
Granted ......................... 501 $ 3.27 2,140 $ 7.49
Exercised ....................... -- $ -- -- $ --
Forfeited ....................... (168) $ 5.55 (14) $ 5.97
-------- --------
Outstanding at the end of the year . 2,459 $ 6.77 2,126 $ 7.50
======== ========
Exercisable at the end of the
year ............................. 431 $ 7.53 30 $ 8.00
======== ========
Weighted-average fair value of
options granted during the year $ 2.44 $ 6.74
======== ========
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged
from $3.00 to $8.00. The weighted-average remaining contractual life of those
options is 8.7 years.
The Company accounts for its stock-based compensation under APB No. 25,
"Accounting for Stock Issued to Employees". Under this accounting method, no
expense in connection with a stock option is recognized in the consolidated
statements of operations if the exercise price of the option is equal to the
market price of the stock on the date of grant. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires that if a company accounts for stock-based
compensation in accordance with APB No. 25, the company must also disclose the
effects on its results of operations as if an estimate of the value of
stock-based compensation at the date of grant was recorded as an expense in the
company's statement of operations.
These effects for the Company are as follows (in thousands, except per share
data):
1999 1998
------ -------
Net income (loss)
As reported............................. $4,163 $(1,606)
Pro forma for SFAS No. 123.............. 2,409 (2,413)
Net income (loss) per share - Diluted
As reported............................. $0.24 $ (0.15)
Pro forma for SFAS No. 123.............. 0.14 (0.21)
39
<PAGE>
The effects of applying SFAS No. 123 in the pro forma disclosure may not
be indicative of future amounts as additional awards in future years are
anticipated. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
1999 1998
------- -------
Expected dividend yield................ 0.00% 0.00%
Expected stock price volatility........ 80.3% 109.6%
Risk free interest rate................ 5.26% 5.74%
Expected life of options............... 7 years 7 years
12. SEGMENT INFORMATION
TransCom adopted SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information", beginning with the year ended December 31, 1998. SFAS
No. 131 established standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance.
TransCom classifies its business into two reportable segments based on
geographic areas: "Domestic" (revenues generated to customers for use within the
United States) and "International" (revenues generated to customers for use
outside the United States - Canada, Mexico, South America, Central America,
Australia, New Zealand 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.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. For purposes of
this presentation, general corporate expenses have been allocated between
operating segments on a pro rata basis based on revenue. In addition, general
corporate assets have been included in the calculation of identifiable assets
and are classified under domestic. Intersegment revenues and related operating
income are eliminated in consolidation.
Information as to the operations of TransCom's reportable segments is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 DOMESTIC INTERNATIONAL INTERSEGMENT TOTAL
---- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $272,854 $37,889 $(216) $310,527
Operating income 9,703 3,405 (63) 13,045
Identifiable assets 192,906 31,664 -0- 224,570
Depreciation and amortization expense 4,540 492 -0- 5,032
Capital expenditures 5,139 306 -0- 5,445
1998
----
Revenues $120,255 $ 13,595 $(137) $ 133,713
Operating income 890 1,592 (38) 2,444
Identifiable assets 183,897 35,008 -0- 218,905
Depreciation and amortization expense 1,735 172 -0- 1,907
Capital expenditures 2,459 56 -0- 2,515
</TABLE>
40
<PAGE>
Information as to TransCom's operations in different geographical areas is
as follows (in thousands):
<TABLE>
<CAPTION>
ALL OTHER
1999 UNITED STATES MEXICO CANADA INTERNATIONAL(1) TOTAL
- ---- ------------- ------- ------ ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $272,854 $21,417 $11,101 $5,155 $310,527
Long-lived assets 87,822 11,521 5,508 -- 104,851
1998
- ----
Revenues $ 120,255 $8,841 $1,275 $3,342 $133,713
Long-lived assets 76,859 12,313 9,295 - 98,467
</TABLE>
- ----------------------
(1) Includes South America, Central America, Europe, Australia, New Zealand and
Asia.
13. EARNINGS 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
per share data):
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(OCTOBER
YEAR ENDED DECEMBER 31, 9, 1997) TO
-------------------------- DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET INCOME (LOSS)
Net income (loss) .................. $ 4,163 $ (1,606) $ (3,108)
=========== =========== ===========
BASIC
Basic weighted average shares ....... 17,703 10,448 3,269
=========== =========== ===========
DILUTED
Basic weighted average shares ...... 17,703 10,448 3,269
Effect on dilutive securities ......
Options .......................... 4 -- --
----------- ----------- -----------
Diluted weighted average shares ...... 17,707 10,448 3,269
=========== =========== ===========
NET INCOME (LOSS) PER SHARE
Basic .............................. $ 0.24 $ (0.15) $ (0.95)
=========== =========== ===========
Diluted ............................ $ 0.24 $ (0.15) $ (0.95)
=========== =========== ===========
</TABLE>
The computation of diluted weighted average shares for 1999, 1998 and 1997
did not include shares potentially issuable for warrants and conversion of the
convertible subordinated notes because their inclusion would have been
antidilutive. The computation for 1998 and 1997 did not include shares
potentially issuable for options because their inclusion would have been
antidilutive.
41
<PAGE>
14. 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.
This adoption was required because of the acquisition of the Company's Canadian
operations in the fourth quarter of 1998. Any related translation adjustments in
1998 were immaterial. Comprehensive income (loss), which for the Company
encompasses net income (loss) and currency translation adjustments, is as
follows:
YEAR ENDED DECEMBER 31,
---------------------
1999 1998
------- -------
Net income (loss) attributable to common
stockholders .................................... $ 4,163 $(1,606)
Currency translation adjustments .................. 134 --
------- -------
Comprehensive income (loss) ....................... $ 4,297 $(1,606)
======= =======
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth the unaudited consolidated operating results by
quarter for the years ended December 31, 1999 and 1998 (in thousands, except per
share data):
1999 FOR THE THREE MONTHS ENDED
- ---- --------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues.................. $78,242 $81,108 $78,189 $72,988
Gross profit.............. 24,479 24,627 23,751 22,188
Net income (loss)......... 1,960 1,622 865 (284)
Earnings (loss) per share.
Basic.................. $ 0.11 $ 0.09 $ 0.05 $ (0.02)
Diluted................ 0.11 0.09 0.05 (0.02)
1998 FOR THE THREE MONTHS ENDED
- ---- --------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues.................. $ - $ 3,786 $ 58,423 $ 71,504
Gross profit.............. - 1,122 17,234 22,005
Net income (loss)......... (4,850) 24 1,801 1,419
Earnings (loss) per share.
Basic.................. $ (1.48) $ 0.01 $ 0.11 $ 0.08
Diluted................ (1.48) 0.01 0.11 0.08
The sum of the individual quarterly earnings per share amounts may not
agree with year-to-date earnings per share as each quarter's computation is
based on the weighted average number of shares outstanding during the quarter,
the weighted average stock price during the quarter and the dilutive effects of
the convertible subordinated notes in each quarter.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is incorporated by reference from
the definitive Proxy Statement of the Company to be filed no later than April
30, 2000 for its Annual Meeting of Stockholders to be held on May 25, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference from
the definitive Proxy Statement of the Company to be filed no later than April
30, 2000 for its Annual Meeting of Stockholders to be held on May 25, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference from
the definitive Proxy Statement of the Company to be filed no later than April
30, 2000 for its Annual Meeting of Stockholders to be held on May 25, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated by reference from
the definitive Proxy Statement of the Company to be filed no later than April
30, 2000 for its Annual Meeting of Stockholders to be held on May 25, 2000.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS:
(1) Consolidated Financial Statements of the Company which are
included at Item 8 of this report, and incorporated herein by
reference.
(2) Financial Statement Schedules are inapplicable or the required
information is included in the Company's Consolidated
Financial Statements or the Notes thereto.
(B) REPORTS ON FORM 8-K:
None
(C) EXHIBITS:
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE EXHIBIT INDICATED
BELOW AND TO THE FILING WITH
THE COMMISSION INDICATED BELOW
----------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
------ ----------------------- ------ -----------
<S> <C> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Transportation Components, 3.1 333-50447
Inc.
3.2 -- Bylaws of Transportation Components, Inc., as amended. 3.2 333-50447
4.1 -- Form of certificate evidencing ownership of Common Stock of Transportation 4.1 333-50447
Components, Inc.
10.1 -- Transportation Components, Inc. 1998 Long-Term Incentive Plan 10.1 333-50447
10.2 -- Transportation Components, Inc. 1998 Non-Employee Directors' Stock Plan. 10.2 333-50447
10.3 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.3 333-50447
Transportation Components, Inc., Charles W. Carter Co. - Los Angeles and the
Stockholders named herein.
10.4 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.4 333-50447
Transportation Components, Inc., Proveedor Mayorista al Refaccionario, S.A. de
C.V. (Promare) and the Stockholders named herein.
10.5 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.5 333-50447
Transportation Components, Inc., PIA Acquisition Corporation, Plaza Automotive,
Inc. and the Stockholders named herein.
10.6 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.6 333-50447
Transportation Components, Inc., CBC Acquisition Corporation, The Cook Brothers
Companies, Inc. and the Stockholders named herein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE EXHIBIT INDICATED
BELOW AND TO THE FILING WITH
THE COMMISSION INDICATED BELOW
----------------------------
EXHIBIT EXHIBIT FILING OR
NUMBER DESCRIPTION OF EXHIBITS NUMBER FILE NUMBER
- ------ ----------------------- ------ -----------
<S> <C> <C> <C>
10.7 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.7 333-50447
Transportation Components, Inc., TPE Acquisition Corporation, TPE, Inc. and the
Stockholders named herein.
10.8 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.8 333-50447
Transportation Components, Inc., UFS Acquisition Corporation, Universal Fleet
Supply and the Stockholders named herein.
10.9 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.9 333-50447
Transportation Components, Inc., DLI Acquisition Corporation, Drive Line, Inc.
and the Stockholders named herein.
10.10 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.10 333-50447
Transportation Components, Inc., GWI Acquisition Corporation, TOI Acquisition
Corporation, OTP Acquisition Corporation, Gear and Wheel, Inc., Try One, Inc.
Ocala Truck Parts, Inc. and the Stockholders named herein.
10.11 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.11 333-50447
Transportation Components, Inc., CTC Acquisition Corporation, LLL Acquisition
Corporation, MLS Acquisition Corporation, Transportation Components Company,
L.L.L., Inc. and MSL, Inc. and the Stockholders named herein.
10.12 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.12 333-50447
Transportation Components, Inc., APM Acquisition Corporation, AIII Acquisition
Corporation, Amparts, Inc., Amparts International, Inc. and the Stockholders
named herein.
10.13 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among 10.13 333-50447
Transportation Components, Inc., Perfection Equipment Company and the
Stockholders named herein.
10.14 -- Form of Employment Agreement between Transportation Components, Inc. and each 10.14 333-50447
of Messrs. Young, Gooch, McConnell, Pryzant, Bucaro and Blum.
10.15 -- Amended and Restated Credit Agreement dated as of September 30, 1999 among the 10.1 Third Quarter
Company, the banks listed therein and Bank One, N.A. (formerly known as The 1999 Form 10-Q
First National Bank of Chicago), as agent
10.20 -- Form of Founders' Employment Agreement 10.20 333-50447
10.21 -- Form of Agreement Among Certain Stockholders 10.21 333-50447
10.22 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C. 10.22 333-50447
21.1 -- List of subsidiaries of Transportation Components, Inc. 21.1 Filed herewith
23.1 -- Consent of Arthur Andersen LLP 23.1 Filed herewith
27 -- Financial Data Schedule 27 Filed herewith
</TABLE>
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRANSPORTATION COMPONENTS, INC.
By: /S/ T. MICHAEL YOUNG
T. MICHAEL YOUNG, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 30, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ T. MICHAEL YOUNG Chairman of the Board, March 30, 2000
---------------------------------- President, and Chief
T. MICHAEL YOUNG Executive Officer
Senior Vice President, Chief March 30, 2000
/S/ MAC MCCONNELL Financial Officer and Director
---------------------------------- (PRINCIPAL FINANCIAL
MAC MCCONNELL ACCOUNTING OFFICER)
/S/ MAURA L. BERNEY Director March 30, 2000
----------------------------------
MAURA L. BERNEY
/S/ LOUIS J. BOGGEMAN, JR. Senior Vice President, Chief March 30, 2000
---------------------------------- Operating Officer and Director
LOUIS J. BOGGEMAN, JR.
/S/ HENRY B. COOK, JR. Vice President - Purchasing March 30, 2000
---------------------------------- and Director
HENRY B. COOK, JR.
/S/ I.T. CORLEY
---------------------------------- Director March 30, 2000
I.T. CORLEY
/S/ RODOLFO A. DUEMICHEN Director March 30, 2000
----------------------------------
RODOLFO A. DUEMICHEN
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LAWRENCE K. KNG
---------------------------------- Director March 30, 2000
LAWRENCE K. KING
/S/ PETER D. LUND
---------------------------------- Director March 30, 2000
PETER D. LUND
/S/ STEVEN S. HARTER
---------------------------------- Director March 30, 2000
STEVEN S. HARTER
/S/ RONALD G. SHORT
---------------------------------- Director March 30, 2000
RONALD G. SHORT
/S/ MARK E. SPEESE
---------------------------------- Director March 30, 2000
MARK E. SPEESE
/S/ THOMAS A. WORK
---------------------------------- Director March 30, 2000
THOMAS A. WORK
</TABLE>
48
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF TRANSPORTATION COMPONENTS, INC.
1. Amparts International, Inc., a Texas corporation
2. Charles W. Carter Co. - Los Angeles, a California corporation
3. Charles W. Carter Co. - Arizona, Inc., an Arizona corporation
4. Charles W. Carter Co. - Hawaii, Inc., a Hawaii corporation
5. K.O.Y. Corp , a Hawaii corporation
6. The Cook Brothers Companies, Inc., a New York corporation
7. NEC Leasing, Inc., a New York corporation
8. Drive Line, Inc., a Florida corporation
9. Gear and Wheel, Inc., a Florida corporation
10. Perfection Equipment Company, an Oklahoma corporation
11. Plaza Automotive, Inc., a Missouri corporation
12. Brake & Spring, Inc., an Illinois corporation
13. Mobile Power & Hydraulics, Inc., a Missouri corporation
14. Hardy's Truck Parts, Inc., a Tennessee corporation
15. Transportation Components Company, a Minnesota corporation
16. Universal Fleet Supply, Inc., a California corporation
17. American Truck Transport Equipment, Inc., an Indiana corporation
18. Brake Service and Equipment Co. of Florida, Inc., a Florida corporation
19. DSS/ProDiesel, Inc., a Tennessee corporation
20. Fleet Products, Inc., a Florida corporation
21. Hoosier Trailer & Truck Equipment, Inc., an Indiana corporation
22. ITGM International, Inc., a California corporation
23. JDK Industries, Inc., a Florida corporation
24. WJV, Inc., a California corporation
25. Proveedor Mayorista al Refaccionario, S.A. de C.V., a Mexican corporation
26. Wes-T-Rans Limited, a Manitoba corporation
27. TransCom USA Management Co., L.P., a Texas limited partnership
28. TUSA GP, Inc., a Delaware corporation
29. TUSA LP, Inc., a Nevada corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-4 on August 3, 1998 (File No. 333-60533) and
Registration Statement on Form S-8 on December 2, 1998 (File No. 333-68261).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-K FOR 1999 - TRANSPORTATION COMPONENTS, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,859
<SECURITIES> 0
<RECEIVABLES> 42,855
<ALLOWANCES> 1,586
<INVENTORY> 67,203
<CURRENT-ASSETS> 119,719
<PP&E> 18,524
<DEPRECIATION> 3,992
<TOTAL-ASSETS> 224,570
<CURRENT-LIABILITIES> 45,968
<BONDS> 73,661
0
0
<COMMON> 178
<OTHER-SE> 101,801
<TOTAL-LIABILITY-AND-EQUITY> 224,570
<SALES> 310,527
<TOTAL-REVENUES> 310,527
<CGS> 215,482
<TOTAL-COSTS> 215,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,511
<INCOME-PRETAX> 8,531
<INCOME-TAX> 4,368
<INCOME-CONTINUING> 4,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,163
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
</TABLE>
