SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
TO CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): June 30, 1998
COMMISSION FILE NUMBER 0-24908
TRANSPORT CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1386925
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1769 YANKEE DOODLE ROAD
EAGAN, MINNESOTA 55121
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (651) 686-2500
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The registrant filed on July 15, 1998 a current report on Form 8-K relating to
its acquisition effective July 1, 1998 of North Star Transport, Inc. The purpose
of this amendment is to provide the financial statement and information required
by Item 7 of the Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99.1 filed herewith contains the following financial statements of North
Star Transport, Inc. as required by and for the periods specified in Rule
3-05(b) of regulation S-X:
(a) Financial Statements of Business Acquired:
Independent Auditors' Report
Balance Sheets as of June 30, 1998 and December 31, 1997
Statements of Income for the six months ended June 30, 1998, the six
months ended June 30, 1997 (unaudited), and the year ended December 31,
1997
Statements of Stockholders' Equity as of June 30, 1998
and December 31, 1997
Statements of Cash Flows for the six months ended June 30, 1998, the
six months ended June 30, 1997 (unaudited), and the year ended December
31, 1997
Notes to Financial Statements
(b) Pro Forma Financial Information (unaudited):
Exhibit 99.2 filed herewith contains the following pro forma condensed
financial statements as required by Article 11 of Regulation S-X:
Pro Forma Balance Sheet as of June 30, 1998
Pro Forma Statements of Earnings for the six months ended June 30, 1998
and the year ended December 31, 1997
Notes to Pro Forma Financial Statements
(c) Exhibit 23, Consent of Larson, Allen, Weishair & Co., LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSPORT CORPORATION OF AMERICA, INC.
Date: September 11, 1998 /s/ Michael D. Kandris
------------------- ----------------------
Michael D. Kandris
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
23 Consent of Larson, Allen,Weishair & Co., LLP
99.1 The audited financial statements of North Star Transport, Inc. as
of and for the year ended December 31, 1997, with auditor's
interim financial statements as of and for the six months ended
June 30, 1998 and for the six months ended June 30, 1997
(unaudited).
99.2 The unaudited pro forma condensed balance sheet as of June 30,
1998, and statements of income for the six months ended June 30,
1998, and for the year ended December 31, 1997.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
date August 21, 1998, on the financial statements of North Star Transport, Inc.,
as of and for the six months ended June 30, 1998, and the combined financial
statements of North Star Transport, Inc. (excluding its 98% owned subsidiary
Transmanagement Insurance Agency, LLC), and Transco, Inc., as of and for the
year ended December 31, 1997, included in this Form 8-K. It should be noted that
we have not audited any financial statements of North Star Transport, Inc.,
subsequent to June 30, 1998, or performed any audit procedures subsequent to the
date of our report.
/S/ LARSON, ALLEN, WEISHAIR & CO., LLP
St. Cloud, Minnesota
August 31, 1998
EXHIBIT 99.1
NORTH STAR TRANSPORT, INC.
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1998 AND 1997 (UNAUDITED)
AND DECEMBER 31, 1997
<PAGE>
NORTH STAR TRANSPORT, INC.
JUNE 30, 1998 AND 1997 (UNAUDITED)
AND DECEMBER 31, 1997
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
BALANCE SHEETS 2
STATEMENTS OF INCOME 4
STATEMENTS OF STOCKHOLDERS' EQUITY 5
STATEMENTS OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
North Star Transport, Inc. (Excluding 98% Owned Subsidiary
Transmanagement Insurance Agency, LLC), and
Transco, Inc. (collectively referred to as North Star Transport, Inc.)
Roseau, Minnesota
We have audited the accompanying balance sheet of North Star Transport, Inc., as
of June 30, 1998, and the combined balance sheet of North Star Transport, Inc.
(excluding its 98% owned subsidiary Transmanagement Insurance Agency, LLC), and
Transco, Inc. (collectively referred to as North Star Transport, Inc.), as of
December 31, 1997, and the related statements of income, stockholders' equity,
and cash flows for the six months ended June 30, 1998 and year ended December
31, 1997. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of North Star Transport , Inc., as
of June 30, 1998, and the combined financial position of North Star Transport,
Inc. (excluding its 98% owned subsidiary Transmanagement Insurance Agency, LLC),
and Transco, Inc. (collectively referred to as North Star Transport, Inc.), as
of December 31, 1997, and the results of their operations and their cash flows
for the six months ended June 30, 1998 and year ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements were prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion on Form 8-K of Transport Corporation of America, Inc.) as described in
Note 1 to the financial statements and, as such, exclude the 98% owned
subsidiary of North Star Transport, Inc., for the year ended December 31, 1997.
/s/ LARSON, ALLEN, WEISHAIR & CO., LLP
St. Cloud, Minnesota
August 21, 1998
(1)
<PAGE>
NORTH STAR TRANSPORT, INC.
BALANCE SHEETS
JUNE 30, 1998 AND
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 245,145 $ 180,671
Accounts Receivable 6,445,991 6,895,573
Notes Receivable - Related Party -- 70,000
Prepaid Tires 200,735 318,019
Prepaid Licenses 707,603 167,934
Prepaid Expenses 223,864 419,540
------------ ------------
Total Current Assets $ 7,823,338 $ 8,051,737
------------ ------------
PROPERTY AND EQUIPMENT (AT COST)
Revenue Equipment $ 21,133,167 $ 21,797,571
Equipment 1,830,424 1,990,372
Buildings, Land, and Improvements 13,014 13,014
------------ ------------
Total Property and Equipment $ 22,976,605 $ 23,800,957
Less: Accumulated Depreciation 10,485,684 10,315,987
------------ ------------
Net Property and Equipment (At
Depreciated Cost) $ 12,490,921 $ 13,484,970
------------ ------------
OTHER ASSETS
Restricted Cash $ 72,500 $ 72,500
Cash Surrender Value - Life Insurance -- 396,556
Other Assets 407 2,260
------------ ------------
Total Other Assets $ 72,907 $ 471,316
------------ ------------
Total Assets $ 20,387,166 $ 22,008,023
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
(2)
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------ ------------
LIABILITIES AND EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Line of Credit $ -- $ 442,000
Current Maturities of Long-Term Debt 1,508,874 1,454,899
Accounts Payable 1,364,265 1,333,033
Accrued Liabilities 318,668 393,936
Accrued Auto Liability Claims 1,490,000 1,208,000
Contractor Escrows 512,089 518,635
Other Liabilities -- 1,775,000
------------ ------------
Total Current Liabilities $ 5,193,896 $ 7,125,503
LONG-TERM LIABILITIES
Long-Term Debt (Net of Current Maturities
Shown Above) 1,681,517 2,450,502
------------ ------------
Total Liabilities $ 6,875,413 $ 9,576,005
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock $ 5,556 $ 5,278
Additional Paid In Capital 1,839,519 722
Retained Earnings 11,666,678 12,426,018
------------ ------------
Total Stockholders' Equity $ 13,511,753 $ 12,432,018
------------ ------------
Total Liabilities and
Stockholders' Equity $ 20,387,166 $ 22,008,023
============ ============
</TABLE>
(3)
<PAGE>
NORTH STAR TRANSPORT, INC.
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended
------------------------------ December 31,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUE
Freight Revenue $ 36,878,217 $ 31,779,392 $ 69,991,717
Driver Services 9,767 8,787 22,819
------------ ------------ ------------
Total Operating Revenue $ 36,887,984 $ 31,788,179 $ 70,014,536
------------ ------------ ------------
OPERATING EXPENSES
Salaries -
Officer and Supervisor Personnel $ 972,338 $ 626,908 $ 3,271,306
Salaries and Wages 1,684,562 1,852,537 3,039,557
Employee Benefits 476,320 297,521 582,667
Operating Supplies and Expense 1,792,637 1,643,440 3,320,100
General Supplies and Expense 421,658 436,318 893,887
Operating Taxes and License 408,195 348,520 681,714
Insurance 1,119,784 883,205 1,272,034
Communications and Utilities 354,157 269,500 581,309
Depreciation and Amortization 931,430 778,559 1,679,010
Revenue Equipment Rents 26,697,125 23,017,064 50,488,483
Building Rents 189,782 171,991 330,541
(Gain) Loss on Sale of Assets (33,503) (30,059) (35,667)
Miscellaneous 407,477 181,230 400,187
------------ ------------ ------------
Total Operating Expenses $ 35,421,962 $ 30,476,734 $ 66,505,128
------------ ------------ ------------
INCOME FROM OPERATIONS $ 1,466,022 $ 1,311,445 $ 3,509,408
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest Expense $ (156,755) $ (185,317) $ (340,800)
Interest Income 8,206 12,183 17,178
Miscellaneous Income -- -- 1,000
------------ ------------ ------------
Total Other Expense $ (148,549) $ (173,134) $ (322,622)
------------ ------------ ------------
NET INCOME $ 1,317,473 $ 1,138,311 $ 3,186,786
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
(4)
<PAGE>
NORTH STAR TRANSPORT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additional Total
Common Paid In Retained Stockholders'
Stock Capital Earnings Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 5,278 $ 722 $ 10,276,065 $ 10,282,065
Net Income -- -- 3,186,786 3,186,786
Contribution from Excluded Subsidiary -- -- 664,367 664,367
Distributions -- -- (1,701,200) (1,701,200)
------------ ------------ ------------ ------------
Balance, December 31, 1997 $ 5,278 $ 722 $ 12,426,018 $ 12,432,018
Issuance of Stock Pursuant to
Employment Agreement with President 278 1,838,797 -- 1,839,075
Net Income -- -- 1,317,473 1,317,473
Distributions to Shareholders -- -- (1,664,813) (1,664,813)
Distribution of Cash Value of Life Insurance -- -- (412,000) (412,000)
------------ ------------ ------------ ------------
Balance, June 30, 1998 $ 5,556 $ 1,839,519 $ 11,666,678 $ 13,511,753
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
(5)
<PAGE>
NORTH STAR TRANSPORT, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended
------------------------------ December 31,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,317,473 $ 1,138,311 $ 3,186,786
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 931,430 778,559 1,679,010
Gain on Sale of Equipment (33,503) (30,059) (35,667)
Loss on Self-Insurance Equipment 39,976 5,848 16,830
Increase in Cash Surrender Value of Life Insurance
in Excess of Premiums Paid (8,907) -- (24,260)
(Increase) Decrease in Accounts Receivable 449,582 (782,556) (1,461,424)
Increase in Prepaid Expenses (226,709) (267,024) (215,282)
Increase (Decrease) in Accounts Payable 31,232 (118,418) 157,907
Increase (Decrease) in Accrued Liabilities (11,193) 320,894 1,437,932
Increase (Decrease) in Accrued Auto Liability Claims 282,000 222,125 (77,000)
Increase (Decrease) in Contractor Escrows (6,546) (98,185) 100,740
----------- ----------- -----------
Net Cash Provided by
Operating Activities $ 2,764,835 $ 1,169,495 $ 4,765,572
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net Change in Notes Receivable - Related Party $ 70,000 $ -- $ (70,000)
Proceeds from Sale of Equipment 206,865 60,650 73,600
Acquisition of Equipment (148,866) (292,696) (3,705,407)
Premiums Paid for Life Insurance (6,537) (6,537) (6,537)
----------- ----------- -----------
Net Cash Provided (Used)
by Investing Activities $ 121,462 $ (238,583) $(3,708,344)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds (Payments) on Line of Credit $ (442,000) $ 60,000 $ 350,000
Payments on Debt (715,010) (1,736,652) (3,220,900)
Proceeds from Issuance of Debt -- -- 2,000,000
Checks Written in Excess of Bank Balance -- 390,745 --
Payment on Notes Payable - Related Party -- (65,000) (100,000)
Contribution from Excluded Subsidiary -- 664,368 664,367
Distributions to Owners (1,664,813) (1,300,600) (1,701,200)
----------- ----------- -----------
Net Cash Used by
Financing Activities $(2,821,823) $(1,987,139) $(2,007,733)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $ 64,474 $(1,056,227) $ (950,505)
Cash - Beginning of Year 253,171 1,203,676 1,203,676
----------- ----------- -----------
CASH - END OF YEAR $ 317,645 $ 147,449 $ 253,171
=========== =========== ===========
CASH CONSISTS OF:
Cash $ 245,145 $ 74,949 $ 180,671
Restricted Cash 72,500 72,500 72,500
----------- ----------- -----------
$ 317,645 $ 147,449 $ 253,171
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
(6)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are prepared based on the
entities being acquired by Transport Corporation of America, Inc., and
for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion on Form 8-K of
Transport Corporation of America, Inc.).
Prior to June 30, 1998 North Star Transport, Inc., owned 98% of the
outstanding stock of Transmanagement Insurance Agency, LLC. The limited
liability company was incorporated during 1996 for the purpose of
administering an insurance program offered to independent contractors
for physical damage and bobtail insurance coverage. This subsidiary was
not purchased by Transport Corporation of America, Inc., and, as such,
ownership was transferred on June 30, 1998 and the subsidiary is
excluded from the accompanying financial statements.
Nature of Business
North Star Transport, Inc. (North Star), is both a common and contract
carrier authorized to transport general commodities throughout the
forty-eight continuous states and seven Provinces in Canada. The
primary operating area is the Midwest to the East Coast through the
Northern states.
North Star owns and operates 1,126 trailers, mainly dry vans. There are
approximately 650 power units of which over 608 are owned and operated
by independent contractors.
Transco, Inc. (Transco), provides drivers and leased equipment to North
Star.
North Star Transport, Inc., and Transco, Inc., are collectively
referred to as North Star Transport, Inc., or "the Company".
Reorganization and Merger
On July 1, 1998, North Star Transport, Inc., sold all of its issued and
outstanding shares of capital stock to Transport Corporation of
America, Inc., for $15,800,000 in cash and 1,200,000 shares of common
stock of Transport Corporation of America, Inc. The Stock Purchase
Agreement called for North Star to reorganize and merge with Transco on
June 30, 1998, just prior to the closing of the sale.
Reorganization of North Star included selling certain assets,
distributing life insurance policies owned by North Star to its 98%
owned subsidiary, Transmanagement Insurance Agency, LLC and,
subsequently, distributing North Star's ownership interest in this
subsidiary to North Star's shareholders.
Pursuant to the merger, North Star issued 277,778 shares of class B
non-voting common stock to the shareholders of Transco in exchange for
10,000 shares (100% interest) of Transco. On the same day, North Star
and Transco adopted a plan of merger, whereby all assets and
liabilities of Transco were merged into North Star, the surviving
entity. As part of the reorganization, 277,778 shares of class B
non-voting common stock were issued to North Star's President (see Note
9).
(7)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Since the merger was an exchange of stock under common control, the
transaction was accounted for using a method similar to a pooling of
interest. The accompanying financial statements for the six months
ended June 30, 1998, are based upon the assumption that the companies
were combined for the entire six-month period and financial statements
for the six months ended June 30, 1997 and year ended December 31,
1997, have been restated to give effect to the combination. All
intercompany balances and transactions have been eliminated.
The results of operations for the separate companies and the combined
amounts presented in the financial statements follow.
Six Months Ended
June 30, Year Ended
--------------------------- December 31,
1998 1997 1997
----------- ----------- -----------
Net Operating Revenue
North Star $36,878,217 $31,779,392 $69,991,717
Transco $ 1,206,238 $ 981,111 $ 2,188,664
Combined $36,887,984 $31,788,179 $70,014,536
Net Income
North Star $ 1,197,064 $ 1,000,674 $ 2,946,858
Transco 120,409 137,637 239,928
----------- ----------- -----------
Combined $ 1,317,473 $ 1,138,311 $ 3,186,786
=========== =========== ===========
Related Companies
The Company engages in business activities with affiliated entities
(see Note 4).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
Cash
The Company places its cash with high-credit, quality institutions. At
times, such cash balances may be in excess of the FDIC insurance limit.
(8)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash (continued)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
June 30, Year Ended
------------------------- December 31,
1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Non-Cash Disclosures:
Net Book Value of Traded Assets $ 1,184 $ -- $ 3,751
Equipment Acquisition Financed $ -- $ -- $ 92,000
Conversion of Deferred Compensation
Liability to:
Common Stock $ 278 $ -- $ --
Additional Paid-in-Capital $1,838,797 $ -- $ --
Distribution of Cash Value
of Life Insurance to
Transmanagement Insurance
Agency, LLC $ 412,000 $ -- $ --
Cash Payments for:
Interest Paid $ 156,755 $ 185,799 $ 340,800
Income Taxes Paid $ 41,446 $ 22,883 $ 43,508
</TABLE>
Accounts Receivable
Accounts receivable are recorded at the net amount expected to be
collected. The allowance for uncollectible accounts was $30,000 at June
30, 1998 and December 31, 1997.
Prepaid Tires
Tires placed on new revenue equipment and new replacement tires are
capitalized and amortized over their 18-month useful lives.
Property, Equipment, and Depreciation
Additions and improvements to property and equipment are capitalized at
cost, while maintenance and repair expenditures which do not improve or
extend the life of the respective assets are charged to operations as
incurred.
(9)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Equipment, and Depreciation (continued)
Depreciation is calculated based on the cost of the asset, reduced by
its estimated salvage value, using the straight-line and accelerated
methods for financial reporting purposes. Assets are depreciated over
their estimated useful lives as follows:
Estimated Useful Life
---------------------
Revenue Equipment 5 - 8 Years
Equipment 3 - 7 Years
Buildings and Improvements 15 - 40 Years
Restricted Cash
Under certain insurance arrangements, North Star is required to deposit
funds with the insurance carrier to cover claims.
Contractor Escrows
North Star allows independent contractors to escrow funds for future
payment of income taxes, tractor repairs, and other expenses. The
escrowed funds earn an interest rate at 2.00% below the prime rate,
with a minimum rate of 7.00%. Interest earned is included in the
independent contractor's escrow balance.
Income Taxes
The Company is an S-Corporation, which is not subject to federal income
tax. The S-Corporation is, however, subject to certain state taxes.
Income is taxed directly to the shareholders.
Stockholders' Equity
The following is a summary of the capital stock as of June 30, 1998 and
December 31, 1997:
NORTH STAR TRANSPORT, INC. - Class A Voting Common Stock, $.001 par
value, 100,000 shares authorized, 50,000 shares issued and
outstanding at June 30, 1998 and December 31, 1997. Class B
Non-voting Common Stock, $.001 par value, 9,900,000 shares
authorized, 5,505,556 and 4,950,000 issued and outstanding at June
30, 1998 and December 31, 1997, respectively.
TRANSCO, INC. - Common stock, no par value, 1,000,000 shares
authorized, 10,000 shares issued and outstanding at December 31,
1997.
Freight Revenue Recognition
The Company records freight revenue when the shipment has been
delivered and billed.
(10)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments
The carrying amounts for all financial instruments approximate fair
values. The carrying amounts for cash, receivables, prepayments, cash
surrender values of life insurance policies, accounts payable, accrued
liabilities, and contractor escrows approximate fair value because of
the short maturity of these instruments. The fair value of long-term
debt is based on current rates at which the Company could borrow funds
with similar remaining maturities.
June 30, 1997, Financial Data
The June 30, 1997, financial data is unaudited; however, in
management's opinion, such data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation
of results for the six-month period.
NOTE 2 CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and trade accounts receivable.
Credit risk with respect to temporary cash investments is mitigated as
the Company invests excess cash in low risk, liquid instruments. While
the Company does not require collateral on trade accounts receivable,
credit risk is limited due to the large number of customers comprising
the Company's customer base and their dispersion across different
geographic areas and industries. Historically, the Company has not
suffered significant losses with respect to temporary cash investments
and trade accounts receivable.
The Company hauls a substantial amount of freight for one customer.
During the six months ended June 30, 1998 and 1997 and the year ended
December 31, 1997, sales to this customer amounted to 30%, 31%, and 31%
of total freight revenue, respectively. At June 30, 1998 and December
31, 1997, amounts due from this customer were 30% and 18% of total
trade accounts receivable, respectively.
NOTE 3 CASH SURRENDER VALUE OF LIFE INSURANCE
North Star carried insurance policies on the lives of the certain
shareholders and officers and was the sole beneficiary of such
policies. At June 30, 1998 and December 31, 1997, there were no loans
against the policies. On June 30, 1998, as indicated in Note 1, the
life insurance policies were distributed to the Company's 98% owned
subsidiary, Transmanagement Insurance Agency, LLC.
NOTE 4 RELATED PARTY BALANCES AND TRANSACTIONS
The Company had a note receivable from a related party. The note was
collected during 1998.
(11)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
The Company engages in business activities with affiliated entities.
The following is a summary of balances and transactions with
affiliates:
The Company has amounts due to and from affiliates for various
activities. At June 30, 1998, these amounted to $286,277 and $3,699,
respectively. At December 31, 1997, these amounted to $316,065 and
$127,000, respectively.
Revenue equipment rents which consists of charges from related
entities for the leasing of tractors and independent contractors for
use in hauling freight approximated $138,662 and $116,392 for the
six-month periods ended June 30, 1998 and 1997, respectively, and
$265,859 for the year ended December 31, 1997.
Repair and maintenance provided by a related entity on equipment
owned by the Company approximated $1,107,059 and $1,309,027 for the
six-month periods ended June 30, 1998 and 1997, respectively, and
$2,592,967 for the year ended December 31, 1997.
The Company leases buildings and real estate from related entities.
Rental expense approximated $102,085 and $96,510 for the six-month
periods ended June 30, 1998 and 1997, respectively, and $188,820 for
the year ended December 31, 1997.
The Company leases various office equipment and services to related
entities. Rental income approximated $22,800 and $10,500 for the
six-month periods ended June 30, 1998 and 1997, respectively, and
$21,000 for the year ended December 31, 1997.
The Company sold equipment to related parties during 1998. The
equipment had a net book value of approximately $67,408 and was sold
for approximately $113,528.
Interest paid and received to/from related entities on notes for the
six-month period ended June 30, 1998, amounted to $0 and $1,858,
respectively. Interest paid and received to/from related entities on
notes for the six-month period ended June 30, 1997, amounted to
$3,812 and $0, respectively. Interest paid and received to/from
related entities on notes for the year ended December 31, 1997,
amounted to $4,275 and $877, respectively.
NOTE 5 LINE OF CREDIT
The Company has line of credit agreements totaling $3,600,000 with
First Bank National Association. The lines, which expires July 1998,
have a variable interest rate, 7.5% at June 30, 1998, are secured by
equipment and the related leases, and personal guarantees by the
Company's shareholders.
(12)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
Under provisions of the credit agreement, the Company is restricted by
various covenants including but not limited to: limitations on
outstanding balance, minimum tangible net worth, and minimum
liabilities to net worth ratio requirements.
(13)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 LONG-TERM DEBT
North Star has note agreements with First Bank National Association.
Outstanding balances on the notes totaled $3,190,391 and $3,905,401 for
the six months ended June 30, 1998 and the year ended December 31,
1997, respectively. The notes require monthly installments through 2001
and have fixed interest rates, 7.18% to 7.22% at June 30, 1998. The
notes are secured by the underlying revenue equipment and personal
guarantees by North Star's shareholders.
The note agreements contain certain covenants which, among other
things, require North Star to maintain minimum levels of tangible net
worth, ratio of tangible net worth to total liabilities, and the ratio
of cash flows to debt service.
The following maturities of long-term debt for each of the future years
are:
Years Ending June 30, Amount
--------------------- -----------
1999 $ 1,508,874
2000 953,116
2001 541,499
2002 186,902
-----------
Total $ 3,190,391
===========
NOTE 7 PROFIT SHARING PLAN
During 1997, the Company established a 401(k) contribution investment
and savings plan for employees who meet eligibility requirements set
forth in the Plan. Employees may elect to defer a portion of their
compensation up to the maximum allowed by the Internal Revenue Code.
The Plan provides for an employer matching contribution equal to 25% of
each employee's deferral not to exceed 6% of total compensation.
Matching contributions totaled $16,676, $6,710, and $23,549 for the six
months ended June 30, 1998 and 1997 and the year ended December 31,
1997, respectively.
NOTE 8 INSURANCE CLAIMS
North Star assumes responsibility for liability up to $100,000, plus
administrative expenses, for any single occurrence involving personal
injury and/or property damage. Liability in excess of this amount is
assumed by the insurance carrier in the amount management considers
adequate. Under this insurance arrangement, the Company maintains
$800,000 in a letter of credit. Cargo losses are subject to a $10,000
deductible.
(14)
<PAGE>
NORTH STAR TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 COMMITMENTS AND CONTINGENCIES
Operating Leases
North Star leases office equipment under operating leases. Rental
payments amounted to $41,384, $26,943, and $60,050 for the six months
ended June 30, 1998 and 1997 and the year ended December 31, 1997,
respectively.
Minimum future obligations of leases in effect at June 30, 1998, are as
follows:
Years Ending June 30, Amount
--------------------- ---------
1999 $ 59,274
2000 56,319
2001 32,724
2002 6,042
---------
Total $ 154,359
=========
Employment Contract
Effective October 1995, North Star entered into an employment agreement
with its President which calls for the President to be awarded
incentive units during the first five years of employment which are
redeemable for cash upon termination of employment. If the Company is
sold, at any time, the President will automatically receive 5% of the
shares issued and outstanding just prior to the sale.
Compensation related to this agreement was accrued for and included in
other liabilities at December 31, 1997. On June 30, 1998, pursuant to
the employment contract and Stock Purchase Agreement, 277,778 shares of
class B non-voting common stock were issued to the President at par
value.
(15)
Exhibit 99.2
TRANSPORT CORPORATION OF AMERICA, INC.
Unaudited Pro Forma Combined Financial Statements
On June 30, 1998, Transport Corporation of America, Inc. (the "Company")
acquired all of the issued and outstanding capital stock of North Star
Transport, Inc. ("North Star") pursuant to a Stock Purchase Agreement dated May
20, 1998 and as amended June 30, 1998, effective July 1, 1998. The purchase
price paid by the Company consisted of 1,200,000 shares of the Company's Common
Stock (valued at $16.89 per share) and $15,800,000 in cash.
The acquisition is accounted for using the purchase method of accounting. The
total purchase price for the acquisition has been allocated to tangible and
intangible assets and liabilities based upon management's estimates of their
fair value on the acquisition date. The excess of purchase price over fair value
of net assets acquired has been recorded as goodwill with amortization on a
straight-line basis over 25 years.
The following unaudited pro forma financial statements are based on available
information and certain assumptions which management believes are reasonable and
appropriate to give effect to the North Star acquisition as if the transaction
occurred at June 30, 1998 for the pro forma balance sheet and as if it had
occurred on January 1, 1997 for the pro forma income statement. No adjustments
have been made to the historical results to reflect anticipated improvements
which may be realized in the future. Accordingly, the pro forma statements may
not be indicative of actual results of operations or financial condition which
would have been obtained, or which may be realized in the future, if the
acquisition had occurred on January 1, 1997.
(Balance of page has been intentionally left blank)
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------
TRANSPORT NORTH PRO FORMA PRO FORMA
AMERICA STAR ADJUSTMENTS FOOTNOTES COMBINED
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 66 $ 245 $ - $ 311
Trade receivables, net of allowances 19,474 6,446 1,823 (1) 27,743
Other receivables 964 964
Operating supplies 960 960
Deferred income taxes 3,628 3,628
Prepaid expenses and tires 3,189 1,132 4,321
-------- -------- ------- ---------
Total current assets 28,281 7,823 1,823 37,927
Revenue equipment, at cost 145,072 21,133 (10,790) (2) 155,415
Less: accumulated depreciation (36,871) (9,303) 9,303 (2) (36,871)
-------- -------- ------- ---------
Net revenue equipment 108,201 11,830 (1,487) 118,544
Property, other equipment, and improvements:
Land, buildings, and improvements 17,421 13 17,434
Furniture and other equipment 8,105 1,833 9,938
Less: accumulated depreciation (6,887) (1,185) (8,072)
-------- -------- ------- ---------
Net property, other equipment, and improvements 18,639 661 19,300
Deposit on acquisition 15,800 (15,800) (3) 0
Goodwill 23,950 (3) 23,950
Other assets, net 2,174 73 (106) (4) 2,141
-------- -------- ------- ---------
TOTAL OTHER ASSETS 17,974 73 8,044 26,091
-------- -------- ------- ---------
TOTAL ASSETS $173,095 $ 20,387 $ 8,380 $ 201,862
======== ======== ======= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable to bank $ 11,670 $ - $ - $ 11,670
Current maturities of long-term debt 22,083 1,508 23,591
Accounts payable 4,593 1,364 5,957
Checks issued in excess of cash balances 1,803 1,803
Due to independent contractors 1,793 512 2,305
Accrued expenses 11,968 1,809 1,624 (1,3) 15,401
-------- -------- ------- ---------
Total current liabilities 53,910 5,193 1,624 60,727
Long term debt, less current maturities 42,953 1,682 44,635
Deferred income taxes 21,421 21,421
Common stock with non-detachable put option 20,268 (3) 20,268
Stockholders' equity:
Common stock 67 6 (6) (3) 67
Additional paid-in capital 24,312 1,839 (1,839) (3) 24,312
Retained earnings 30,432 11,667 (11,667) (3) 30,432
-------- -------- ------- ---------
Total stockholders' equity 54,811 13,512 (13,512) 54,811
-------- -------- ------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $173,095 $ 20,387 $ 8,380 $ 201,862
======== ======== ======= =========
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
TRANSPORT NORTH PRO FORMA PRO FORMA
AMERICA STAR ADJUSTMENTS FOOTNOTES COMBINED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $102,563 $36,888 $ 474 (1) $ 139,925
OPERATING EXPENSES:
Salaries, wages, and benefits 31,165 3,134 9 (1) 34,308
Fuel, maintenance, and other expense 13,202 1,793 19 (1) 15,014
Purchased transportation 29,397 26,697 325 (1) 56,419
Revenue equipment leases 1,915 1,915
Depreciation and amortization 9,104 931 10,035
Insurance, claims, and damage 2,915 1,120 10 (1) 4,045
Taxes and licenses 1,750 408 - (1) 2,158
Communication 1,265 354 2 (1) 1,621
Other general and administrative expenses 4,072 1,019 (176) (1, 4, 5) 4,915
Gain on disposition of equipment (59) (34) (93)
------- ------- -------- -------
TOTAL OPERATING EXPENSES 94,726 35,422 189 130,337
------- ------- -------- -------
OPERATING INCOME 7,837 1,466 285 9,588
OTHER INCOME (EXPENSE):
Interest expense (2,190) (157) (666) (6) (3,013)
Interest income 116 8 124
Amortization of goodwill (480) (7) (480)
------- ------- -------- -------
TOTAL OTHER INCOME (EXPENSE) (2,074) (149) (1,146) (3,369)
EARNINGS BEFORE INCOME TAXES 5,763 1,317 (861) 6,219
Provision for income taxes 2,249 178 (8, 9) 2,427
------- ------- -------- -------
NET EARNINGS $ 3,514 $ 1,317 $ (1,039) $ 3,792
======= ======= ======== =======
Earnings per common share
Basic $ 0.53 $ 0.48
Diluted $ 0.52 $ 0.47
Average common shares outstanding
Basic 6,691,223 1,200,000 (10) 7,891,223
Diluted 6,776,435 1,213,810 (10) 7,990,245
</TABLE>
<PAGE>
TRANSPORT CORPORATION OF AMERICA, INC.
UNAUDITED COMBINED PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARES AND EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
TRANSPORT NORTH PRO FORMA PRO FORMA
AMERICA STAR ADJUSTMENTS FOOTNOTES COMBINED
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $186,392 $70,015 $ 166 (1) $ 256,573
OPERATING EXPENSES:
Salaries, wages, and benefits 53,166 6,894 (1,373) (1, 5) 58,687
Fuel, maintenance, and other expense 25,028 3,320 7 (1) 28,355
Purchased transportation 55,614 50,488 114 (1) 106,216
Revenue equipment leases 4,894 4,894
Depreciation and amortization 15,494 1,679 17,173
Insurance, claims, and damage 5,620 1,272 3 (1) 6,895
Taxes and licenses 3,249 682 1 (1) 3,932
Communication 2,071 581 1 (1) 2,653
Other general and administrative expenses 6,409 1,625 35 (1, 4, 5) 8,069
Gain on disposition of equipment (1,336) (36) (1,372)
------- ------- -------- -------
TOTAL OPERATING EXPENSES 170,209 66,505 (1,212) 235,502
------- ------- -------- -------
OPERATING INCOME 16,183 3,510 1,378 21,071
OTHER INCOME (EXPENSE):
Interest expense (3,307) (341) (1,334) (6) (4,982)
Interest income 65 17 82
Amortization of goodwill (960) (7) (960)
Miscellaneous 1 1
------- ------- -------- -------
TOTAL OTHER INCOME (EXPENSE) (3,242) (323) (2,294) (5,859)
EARNINGS BEFORE INCOME TAXES 12,941 3,187 (916) 15,212
Provision for income taxes 5,189 911 (8, 9) 6,100
------- ------- -------- -------
NET EARNINGS $ 7,752 $ 3,187 $ (1,827) $ 9,112
======= ======= ======== =======
Earnings per common share
Basic $ 1.18 $ 1.17
Diluted $ 1.15 $ 1.11
Average common shares outstanding
Basic 6,568,444 1,200,000 (10) 7,768,444
Diluted 6,734,352 1,485,789 (10) 8,220,141
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Revenue, expenses and associated balance sheet accounts are adjusted to
conform North Star historical revenue recognition policy with Transport
America's revenue recognition policy.
2. To record North Star's revenue equipment at fair market value.
3. Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired.
4. Other assets consist of a three year Covenant Not to Compete.
5. Historical expenses are adjusted to eliminate certain non-recurring
expenses associated with the sale of North Star, including employment
agreements, and legal and audit fees.
6. Interest expense related to the cash portion of the purchase price is
calculated using the Company's actual short-term borrowing rates,
ranging from 8.25% to 8.50%, during pro forma periods.
7. Goodwill is amortized on a straight-line basis over its estimated
useful life of 25 years.
8. Historical income taxes are adjusted to be consistent with the marginal
tax rates which were in effect for Transport America during the pro
forma periods.
9. The income tax effect of pro forma adjustments is computed using
marginal tax rates which are consistent with those which were in effect
for Transport America during the pro forma periods.
10. Pro forma earnings per share is calculated to give effect to the
1,200,000 shares issued at the acquisition date as if outstanding for
all periods presented. Pro forma diluted earnings per share has been
computed using the "reverse treasury stock" method in the periods
presented. The reverse treasury stock methods gives effect to the put
options issued in connection with the purchase of North Star for the
periods the put options are "in the money." Incremental shares that
result from applying the reverse treasury stock method are 13,810 for
the six months ended June 30, 1998, and 285,789 for the twelve months
ended December 31, 1997.
