<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File No. 0-21922
ARROW TRANSPORTATION CO.
------------------------
(Exact name of Registrant as specified in its charter)
Oregon 93-1103182
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10145 N. Portland Road, Portland, Oregon 97203
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 286-3661
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- -------------------------- ---------------------------------
Common stock, no par value 4,172,762 Shares
1
<PAGE>
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Form 10-Q -- For the Quarter Ended September 30, 1996
INDEX
Part I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
a) Consolidated Balance Sheets --September 30, 1996 and 3
December 31, 1995
b) Consolidated Statements of Operations -- Three and Nine 4
Months Ended September 30, 1996 and September 30, 1995
c) Consolidated Statements of Shareholders' Equity -- 5
December 31, 1995 and September 30, 1996
d) Consolidated Statements of Cash Flows -- Nine Months Ended 6
September 30, 1996 and September 30, 1995
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Consolidated Balance Sheets
(Amounts in thousands)
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
------------- ------------
Cash $ 415 $ 33
Accounts receivable, net 3,191 2,976
Notes and other receivables 49 69
Repair parts and supplies 558 585
Prepaid expenses and deposits 242 736
Prepaid tires 471 630
Assets held for sale 66 785
Deferred income taxes 367 367
------------- -------------
Total current assets 5,359 6,181
Property and equipment, net 12,397 14,218
Assets held for sale 80 317
Other assets 104 131
------------- -------------
TOTAL ASSETS $ 17,940 $ 20,847
============= =============
Accounts payable $ 1,374 $ 1,350
Accrued expenses 1,937 1,684
Current portion of long-term debt and
capital leases 2,926 3,338
------------- -------------
Total current liabilities 6,237 6,372
Line of credit 2,587 1,825
Long-term debt 4,005 4,959
Obligations under capital leases 3,251 4,480
Insurance reserves, claims and contingencies 25 25
Deferred income taxes 2 627
------------- -------------
TOTAL LIABILITIES 16,107 18,288
------------- -------------
Shareholders' equity:
Preferred stock - $5.00 par value:
authorized 500,000 shares; issued
and outstanding 50,000 shares 250 -
Common stock - no par value:
authorized 10,000,000 shares; issued
and outstanding 4,172,762 shares in
1996 and 4,140,859 shares in 1995 4,895 4,868
Accumulated deficit (3,312) (2,309)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 1,833 2,559
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,940 $ 20,847
============= =============
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 7,099 $ 8,237 $ 21,257 $ 24,563
OPERATING EXPENSES
Compensation 3,973 4,439 12,113 13,013
Supplies and maintenance 871 993 2,518 2,983
Fuel and fuel taxes 617 669 1,910 1,921
Depreciation and amortization 598 705 1,827 2,096
Taxes and licenses 307 329 834 1,011
Insurance and claims 152 240 641 638
Selling and administration 291 343 974 1,118
Rent and purchased transportation 353 358 959 1,033
Communication and utilities 119 161 386 445
Gain on sale of revenue equipment (19) (6) (19) (26)
-------- -------- --------- ---------
Total operating expenses 7,262 8,231 22,143 24,232
OPERATING INCOME (LOSS) (163) 6 (886) 331
OTHER (INCOME) EXPENSE:
Interest expense 264 304 846 918
Other (income) expense 26 (16) (104) (64)
-------- -------- --------- ---------
Total other expense 290 288 742 854
INCOME (LOSS) BEFORE INCOME TAXES (453) (282) (1,628) (523)
INCOME TAX EXPENSE (BENEFIT) (172) (113) (625) (210)
-------- -------- --------- ---------
NET INCOME (LOSS) $ (281) $ (169) $ (1,003) $ (313)
======== ======== ========= =========
NET INCOME (LOSS) PER COMMON
AND EQUIVALENT SHARE $ (.07) $ (.04) $ (.24) $ (.07)
======== ======== ========= =========
SHARES USED IN PER
SHARE CALCULATION 4,170 4,193 4,159 4,185
======== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity
(Unaudited)
(Amounts in thousands)
<CAPTION>
Total
Preferred Stock Common Stock Accumulated Shareholders'
Shares Amounts Shares Amounts Deficit Equity
------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 - - 4,141 $4,868 $(2,309) $2,559
Net loss (1,003) (1,003)
Issuance of Preferred Stock 50 $250 250
Issuance of Stock for
Employee Stock
Purchase Plan - - 32 27 - 27
------ ------- ------ ------- -------- --------
Balance, September 30, 1996 50 $250 4,173 $4,895 $(3,312) $ 1,833
====== ======= ====== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,003) $ (313)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,854 2,109
Deferred income taxes (625) (210)
(Gain) loss on sale of property and equipment 26 (43)
Changes in operating assets and liabilities:
Receivables (195) 455
Repair parts and supplies 27 143
Prepaid expenses and deposits 494 450
Prepaid tires 159 39
Accounts payable and accrued expenses 245 (435)
Insurance reserves and claims - (62)
Other (22) -
---------- ---------
Net cash provided by operating activities 960 2,133
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (95) (531)
Payments received on notes receivable - 61
Proceeds from sale of assets held for sale and equipment 1,040 30
---------- ---------
Net cash provided by (used in) investing activities 945 (440)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdrafts 32 (166)
Net borrowing (payments) on line of credit 762 (235)
Proceeds from issuance of long-term debt - 2,996
Repayments:
Notes payable to bank - (2,317)
Long-term debt (1,205) (901)
Capital lease obligations (1,389) (1,146)
Issuance of preferred stock 250 -
Issuance of common stock 27 81
---------- ---------
Net cash used in financing activities (1,523) (1,688)
---------- ---------
NET INCREASE IN CASH 382 5
CASH AT BEGINNING OF PERIOD 33 32
---------- ---------
CASH AT END OF PERIOD $ 415 $ 37
========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
-Increase in capital lease obligations $ - $ 784
and acquisition of equipment
-Increase in debt obligations and acquisition - 637
of equipment
-Increase in notes receivable upon sale of - 200
land (cost of land was $187)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
-Cash paid for interest $ 829 $ 940
-Cash paid for income taxes 3 5
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ARROW TRANSPORTATION CO. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Financial Statements:
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. The
accompanying unaudited consolidated financial statements reflect in the opinion
of management all adjustments considered necessary for a fair presentation as of
September 30, 1996.
(2) Property and Equipment:
As part of the Company's profit improvement plan, the Company removed from its
fleet and placed for sale 43 power units. These power units were reclassified to
current assets as assets held for sale at December 31, 1995. As of September 30,
1996 the Company had 2 units remaining to be sold.
(3) Credit Arrangement:
The Company's combined credit arrangement provides for a $4,000,000 line of
credit at an interest rate of 1.5% over the lender's reference rate (8.25% at
September 30, 1996). Maximum borrowing under the line is limited to the lesser
of $4,000,000 or 85% of eligible accounts receivable which were $2,667,000 at
September 30, 1996. The line of credit matures in November 1997.
The combined credit arrangement includes a $2,000,000 revolving to term loan
facility to allow for the purchase of new and used revenue equipment on a
revolving basis, converting to term loans. Any outstanding balance on this
facility after six months from the initial funding will be converted to a term
note with a maturity of three years from the date of conversion. Borrowing under
the revolving to term loan will bear interest at 1.5% over the lender's
reference rate. There was no balance outstanding under the revolving to term
loan facility at September 30, 1996.
The combined credit arrangement includes various restrictive covenants including
a prohibition on dividends and minimum adjusted net worth. At September 30,
1996, the Company was not in compliance with the minimum adjusted net worth
covenant relating to this credit arrangement. The Company obtained a waiver of
this covenant from the lender.
(4) Shareholders' Equity
In May 1996, the Company issued 50,000 unregistered shares of Class A
convertible preferred stock with a par value of $5.00 per share under a
Preferred Stock Purchase and Option Agreement ("the Agreement"). The Agreement
includes an option to purchase an additional 50,000 shares of Class A
convertible preferred stock at an exercise price of $5.00 per share. The option
expires on June 30, 2001. Each share of preferred stock is convertible at any
time at the option of the holder, into ten shares of the Company's common stock.
The preferred stock bears a 7% annual dividend, payable each May at the
Company's option either in cash or in additional shares of preferred stock. The
preferred stock will be entitled to vote on an as-converted basis, and to a
preference on any liquidation of the Company.
7
<PAGE>
(5) Contingencies, Claims and Insurance Reserves:
The Company is party to four actual or pending proceedings, the materiality of
which the Company is presently unable to assess:
(a) The Washington Department of Ecology ("Ecology") has served an
administrative enforcement order on the Company and 16 other companies
associated with the Yakima Railroad Area ("YRRA") in Yakima, Washington. Ecology
alleges in the order that all 17 of the companies have some connection with the
presence of the chemical Perchloroethylene ("PCE") in the ground water
underlying the YRRA. The Company used carbon filtration to treat wash water from
its trucks.
The spent carbon was taken by an independent transporter to the Cameron Yakima
facility located within the YRRA. This transporter directly contracted with the
Cameron-Yakima recycling facility. Ecology claims that Cameron-Yakima is a
source of PCE contamination, along with other facilities located within the
YRRA. The principal parties with respect to the enforcement order are Ecology,
the Company and the 16 other companies that were served with the order. There
are many other parties, not named on the order, who used Cameron-Yakima and are
potentially liable for contamination at the site. The order directs the
respondent parties to develop and implement a remedial investigation/feasibility
study ("RI/FS") of the YRRA to identify the nature and extent of PCE
contamination in the ground water. The order further directs the respondents to
provide bottled drinking water to certain households within the YRRA, if PCE is
detected in sampled domestic tap water. It is possible that, upon completion of
the RI/FS, Ecology could order the Company and other parties to take further
action, including remediation. A number of the parties have tentatively agreed
to settle Ecology's claims on a basis that is not acceptable to the Company. If
settlement is completed, and the Company is unable to reach a separate
settlement, the Company may be potentially liable for remediation costs that are
not recovered from the settling parties and for contribution. Because of the
preliminary status of this investigation, the Company is unable to determine or
quantify in any meaningful way its potential liability, and therefore, cannot
determine whether it will have a material effect on the Company's financial
condition, results of operations, or cash flows.
(b) The Company was added as a defendant to a case entitled Department of
Labor & Industries vs. Puget Sound Trucklines, et al., in King County,
Washington Superior Court, that alleges the Company, among others, has
violated the overtime pay provisions of Washington state law. Puget Sound Truck
Lines reached an out of court settlement with the Department of Labor and
Industries. The case is now titled Rex W. Allen et al vs. Arrow Transportation
Company. The action, as to the Company, now involves 30 current and former
Company employees, as eight plaintiffs recently reached a settlement with the
Company. The remaining plaintiffs seek unspecified overtime pay, interest and
attorney's fees.
The plaintiff recently indicated that it intended to amend its claim against the
Company to include the Company's payment practices since 1991. If permitted and
proven, this expansion would have the effect of increasing the Company's
potential liability to the plaintiffs, and might affect the Company's employment
practices in the State of Washington. The Company is unable at this time,
however, to determine what effect, if any, this litigation will have on the
8
<PAGE>
Company's financial condition, results of operations, or cash flows.
(c) The Washington Department of Natural Resources filed an action against the
Company and several other parties in November 1995. It seeks to recover cleanup
costs totaling $389,000 from Arrow and the other parties, who all at various
times leased a site in Seattle which was later acquired by the Department. Arrow
leased a portion of the site for five years. Settlement discussions are under
way but have not been concluded. In light of the uncertainties inherent in this
kind of action, the company is unable to determine at this time whether the
action will have a material effect on the company's financial condition, results
of operations, or cash flows.
(d) An action was filed against the Company on May 7, 1996, by Sal N. Cincotta
in the United States District Court for the District of Oregon alleging breach
of contract and unpaid wages. Mr. Cincotta was previously employed by the
Company as its President and Chief Executive Officer, and was a director of the
Company prior to his resignation on May 3, 1996. On October 18, 1996 Mr.
Cincotta filed a motion for summary judgement in this action, seeking $458,139
in total damages. Because of the recent nature of this action, the Company
cannot determine whether costs of defense or the probable result of this
litigation will have a material effect on the Company's financial condition,
results of operations, or cash flows. The Company is vigorously defending this
action.
The Company is a defendant in various claims and other legal proceedings arising
in the ordinary course of business. While resolution of these matters cannot be
predicted with certainty, management believes that the ultimate outcome of such
litigation will not have a materially adverse effect on the Company's financial
position, results of operations or cash flows. In addition to legal
contingencies, management estimates the Company's liability for property,
freight and workers' compensation claims based upon prior claim experience and
records such liabilities in its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This report contains forward looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that might cause
such differences include but are not limited to those discussed below and the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The Company has made significant changes since the first of the year and
continues to make changes to its operations in order to achieve reductions to
its operating cost structure. The Company recently began implementation of phase
II of its profit improvement plan. The phase II plan includes reductions in
corporate and support staff, selected fleet downsizing, operating cost
reductions, redeployment of equipment from Texas to the West Coast and the
restructuring of certain term debt and lease arrangements. The changes the
Company is making are meant to focus the Company on its core competencies, to
reduce waste and redundancies in its processes, and improve cash flow. Although
the changes the Company has made and continues to make are expected to produce
improved results, the full benefit of the many actions the Company is taking
9
<PAGE>
will not be realized immediately. The rebuilding process takes time.
The Company's leverage position requires business volume to improve before
profitability will return. During 1996 business volume has been impacted by
intense competition due to industry over- capacity, sluggish freight demand,
terminal closures and severe winter weather conditions earlier in the year.
Operating costs were adversely impacted by sharply higher fuel prices,
especially on the west coast, and higher union wage and benefit rates. These
factors lead to a loss for the first nine months of 1996. Competition in our
industry remains intense, with experts not predicting material improvement in
freight demand to materialize during 1996. Arrow's focus will continue to be on
its core western market where the Company believes it has a competitive edge.
Results of Operations
Revenue for the quarter and nine months ended September 30, 1996 decreased 13.8%
and 13.5%, respectively, compared to the same periods in 1995. The decrease in
revenue for both the quarter and nine month period is primarily due to continued
sluggish freight demand and volume lost from terminal closures. The decrease in
revenue for the nine months ended September 30, 1996 also reflects the impact of
severe winter weather conditions on results for the first quarter of 1996.
During the fourth quarter of 1995 and the first quarter of 1996, the Company
closed terminal facilities in Baton Rouge, Louisiana; Chattanooga, Tennessee;
and Tulsa, Oklahoma. In July 1996, the Company closed its terminal in Port
Neches, Texas.
Shipments totaling 7,950 and 22,761 for the quarter and nine months ended
September 30, 1996, respectively, represent decreases of 6.1% and 11.9% compared
to the same periods in 1995. Average miles per shipment decreased to 387 and 425
for the quarter and nine months ended September 30, 1996, respectively, from 453
and 428 for the same periods in 1995. Revenue per mile was $2.25 and $2.15 for
the quarter and nine months ended September 30, 1996, compared to $2.13 and
$2.18 for the same periods in 1995. The fluctuations in miles per shipment and
revenue per mile are primarily due to the reduction in high mileage shipments
associated with the Port Neches terminal, which was closed in July 1996.
Operating expenses, as a percentage of revenue ("operating ratio"), increased to
102.3% and 104.2% for the quarter and nine months ended September 30, 1996,
respectively, compared to 99.9% and 98.7% for the same periods in 1995. Lower
revenue levels, higher operating costs as a result of increased union wage and
benefit rates, sharply higher fuel prices and a continued low level of capacity
utilization in 1996 were the principal reasons for the increase in the Company's
operating ratio.
Compensation expense increased as a percentage of revenue when compared to the
same periods in 1995. The increase was primarily attributable to increases in
union wage rates and costs associated with union benefit plans.
Fuel and fuel tax expense increased as a percentage of revenue when compared to
the same periods in 1995. The increase was primarily attributable to sharply
higher fuel prices, especially on the west coast, the Company's primary market.
Depreciation and amortization as well as taxes and license expense has decreased
in 1996
10
<PAGE>
compared to the same periods in 1995. The decreases were associated primarily
with the Company's fleet downsizing program.
Insurance and claims expense decreased for the third quarter of 1996 when
compared to the same period in 1995, but is comparable for the nine month
periods. The decrease for the quarter reflects favorable adjustments on the
Company's fleet liability policy.
Selling and administrative expenses have decreased when compared to the same
periods in 1995. The decreases primarily reflect nonrecurring 1995 costs
associated with the opening of new terminals, and reduced legal fees offset by
costs associated with the implementation of the Company's integrated TQM program
in 1996.
The estimated effective income tax rate was approximately 38% for both periods
in 1996, compared to a rate of approximately 40% for the same periods in 1995.
The Company reported a net loss of $281,000 or $.07 per share for the quarter
and a net loss of $1,003,000 or $.24 per share for the nine months ended
September 30, 1996. The Company's losses were $169,000 or $.04 per share and
$313,000 or $.07 per share for the comparable periods in 1995. Factors
contributing to the losses in 1996 include the low level of business volume and
capacity utilization, higher operating costs associated with this past winter's
severe weather, and higher fuel costs.
Liquidity and Capital Resources
Net cash provided by operating activities was $960,000 for the nine months ended
September 30, 1996. Net cash provided by investing activities of $945,000 for
the nine months ended September 30, 1996 represented proceeds of $1,040,000 from
the sale of assets held for sale and equipment, offset by $95,000 of capital
expenditures. As part of the Company's profit improvement plan the Company
embarked on a fleet downsizing program in January 1996 with a goal of selling 43
power units. The Company sold 41 power units during the nine months ended
September 30, 1996.
In order to finance its operations and fund capital expenditures, the Company
has obtained loans from its principal lender and loans, capital and operating
leases from equipment manufacturers and other asset based lenders/lessors for
its revenue equipment. The equipment loans/leases, which are of shorter duration
(four to five years for tractors, five to seven years for trailers) than the
economic useful lives of the equipment, result in maturities that tend to create
working capital deficits. At September 30, 1996, the Company had a working
capital deficiency of approximately $878,000. The recent losses by the Company
have increased its working capital deficit. The Company will continue to obtain
loans/leases with shorter maturities than the economic useful lives of the
financed equipment. This method of financing can be expected to produce working
capital deficits in the future.
The Company's combined credit arrangement provides for a $4,000,000 line of
credit at an interest rate of 1.5% over the lender's reference rate (8.25% at
September 30, 1996). Maximum borrowing under the line is limited to the lesser
of $4,000,000 or 85% of eligible accounts receivable which were $2,667,000 at
September 30, 1996. The line of credit matures
11
<PAGE>
in November 1997.
The combined credit arrangement includes a $2,000,000 revolving to term loan
facility to allow for the purchase of new and used revenue equipment on a
revolving basis, converting to term loans. Any outstanding balance on this
facility after six months from the initial funding will be converted to a term
note with a maturity of three years from the date of conversion. Borrowings
under the revolving to term loan will bear interest at 1.5% over the lender's
reference rate. There was no balance outstanding under the revolving to term
loan on facility at September 30, 1996.
The combined credit arrangement includes various restrictive covenants
including, a prohibition on dividends and minimum adjusted net worth. At
September 30, 1996, the Company was not in compliance with the minimum adjusted
net worth covenant relating to this credit arrangement. The Company obtained a
waiver of this covenant from the lender.
During the first quarter of 1996, the Company, implemented a downsizing and
restructuring plan to reduce costs, improve operating efficiency and cash flow,
and to restore profitability. In September 1996, the Company began implementing
phase II of its profit improvement plan. The phase II plan includes reductions
in corporate and support staff, selected fleet downsizing, operating cost
reductions, redeployment of equipment and the restructuring of certain term debt
and lease arrangements. In the opinion of management, provided the plan is
successful and the Company's results of operation improve, funds expected to be
generated from future operations, proceeds from its credit arrangements and the
Company's ability to rely upon secured borrowing/leases should provide adequate
liquidity.
To date in 1996, the profit improvement plan has yet to restore the Company to a
positive cash flow position. In the event the Company's profit improvement plan
is not successful, it is unable to restructure its term debt and lease
obligations, and its results of operations fail to demonstrate improvement, (due
to unanticipated expenses, delays, problems, difficulties or otherwise)
available cash and credit facilities may not prove to be sufficient to fund
operations. The Company would then be required to seek additional debt or equity
financing. Although the Company obtained an additional $250,000 in capital
during the second quarter and is currently seeking additional equity financing,
other than the Company's current credit arrangements, the Company has no current
arrangements with respect to other sources of additional financing at this time.
There can be no assurance that additional financing, if required, will be
available to the Company on commercially reasonable terms, or at all.
Seasonality
Seasonality causes variations in the operations of the Company as well as
industry-wide. Demand for the Company's services is generally highest during the
summer and fall months. Historically, expenses are greater as a percentage of
revenues in the winter months as operating efficiency is lower because of lower
utilization rates and weather related costs.
Inflation
The effect of inflation on the Company has not been significant during the last
two years. However, an extended period of inflation could be expected to have an
impact on the
12
<PAGE>
Company's earnings by causing interest rates, fuel and other
operating costs to increase. Unless freight rates could be increased on a timely
basis, operating results would be adversely affected. During the first quarter
of 1996 and again in the third quarter of 1996, fuel prices increased
significantly. Negotiations with customers and market conditions have not
allowed the Company to fully recapture this increased cost.
Deregulation
The Company has historically derived significant revenue from intrastate
shipments in the states of Oregon and Washington pursuant to operating
authorities granted, and tariff rates approved, by the regulatory bodies in
those states. Effective January 1, 1995, the authority of those states to
regulate entry into those markets and the rates charged for such intrastate
shipments were terminated by federal statute. This termination has resulted in
increased competition and downward pressure on rates charged by the Company in
these markets.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings: Information regarding legal proceedings
is included in Note 5 paragraphs (a)
thru (d) to the financial statements
on page 8 and incorporated herein by
reference.
Item 2. Changes in Securities NONE
Item 3. Defaults Upon Senior Securities NONE
Item 4. Submission of Matters to a Vote of Security Holders NONE
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K NONE
13
<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.
ARROW TRANSPORTATION CO.
(Registrant)
Dated: By: /s/ William J. Stanners, Jr.
------------- ------------------------------------------
William J. Stanners, Jr.
Vice President and Chief Financial Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S
FORM 10-Q FOR THE YEAR-TO-DATE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 3,286
<ALLOWANCES> 95
<INVENTORY> 558
<CURRENT-ASSETS> 5,359
<PP&E> 21,509
<DEPRECIATION> 9,112
<TOTAL-ASSETS> 17,940
<CURRENT-LIABILITIES> 6,236
<BONDS> 0
0
250
<COMMON> 4,895
<OTHER-SE> (3,312)
<TOTAL-LIABILITY-AND-EQUITY> 17,940
<SALES> 0
<TOTAL-REVENUES> 21,257
<CGS> 0
<TOTAL-COSTS> 22,143
<OTHER-EXPENSES> (104)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 846
<INCOME-PRETAX> (1,628)
<INCOME-TAX> (625)
<INCOME-CONTINUING> (1,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,003)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
