ITEM 1. BUSINESS
OVERVIEW
Transport Corporation of America, Inc. (the "Company" or "Transport America"), which began substantial operations in 1984, provides a wide range of truckload carriage and logistics services in various lengths of haul in the United States and parts of Canada. The Company has designed its business to provide high quality, customized logistics services that allow it to be a preferred partner or core carrier to major shippers. The Company serves as an integral part of the distribution system of many of its major customers, including 3M Company, Clorox Company, Federal Express, Ford Motor Company, General Mills, Hon Company, P.P.G. Industries, Polaris Industries, S.C. Johnson & Sons, and Sears, Roebuck & Co. The Company's customers require time-definite pick-up and delivery to support just-in-time inventory management, specialized equipment, such as temperature controlled trailers, trailers designed to support decking, multi-stop loading and unloading, and electronic data interchange services to automate the exchange of order and load data. The Company also provides transportation logistics services in which it arranges transportation for customers with other third-party transportation providers. To support these complex customer requirements and deliver logistics services cost effectively, Transport America has developed a sophisticated information management system which it believes makes it a technological leader in the industry.
The Company carries out its business strategy by assigning an experienced marketing representative to each customer to tailor its logistics services, and by providing a wide range of transportation services, including line-haul, multi-stop capability, regional and local operations, van trailers with and without refrigeration or temperature control, time-definite pick-up and delivery, satellite monitored transit, load optimization services, and information technology services. As part of its mission to serve the logistics needs of its mostly Fortune 500 customers, Transport America provides dedicated transportation and logistic services.
In July 1998, the Company acquired North Star Transport, Inc. ("North Star"), a private truckload carrier based in Eagan, Minnesota. The operations of North Star were integrated into those of the Company during the second half of 1998. The Company operated Transport International Express, Inc. ("TIE") from August 1997 through December 1998. Because TIE did not meet Company expectations, the Company sold the assets and operations of TIE, effective January 1, 1999. In May 1999, Transport America acquired Robert Hansen Trucking, Inc. ("RHT"), a private truckload carrier in Delavan, Wisconsin.
In October 1999, the Company announced the formation of TA Logistics, Inc. ("TA Logistics"), a wholly owned subsidiary. TA Logistics provides services related to transportation procurement and logistics processes. Operations of TA Logistics commenced in the first quarter of 2000 and provided approximately $1.0 million of revenue during 2000.
TRANSPORT CORPORATION OF AMERICA, INC.
On January 17, 2000, Transport America entered into an Agreement and Plan of Merger (the "Merger Agreement") with USFreightways Corporation based in Chicago, Illinois, and Zeus Acquisition Corporation, a wholly-owned subsidiary of USFreightways. On February 8, 2000, the parties terminated the Merger Agreement by mutual agreement.
CUSTOMER FOCUS AND SERVICES
The Company has designed its business to be a core carrier or preferred partner to major shippers by providing high quality, tailored logistics service. The Company serves as an integral part of the distribution system of many of its major customers, including 3M Company, Clorox Company, Federal Express, Ford Motor Company, General Mills, Hon Company, P.P.G. Industries, Polaris Industries, S.C. Johnson & Sons, and Sears, Roebuck & Co. Among the Company's other major customers are Arctic Cat, Dupont, Golden Valley Foods, Osco Drug Distributors, Target Corporation, Toys-R-Us, and Walmart/Sams Club. The principal categories of freight hauled by the Company are department store merchandise, grocery, industrial, consumer, paper products, and expedited services.
During 2000, the Company's largest 5, 10, and 25 customers accounted for approximately 43%, 61%, and 76%, respectively, of operating revenues. During 2000, Sears, Roebuck & Co. accounted for approximately 13% of the Company's operating revenues.
MARKETING. The Company's marketing personnel seek to strengthen Transport America's position with existing customers and establish it with prospective customers by taking advantage of the trend among shippers toward just-in-time inventory management, private fleet conversions, outsourcing of transportation requirements, and utilization of core carriers. The Company employs a marketing force located throughout its primary business areas. Senior management is also actively involved in marketing, logistics planning, and customer relations, especially with large national customers.
SERVICE CENTERS. The Company utilizes strategically located service centers to provide an added level of customer service and support. These facilities are located in close proximity to major customer locations, thereby enabling the Company to provide a large amount of equipment, local cartage service, and local customer service representatives to work directly with customers on a day-to-day basis. The Company believes these service centers provide a competitive advantage by allowing it to work more directly and frequently with customers and provide equipment more rapidly. The Company also believes that its service centers allow it to maintain closer relationships with its driver workforce through on-site driver amenities and interactions with service center personnel.
TIME-DEFINITE SERVICE. In each of its markets, the Company seeks to provide 100% on-time pickup and delivery, expedited time-in-transit, logistical planning to coordinate and deliver freight within time-definite parameters, and advanced information capabilities that provide value to customers. Time-definite transportation requires pick-ups and deliveries to be performed within narrowly defined time frames. Time-definite services are particularly
TRANSPORT CORPORATION OF AMERICA, INC.
important to the Company's customers who operate just-in-time manufacturing, distribution, and retail inventory systems.
HUMAN RESOURCES
Transport America's human resources are an important element of its customer-focused business strategy. Employee drivers, independent contractors, and non-driver employees regularly interact with customers and are ultimately responsible for customer satisfaction. In order for the Company to grow and continue to be positioned as a quality carrier of choice for existing and new customers, the Company regularly evaluates changes to the driver's work environment that will improve driver satisfaction. The Company continues to emphasize competitive pay packages, quality at-home time, and "driver friendly" freight as principal means to attract and retain its driver workforce.
INDEPENDENT CONTRACTORS. The Company believes that a fleet of both employee drivers and independent contractors is essential if the Company is to continue its growth. Independent contractors provide their own tractors, generally have a lower turnover rate than the Company has experienced with employee drivers, and have a strong emphasis on safety.
The Company enters into operating agreements with its independent contractors, pursuant to which its independent contractors agree to furnish a tractor and driver to transport, load and unload goods on behalf of the Company. These agreements typically have terms of one year and provide for the payment to independent contractors of fixed compensation for total loaded and empty miles as well as for performing other ancillary services. Independent contractors must pay all of their operating expenses and must meet Department of Transportation ("DOT") regulatory requirements, as well as safety and other standards established by the Company. The Company has implemented an incentive program to encourage safe driving and good customer service habits.
DRIVER WORK ENVIRONMENT. The Company believes that the type of freight it typically handles is a significant factor in retention of employee drivers and independent contractors. Consequently, the Company focuses much of its marketing efforts on customers with freight that is "driver-friendly" in that it requires minimal loading or unloading by drivers and customer employees.
The Company utilizes late-model, reliable equipment including standard features such as double sleeper bunks, extra large cabins, air-ride suspensions, and anti-lock brakes. The Company also provides satellite communications technology which enables drivers to receive load-related information, directions, pay information, and family emergency information. The Company's service centers are strategically located to provide services for the driver, such as showers, laundry facilities, break-rooms, fuel, tractor and trailer maintenance, and in-person assistance from service center personnel.
COMPENSATION AND BENEFITS. The Company's compensation and benefits package has been structured to compensate drivers on the basis of miles driven and ancillary services performed, with increases in base compensation commensurate with length of service.
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Employee driver benefits include paid vacation days, health insurance, and a Company funded 401(k) retirement plan. Performance bonuses are paid based upon safety, customer service and fuel consumption. The Company believes its compensation and benefits package for employee drivers and independent contractors continue to rank among the highest in the truckload industry.
RECRUITING AND TRAINING. The Company's employee drivers are hired, and independent contractors are approved, in accordance with specific Company guidelines relating to safety records, prior work history, personal evaluation, accident and driving record verification, drug and alcohol screening, and a physical examination. The Company's initial orientation and training seminar includes a review of all Company policies and operating requirements, written and road driving tests, defensive driving and safety skills, DOT compliance requirements, and the employee driver's and independent contractor's role in providing safe and efficient value-added service to customers. The Company has increased the recruitment and training of inexperienced driver trainees. These driver candidates are placed in an extensive training program before being assigned their own truck. To enhance its recruiting efforts, the Company opened its new training school in the first quarter of 2000. All 187 school graduates were employed as Company drivers. The school enables persons new to the transportation industry to acquire a commercial driver's license ("CDL").
In addition to the initial training seminar, on-going training on subjects such as safety, compliance, the handling of hazardous materials, equipment operation, customer expectations, and Company policies, is conducted at the Company's service centers and periodically at outside training facilities under contract with the Company. The Company also conducts driver meetings, publishes a newsletter, and conducts specific professional development training, including training to become an over-the-road driver instructor.
DRIVER AND INDEPENDENT CONTRACTOR SUPERVISION. The Company assigns each employee driver and independent contractor to a specific fleet manager and to a home-base service center domicile. The fleet manager's role is to be the primary support resource for the employee driver or independent contractor. The fleet manager also communicates the work assignments and coordinates driver pay matters using satellite technology, schedules time off, reviews performance, provides day-to-day training, and is accountable for the retention and productivity of the assigned employee drivers and independent contractors. Service center managers arrange required safety inspections, review performance and are available to drivers for personal assistance. In the first quarter of 2001, the Company implemented software that will enable fleet managers and drivers to employ satellite technology to agree upon compensation and reimbursable expenses at the level of the individual load assignment.
NON-DRIVER EMPLOYEES. Mechanics, service center personnel, corporate staff, and marketing employees are as important to the success of the Company in meeting or exceeding customer expectations as are employee drivers and independent contractors. Employee task groups are used to analyze specific problems, recommend a course of corrective action, and assist in the implementation of required changes.
TRANSPORT CORPORATION OF AMERICA, INC.
As of December 31, 2000, the Company employed 1,223 student and professional employee drivers, 95 mechanics, 460 persons in operations, marketing, training, and administration, and had agreements with independent contractors who provided 743 tractors. The Company's employees are not represented by any collective bargaining units, and the Company considers relations with its employees and independent contractors to be good.
TECHNOLOGY
The Company has developed an integrated, client/server computer information system. This system integrates operations with the principal back-office functions of safety, maintenance, driver and independent contractor settlement, fuel, billing, and accounting. The system also includes satellite-based communications with the fleet. This system provides information directly to and from the Company, its customers, and drivers to assist in managing a complex information environment. During 2000, the Company completed the development and initial implementation of a replacement enterprise operations system to complete its migration to client/server technology. Implementation of this new operations system was fully completed in January 2001. The Company believes that utilizing advanced technology is the best way to manage a complex, customer-driven logistics process in a cost-effective manner.
OPERATIONS AND COMMUNICATIONS. The Company utilizes information systems and satellite-based communications to process orders, dispatch loads, and monitor loads in transit. Load planners match customer orders daily with driver availability. Once the most appropriate load assignment decision is made, based on computer monitored load factors, the load information is sent directly to the driver through the satellite network. The satellite system simplifies locating of equipment and permits timely and efficient communication of critical operating data such as shipment orders, loading instructions, routing, fuel, taxes paid and mileage operated, payroll, safety, traffic, and maintenance information. The Company implemented software in the first quarter of 2001 that expands its satellite-based communications with drivers to enable them to validate their compensation and expense reimbursements.
ELECTRONIC DATA INTERCHANGE ("EDI"). The Company's system enables full electronic data interchange of load tendering, shipment status, freight billing, and payment. This system provides significant operating advantages to the Company and its customers, including real-time information flow, reduction or elimination of paperwork, error-free transcription, and reductions in clerical personnel. EDI allows the Company to exchange data with its customers in a variety of formats, depending on the individual customer's capabilities, which significantly enhances quality control, customer service, and efficiency. A significant portion of the Company's revenues are currently processed through EDI.
INTERNET ACCESS. During 2000, the Company expanded customer on-line access to certain load status information. The Company intends to add other on-line features, depending upon customer needs and available resources. The Company currently provides on-line download capability for images of various shipping documents and on-line shipment
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status. The Company also maintains an internet web site (www.transportamerica.com) to provide information for customers, potential employees, and investors. The Company expects to continue to expand its use of the internet and e-commerce.
REVENUE EQUIPMENT
The Company operates a modern fleet of tractors and trailers. Tractors are typically replaced every 48 to 60 months, based on factors such as age and condition, current interest rates, the market for used equipment, and improvements in technology and fuel efficiency. The average age of the Company-operated tractors at December 31, 2000 was approximately 27 months.
The Company has available a variety of trailers to meet customer requirements. At December 31, 2000, these included 5,737 dry vans, most of which are logistic capable and many of which are equipped with heaters, 233 refrigerated vans, and 40 flat beds. The trailer-to-tractor ratio of 3.0 allows the Company to provide its high-volume customers with extra trailers to accommodate loading and unloading, and to improve driver and asset utilization. The Company is exploring technology that has the potential to enhance its ability to identify the location and status of unattended trailers with the objective of improving trailer utilization and reducing its investment in this equipment. Depending on market conditions, the Company generally replaces trailers after five to seven years of service. The average age of in-service trailers at December 31, 2000 was approximately 39 months.
The following table shows the model years of the Company tractors and trailers as of December 31, 2000:
Model Year Tractors Trailers - ---------- ------------ ------------ 2000 324 1,049 1999 468 1,481 1998 388 984 1997 96 587 1996 and prior 10 1,909 ------------ ------------ Total Company 1,286 6,010 Independent Contractor 743 0 ------------ ------------ Total available 2,029 6,010 ------------ ------------
TRANSPORT CORPORATION OF AMERICA, INC.
COMPETITION
The truckload transportation business is extremely competitive and fragmented. The Company competes primarily with other truckload carriers, particularly those in the high service end of the truckload market. The Company also competes with alternative forms of transportation, such as rail, intermodal, and air freight, particularly in the longer haul segments of its business. Competition in the truckload industry has created pressure on the industry's pricing structure. Generally, competition for the freight transported by the Company is based on service, equipment availability, trailer type, efficiency, and freight rates. There are a number of competitors that have substantially greater financial resources, operate more equipment, and transport more freight than the Company.
TRANSPORT CORPORATION OF AMERICA, INC.
EXECUTIVE OFFICERS
The executive officers of Transport America are as follows:
NAME AND AGE POSITION WITH TRANSPORT AMERICA - --------------------------------------------------------------
Robert J. Meyers (47) Director of Transport America since 1997; Chief Executive Officer of Transport America since December 1999; President and Chief Operating Officer of Transport America since May 1997; Chief Financial Officer of Transport America from January 1993 to July 1998 and from December 1998 to July 1999; and Chief Information Officer of Transport America since January 1992.
Keith R. Klein (37) Chief Financial Officer of Transport America since July 1999; From 1997 to July 1999, Mr. Klein was founder and owner of a financial consulting firm; From 1990 to 1997, he served in various positions at Deluxe Corporation, most recently as Vice President and Corporate Controller.
David L. Carter (52) Vice President of Risk Management of Transport America since March 1999. Prior to March 1999, Mr. Carter served as Transport America's Director of Risk Management since March 1997, and Loss Prevention Manager from February 1995 to March 1997.
Larry E. Johnson (56) Vice President of Marketing of Transport America since August 2000; Vice President of Marketing Services from March 1999 to August 2000; Director of Marketing Services from January 1995 to March 1999; and Manager of Marketing Services from September 1984 to January 1995.
Jeffrey P. Vandercook (45) Vice President of Operations of Transport America since March 1999. Prior to March 1999, Mr. Vandercook served as Director of Operations of Transport America from 1993 to March 1999, Operations Manager from 1989 to 1993, Area Manager from 1987 to 1989, and a dispatcher from 1986 to 1987.
Robert C. Stone (48) Vice President of Fleet Services of Transport America since March 1999. Prior to March 1999, Mr. Stone served as Director of Fleet Management of Transport America from January 1997 to 1999, Manager of Emergency Road Service from February 1993 to December 1996, and Shop Supervisor from December 1991 to February 1993.
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 2.
ITEM 2. PROPERTIES
The following chart provides information concerning the Company's service centers and other facilities:
The Company's current rental payments for its leased facilities range from approximately $400 to $5,000 per month. The Company does not anticipate any difficulties renewing or continuing these leases. The monthly lease for the Company's headquarters at 1715 Yankee Doodle Road in Eagan, Minnesota is based on a variable interest rate with current payments of approximately $90,000 per month.
In addition to the properties listed above, Transport America leases parking and drop lot space at various locations.
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to litigation incidental to its business, primarily involving claims for workers' compensation or for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance which covers liability amounts in excess of retained liabilities from personal injury and property damage claims. The Company currently carries a total of $30 million liability insurance coverage.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK. The Company's Common Stock is traded on the Nasdaq National Market under the symbol TCAM. The following table sets forth the high and low closing prices for the Company's Common Stock, as reported by Nasdaq, for the periods indicated:
PERIOD HIGH LOW ------ ---- ---
2000: 1st Quarter $ 16.938 $4.875 2nd Quarter 7.250 5.250 3rd Quarter 9.000 5.125 4th Quarter 6.188 3.938
1999: 1st Quarter 13.750 11.250 2nd Quarter 13.438 9.750 3rd Quarter 16.250 12.375 4th Quarter 13.500 10.563
STOCKHOLDERS. As of March 23, 2001, the Company had 439 stockholders of record, including Depository Trust Company, which held of record 6,445,617 shares.
DIVIDENDS. The Company has never paid any cash dividends on its Common Stock and does not intend to pay cash dividends for the foreseeable future. Any future decision as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial position, cash requirements, certain corporate law restrictions, restrictions under loan agreements and such other factors as the Board of Directors deems relevant.
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(1) Net of fuel surcharges
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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The primary business strategy of Transport Corporation of America, Inc. and subsidiaries (the "Company") is to provide truckload carriage and logistics services throughout the United States and parts of Canada as an integral part of the distribution system of many of its major customers. Operations are conducted primarily from the Company's Eagan, Minnesota corporate offices, with maintenance and driver services at its eleven terminal facilities located throughout the United States.
During 2000, the Company made a decision to focus its efforts on strengthening its balance sheet, restructuring debt and other obligations, and implementing processes for optimizing its freight network. Factors leading to this decision included the Company's strong acquisition spending in 1999 as well as softening freight demand in early 2000.
The Company's growth has historically been a result of additional revenues from a well-established base of core customers who require high quality, customized transportation services. During the five-year period ended December 31, 2000, the Company increased its revenues at a compounded annual growth rate of 15.0%. Also contributing to the revenue increases were the acquisitions of two private truckload carriers, North Star Transport, Inc. ("North Star") in July 1998, and Robert Hansen Trucking, Inc. ("RHT") in May 1999. These acquisitions allowed the Company to expand its business with several significant new customers and to expand its relationship with an existing significant customer. In 1999 the Company formed TA Logistics, Inc. to provide transportation procurement and management services.
TRANSPORT CORPORATION OF AMERICA, INC.
RESULTS OF OPERATIONS
The following table sets forth certain operating and other expense items as a percentage of operating revenues for the periods indicated:
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Operating revenues increased 1.8% to $290.6 million for the year ended December 31, 2000 from $285.6 million for the year ended December 31, 1999. Revenue increases in 2000 were primarily the result of fuel surcharges, partially offset by soft demand among the Company's customers as well as unfavorable operating conditions due to weather, particularly in the last quarter of 2000. Revenues per mile, excluding fuel surcharges, were $1.26 per mile for 2000, compared to $1.27 per mile for 1999. Equipment utilization, as measured by average revenues per tractor per week, including fuel surcharges, was $2,747 for 2000, compared to $2,681 for 1999. The increase in 2000 was attributable to additional fuel surcharge revenues, partially offset by lower equipment utilization.
TRANSPORT CORPORATION OF AMERICA, INC.
During 2000, Company-owned tractors averaged 62.4% of all available tractors, compared to 57.9% in 1999, with the remaining portion of the tractor fleet provided by independent contractors. The Company believes that increased operating costs, including fuel and insurance premiums, reduced the number of independent contractors in the truckload industry and limited the Company's ability to increase its independent contractor fleet. As a result, a greater proportion of miles was driven by Company drivers in 2000 than in the prior year. Accordingly, several expense categories increased as a percentage of revenue in 2000, when compared to 1999. At December 31, 2000 and 1999, respectively, the Company's fleet included 1,286 and 1,256 Company-owned tractors, and 743 and 811 tractors owned by independent contractors.
Salaries, wages and benefits expenses, as a percentage of operating revenues, were 28.9% for 2000, compared to 28.0% for 1999. The increase reflects the higher proportion of Company drivers and higher employee medical claim costs in 2000. Efficiency, as measured by average annualized revenues per non-driver employee, was $549,100 for 2000, compared to $561,800 for 1999.
Fuel, maintenance and other expenses, as a percentage of operating revenues, were 14.0% for 2000, compared to 11.1% for 1999. Significantly higher fuel costs in 2000 and the higher proportion of miles driven by Company drivers were the primary factors of the increase in 2000. The Company estimates that the higher fuel costs in 2000, partially offset by fuel surcharge revenues, reduced pre-tax income by approximately $1.1 million, when compared to 1999. Most of the increase in 2000 costs occurred in the first half of the year because fuel surcharge recoveries trail the actual increase in fuel costs, depending on specific provisions of the Company's contracts with its customers.
Purchased transportation, as a percentage of operating revenues, declined to 32.2% in 2000 from 34.2% in 1999. The decrease reflects the lower proportion of miles driven by independent contractors in 2000, partially offset by an increased pass-through of fuel surcharge revenues to independent contractors.
Revenue equipment lease expenses, as a percentage of operating revenues, decreased to 0.1% for 2000 from 0.9% for 1999 as a result of a reduction in the use of operating leases.
Depreciation and amortization, as a percentage of operating revenues, were 10.1% for 2000, compared to 9.0% for 1999. The increase is primarily a result of the greater proportion of Company-owned revenue equipment in 2000 as well as leasehold improvements and computer software that were placed in service during 2000.
Insurance, claims and damage expenses, as a percentage of operating revenues, were 2.8% for 2000, compared to 2.5% for 1999. The increase is primarily a result of unfavorable accident claim experience in 2000, when compared to 1999.
Other general and administrative expenses, as a percentage of operating revenues were 3.7% for 2000, compared to 4.2% for 1999. The decrease reflects the effect of a $2.7 million special bad debt provision in 1999, partially offset by additional expenses in 2000,
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including one-time expenses associated with a terminated merger in early 2000, higher driver hiring and training expenses, and additional rental expenses associated with the new corporate office that was occupied mid-year.
Gain on the sale of property and equipment was $0.7 million in 2000, including a $0.6 million gain on the sale of real estate properties, compared to a gain of $0.8 million in 1999.
Net interest expense, as a percentage of operating revenues, was 3.1% for 2000, compared to 2.6% for 1999, primarily a result of higher average outstanding debt and higher interest rates during 2000, when compared to 1999.
The provision for income taxes, as a percentage of operating revenues, was 1.0% for 2000 and 1.9% for 1999. The effective tax rate for both 2000 and 1999 was 39.0%.
As a result of the items discussed above, the Company's operating ratio (operating expenses as a percentage of operating revenues) was 94.3% for 2000, compared to 92.6% for 1999. Net earnings were $4.7 million, or 1.6% of operating revenues, for the year ended December 31, 2000, compared to $8.3 million, or 2.9% of operating revenues, for the year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Operating revenues increased 16.1% to $285.6 million for the year ended December 31, 1999, from $245.9 million for the year ended December 31, 1998. Revenue growth was driven by expansion of existing customer relationships, new customer additions, and business attributable to the North Star acquisition, which became effective July 1, 1998, and the RHT acquisition, which became effective May 1, 1999. Revenues per mile, excluding fuel surcharges, were $1.27 per mile for 1999, compared to $1.28 per mile for 1998. Equipment utilization, as measured by average revenues per tractor per week, was $2,681 during 1999, compared to $2,831 during 1998. The decline reflects decreased equipment utilization from the historically lower utilization of the North Star and RHT businesses and a significant number of unseated tractors during the last half of the year. In addition, the Company experienced computer database problems in August 1999, which caused the Company to forgo freight revenue opportunities for over 2,000 loads.
Salaries, wages and benefits expenses, as a percentage of operating revenues, were 28.0% for 1999, compared to 27.6% for 1998. Non-driver efficiency, as measured by average annual revenues per non-driver employee, was $561,800 for 1999 and $591,000 for 1998.
Fuel, maintenance and other expenses, as a percentage of operating revenues, were 11.1% for 1999, compared to 10.9% for 1998. The increase reflects significantly higher fuel costs in the last half of 1999, partially offset by the lower proportion of miles driven by Company drivers in 1999, when compared to 1998.
TRANSPORT CORPORATION OF AMERICA, INC.
Purchased transportation expenses, as a percentage of operating revenues, increased to 34.2% for 1999, from 33.8% for 1998. As a consequence of the higher average number of independent contractors in 1999, when compared to 1998, miles driven by independent contractors increased to 45.5% of all miles in 1999, from 43.8% in 1998.
Revenue equipment lease expenses, as a percentage of operating revenues, decreased to 0.9% for 1999, from 1.5% for 1998, as a result of a decline in the use of lease-financed equipment in 1999, when compared to 1998.
Depreciation and amortization expenses, as a percentage of operating revenues, were 9.0% for 1999, compared to 7.9% for 1998, as a result of reduced equipment leasing activity and under-utilized equipment capacity in the last half of 1999, as well as a higher proportion of company-owned equipment in 1999, compared to 1998.
Insurance, claims and damage expenses, as a percentage of operating revenues, were 2.5% for 1999, compared to 2.8% for 1998, reflecting improved accident and claims experience in 1999.
Other general and administrative expenses, as a percentage of operating revenues, were 4.2% for 1999, compared to 3.8% for 1998. Expenses in 1999 included a $2.7 million special bad debt provision for certain specific receivables due to a change in strategy relating to a particular type of relationship and increased exposure risk.
Gain on the sale of equipment was $0.8 million in 1999, compared to a gain of $0.5 million in 1998, as a result of more equipment dispositions in 1999 when compared to 1998.
Net interest expenses, as a percentage of operating revenues, were 2.6% for 1999, compared to 2.0% for 1998, primarily reflecting higher average debt in 1999 associated with the acquisition of Robert Hansen Trucking in May 1999, and purchases of additional revenue equipment in 1999, when compared to 1998.
The provision for income taxes, as a percentage of operating revenues, was 1.9% for 1999 and 2.8% for 1998. The effective tax rate was 39.0% for both 1999 and 1998.
As a result of the items discussed above, the Company's operating ratio (operating expenses as a percentage of operating revenues) was 92.6% for 1999, compared to 90.9% for 1998. Net earnings for 1999 were $8.3 million, or 2.9% of operating revenues compared to $10.7 million, or 4.3% of operating revenues, for 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $34.0 million, $35.4 million, and $40.3 million for the years ended 2000, 1999, and 1998, respectively. During 2000, the net change of operating assets and liabilities consumed $2.1 million.
TRANSPORT CORPORATION OF AMERICA, INC.
Investing activities consumed $6.1 million in 2000, including $0.2 million for the purchase of new revenue equipment, net of proceeds from the disposition of used revenue equipment, and $5.9 million for software development, purchases of other equipment and completion of leasehold improvements, net of proceeds from the disposition of real estate properties.
Net cash consumed by financing activities in 2000 was $28.5 million. The primary source of financing was a $23.5 million capital lease involving the sale and leaseback of revenue equipment. Net repayments of the Company's long-term credit facility, normal payments on long-term debt, and a repurchase of shares of common stock that carried certain put rights consumed $29.8 million, $16.4 million, and $7.8 million, respectively.
Working capital was negative $8.5 million at December 31, 2000, compared to $0.6 million at December 31, 1999. As part of its efforts to strengthen its balance sheet and restructure its debt and other obligations in 2000, the Company arranged for a $23.5 million capital lease transaction at favorable interest rates for the sale and leaseback of certain revenue equipment. Proceeds from this transaction were used to reduce outstanding borrowings under its credit facility and, in combination with newly issued subordinated debt, to repurchase 1,155,000 shares of common stock that carried certain put rights. As a result, liabilities previously classified as non-current were replaced by capital lease obligations and subordinated debt of which, at December 31, 2000, $9.8 million was classified as current. The Company believes that its operating cash flows, collections on accounts receivable, and available borrowings under its credit facility are adequate to meet its debt service requirements and capital needs in the foreseeable future.
The Company has a credit agreement with seven banks for an unsecured credit facility with maximum combined borrowings and letters of credit of $80 million. Amounts actually available under the credit facility are limited by the Company's accounts receivable and unencumbered revenue equipment. At December 31, 2000, there were outstanding borrowings of $60.2 million and letters of credit totaling $1.8 million under this credit facility. In the future, the facility will be used to meet working capital needs, make purchases of revenue equipment and other assets, and to satisfy letter of credit requirements associated with the Company's self-insured retention arrangements.
During 2000, the Company negotiated amendments to the credit facility to permit certain transactions, including the capital lease transaction previously described, the repurchase of shares of common stock that carried certain put rights, revisions to certain covenant restrictions, and a reduction of the maximum borrowings under the credit facility to more closely match the Company's financing needs. The Company is currently considering various financing alternatives, including more permanent long-term arrangements to replace the credit facility, which expires in March 2002. The Company believes that it will be successful in arranging such financing.
TRANSPORT CORPORATION OF AMERICA, INC.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," became effective for the Company beginning January 1, 2001. Management believes the adoption of SFAS 133 will not have a significant impact on the Company's results of operations or financial condition.
FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Company's Annual Report, elsewhere in this Report, in future filings by the Company with the SEC, in the Company's press releases, and in oral statements made with the approval of an authorized executive officer which are not historical or current facts, are forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking statements which speak only as of the date made. The following important factors, among other things, in some cases have affected and in the future could affect the Company's actual results and could cause the Company's actual financial performance to differ materially from that expressed in any forward-looking statement: (1) the highly competitive conditions that currently exist in the Company's market and the Company's ability to compete, (2) the Company's ability to recruit, train, and retain qualified drivers, (3) increases in fuel prices, and the Company's ability to recover these costs from its customers, (4) changes in governmental regulations applicable to the Company's operations, (5) adverse weather conditions, (6) accidents, (7) the market for used revenue equipment, and (8) downturns in general economic conditions affecting the Company and its customers. The foregoing list should not be construed as exhaustive and the Company disclaims any obligation subsequently to revise or update any previously made forward-looking statements. Unanticipated events are likely to occur.
SEASONALITY
As is typical in the truckload industry, the Company's operations fluctuate seasonally according to customer shipping patterns which tend to peak in the summer and fall, then increase again after the holiday and winter seasons. Operating expenses also tend to be higher during the cold weather months, primarily due to poorer fuel economy and increased maintenance costs.
TRANSPORT CORPORATION OF AMERICA, INC.
INFLATION
Many of the Company's operating expenses are sensitive to the effects of inflation, which could result in higher operating costs. With the exception of fuel price increases in 2000, the effects of inflation on the Company's business have not been significant during the last three years. The Company has in place with the majority of its customers fuel surcharge provisions that allow the Company to partially recover additional fuel costs when fuel prices exceed a certain reference price per gallon.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks with its $80 million credit agreement, of which $60.2 million was outstanding at December 31, 2000. The agreement bears interest at a variable rate, which was 8.6% at December 31, 2000. Consequently, the Company is exposed to the risk of greater borrowing costs if interest rates increase. Although the Company does not employ derivatives, or similar instruments to hedge against increases in fuel prices, fuel surcharge provisions enable the Company to reduce the effects of price increases.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are incorporated herein. See "Quarterly Financial Data" appearing on page of the audited consolidated financial statements which are incorporated herein, by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Company's executive officers, reference is made to the information set forth under the caption "Executive Officers" located in Item 1 of this Form 10-K. For information concerning the Company's directors and compliance by the Company's directors, executive officers and significant stockholders with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, reference is made to the information set forth under the captions "Election of Directors" and "Beneficial Ownership of Common Stock," respectively, in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2001 to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
TRANSPORT CORPORATION OF AMERICA, INC.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive Compensation and Other Information" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2001 to be filed pursuant to Regulation 14A, which information is incorporated herein by reference, except to the extent stated therein.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption "Beneficial Ownership of Common Stock" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2001 to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under caption "Certain Transactions" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2001 to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.
TRANSPORT CORPORATION OF AMERICA, INC.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
1. Consolidated Financial Statements
Form 10-K Page Reference -------------- Index to Consolidated Financial Statements..................F-1 Independent Auditors' Report................................F-2 Consolidated Balance Sheets.................................F-3 Consolidated Statements of Earnings.........................F-4 Consolidated Statements of Stockholders' Equity.............F-5 Consolidated Statements of Cash Flows.......................F-6 Notes to Consolidated Financial Statements..................F-7
2. Consolidated Financial Statement Schedules
Consolidated Financial Statement Schedules Included in Part IV of this report: Independent Auditors' Report on Schedule....................S-1 Schedule II - Valuation and Qualifying Accounts.............S-2
3. Exhibits
Exhibit Number Description Page ------ ----------- ----
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 33-84140) as declared effective by the Commission on November 3, 1994 (the "1994 S-1")). 3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the 1994 S-1). 4.1 Rights Agreement by and between the Company and Norwest Bank Minnesota, N.A., dated February 25, 1997 (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, as amended, filed with the SEC on February 27, 1997; to Exhibit 1 to the Company's Registration Statement on Form 8-K/A, filed with the SEC on June 29, 1998; and to Exhibit 1 to the Company's Registration Statement on Form 8-A/A, filed with the SEC on January 21, 2000).
TRANSPORT CORPORATION OF AMERICA, INC.
10.1 Credit Agreement dated as of August 14, 1998 among ABN-AMRO Bank, N.V., certain other bank parties, and the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 10.2 1986 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended December 31, 1996). 10.3 401(k) Retirement Plan (incorporated by reference to Exhibit 10.3 to the 1994 S-1). 10.4 Master Lease, dated as of April 9, 1999, between the Company and ABN/AMBRO Leasing, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.5 Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.6 Form of Vehicle Lease and Independent Contractor Agreement (incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 1996). 10.12 2001 Employee Stock Purchase Plan. 10.13 1995 Stock Plan, as amended (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1996). 11.1 Statement re: Computation of Earnings (Loss) per Share 21 Subsidiaries of the Registrant: TA Logistics, Inc., North Star Transport, Inc., and Robert Hansen Trucking, Inc., Minnesota corporations. 23.1 Independent Auditors' Consent
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December 31, 2000.
(c) Exhibits
Reference is made to Item 14(a)3.
(d) Schedules
Reference is made to Item 14(a)2.
TRANSPORT CORPORATION OF AMERICA, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. ("Registrant")
Dated: March 30, 2001 By: /s/ Robert J. Meyers -------------------------------------- Robert J. Meyers President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature and Title Date - ------------------- ----
/s/ Robert J. Meyers March 30, 2001 - --------------------------------------------------- Robert J. Meyers President, Chief Executive Officer, and Director (Principal Executive Officer)
/s/ Keith R. Klein March 30, 2001 - --------------------------------------------------- Keith R. Klein Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ William D. Slattery March 30, 2001 - --------------------------------------------------- William D.Slattery, Chairman of the Board
/s/ Anton J. Christianson March 30, 2001 - --------------------------------------------------- Anton J. Christianson, Director
/s/ Michael J. Paxton March 30, 2001 - --------------------------------------------------- Michael J. Paxton, Director
/s/ Kenneth J. Roering March 30, 2001 - --------------------------------------------------- Kenneth J. Roering, Director
TRANSPORT CORPORATION OF AMERICA, INC.
Independent Auditors' Report on Schedule
The Board of Directors and Stockholders Transport Corporation of America, Inc.:
Under date of February 2, 2001, we reported on the consolidated balance sheets of Transport Corporation of America, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements, and our report thereon, are included in the annual report on Form 10-K for the year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP Minneapolis, Minnesota February 2, 2001
S-1
TRANSPORT CORPORATION OF AMERICA, INC.
SCHEDULE II
Valuation and Qualifying Accounts (In thousands)
(1) Includes Robert Hansen Trucking valuation at date of acquisition (2) North Star valuation at date of acquisition (3) Includes $2.7 million special bad debt provision due to increased exposure risk in the fourth quarter of 1999
S-2
TRANSPORT CORPORATION OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report-------------------------------------------------F-2
Consolidated Balance Sheets--------------------------------------------------F-3
Consolidated Statements of Earnings------------------------------------------F-4
Consolidated Statements of Stockholders' Equity------------------------------F-5
Consolidated Statements of Cash Flows----------------------------------------F-6
Notes to Consolidated Financial Statements-----------------------------------F-7
TRANSPORT CORPORATION OF AMERICA, INC.
Independent Auditors' Report
The Board of Directors and Stockholders Transport Corporation of America, Inc.:
We have audited the accompanying consolidated balance sheets of Transport Corporation of America, Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 financial position of Transport Corporation of America, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP Minneapolis, Minnesota February 2, 2001
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Balance Sheets (In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Earnings (In thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Stockholders' Equity (In thousands, except share amounts)
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Cash Flows (In thousands)
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
Transport Corporation of America, Inc. (the "Company") is a truckload motor carrier engaged in the transportation of a variety of general commodities for customers principally in the United States and portions of Canada, pursuant to nationwide operating authority. Customer freight is transported by Company equipment and by independent contractors. Payments to Company drivers and independent contractors are primarily based upon miles driven.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries, TA Logistics, Inc., Robert Hansen Trucking, Inc. ("RHT"), North Star Transport, Inc. ("North Star"), TCA of Ohio, Inc., and Transport International Express, Inc. ("TIE"). All significant intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Operating revenues are recognized when the freight to be transported has been loaded. The Company operates primarily in the short-to-medium length of haul category of the trucking industry; therefore, the Company's typical customer delivery is completed one day after pickup. Accordingly, this method of revenue recognition is not materially different from recognizing revenue based on completion of delivery. Amounts payable to independent contractors for purchased transportation, to Company drivers for wages and any other direct expenses are accrued when the related revenue is recognized.
TRADE ACCOUNTS RECEIVABLE
Trade Accounts Receivable at December 31, 2000 and 1999, are net of allowances for doubtful accounts of $276,000 and $3,170,000, respectively.
REVENUE EQUIPMENT, PROPERTY, AND OTHER EQUIPMENT
Revenue equipment, property, and other equipment are recorded at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line basis over the estimated useful lives of the assets or the lease periods, whichever is shorter. The Company regularly updates its estimates of revenue equipment salvage values and adjusts depreciation expense prospectively if there has been a significant change from earlier estimates.
TRANSPORT CORPORATION OF AMERICA, INC.
The estimated useful lives for new equipment when placed in service are as follows:
Years - -------------------------------------------------------------------------------- Tractors 5 Trailers 5 Buildings 30 Other equipment, including computers and furniture 3 - 8 - --------------------------------------------------------------------------------
The Company changed the estimated salvage value of certain of its revenue equipment during 1998. The changes resulted in a net decrease in depreciation expense of approximately $1,095,000, an increase in net income of approximately $668,000, and an increase of basic and diluted earnings per share of $0.09 for 1998. The Company periodically assesses its salvage values to better match revenues and expenses.
TIRES
Tires placed on new equipment after December 31, 1996, are capitalized as part of revenue equipment and amortized over their estimated life. Tires placed on new equipment prior to December 31, 1996, are included in other assets (net) and are capitalized and recorded as prepaid tires and amortized over their estimated life. Replacement tires are expensed when placed in service.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, 25 years. Amortization expense charged to operations for 2000, 1999, and 1998 was $1,090,000, $1,035,000, and $480,000, respectively. The Company assesses the recoverability of the intangible assets in accordance with its Impairment of Long-lived Assets policy.
OPERATING SUPPLIES
Operating supplies representing repair parts, fuel, and replacement tires for revenue equipment are recorded at cost.
TRANSPORT CORPORATION OF AMERICA, INC.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ESTIMATED LIABILITY FOR INSURANCE CLAIMS
The Company maintains automobile, general, cargo, and workers' compensation claim liability insurance coverages under both deductible and retrospective rating policies. In the month claims are reported, the Company estimates and establishes a liability for its share of ultimate settlements using all available information, coupled with the Company's history of such claims. Claim estimates are adjusted when additional information becomes available. The recorded expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims that have not been fully resolved. However, final settlement of these claims could differ materially from the amounts the Company has accrued at year-end. The Company accrues for health insurance claims reported, as well as for claims incurred but not reported, based upon the Company's past experience.
STOCK-BASED EMPLOYEE COMPENSATION
The Company follows the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock-based employee compensation plans. The Company has adopted the disclosure-only requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the amounts presented on the consolidated financial statements for the existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
NET EARNINGS PER SHARE: BASIC AND DILUTED
Basic net earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the year. The 310,000 shares of common stock that were issued at the time of the acquisition of RHT and the 1.2 million shares of common stock that were issued at the time of the acquisition of North Star are considered outstanding effective May 1, 1999, and July 1, 1998, respectively.
TRANSPORT CORPORATION OF AMERICA, INC.
Diluted net earnings per share is computed by dividing net earnings by the weighted average number of potential common shares outstanding, assuming exercise of dilutive stock options and warrants. The potential common shares are computed using the treasury stock method based upon the average market price of the Company's stock during each period.
Diluted net earnings for 2000, 1999, and 1998 include the effect of 1.2 million common shares with a non-detachable put option associated with the acquisition of North Star. The potential common shares for the put have been calculated using the reverse treasury stock method and the average market price of the Company's stock for the period since the July 1, 1998, effective date. The remaining 1,155,000 common shares with the put right were repurchased for $11.7 million of subordinated debt and $7.8 million in cash on December 28, 2000, and thus only affect dilutive shares through that date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and liabilities, because of their short-term nature, approximate fair value. The fair value of the Company's borrowing, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all highly liquid investments with initial maturities of three months or less to be cash equivalents.
(2) OTHER RECEIVABLES
Other receivables at December 31, 2000 and 1999 include a receivable of approximately $0.1 million and $1.0 million, respectively, related to the sale of certain revenue equipment.
(3) OTHER ASSETS
Other assets at December 31, 2000 include goodwill of $3.7 million (net of accumulated amortization of $0.2 million) from the acquisition of RHT and $21.8 million (net of accumulated amortization of $2.4 million) from the acquisition of North Star (see notes 12 and 13).
TRANSPORT CORPORATION OF AMERICA, INC.
(4) CREDIT FACILITY AND LONG-TERM DEBT
The Company has a credit agreement with seven major banks for an unsecured credit facility with maximum combined borrowings and letters of credit of $80 million. Amounts actually available under the credit facility are limited by the Company's accounts receivable and unencumbered revenue equipment. Net of actual outstanding borrowings and letters of credit at December 31, 2000, the Company had available additional borrowings of $19 million. The credit agreement expires in March 2002. At December 31, 2000, the average interest rate of outstanding borrowings was 8.6% and there were letters of credit outstanding totaling $1.8 million under this credit facility.
The credit agreement contains certain financial covenants, which include maintenance of a minimum net worth, maintenance of a consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation, amortization and lease rental expenses, and maintenance of a consolidated fixed charge coverage ratio. The Company was in compliance with these covenants at December 31, 2000.
In December 2000, the credit facility was reduced from $100 million to $80 million in conjunction with certain other transactions including establishment of subordinated debt to repurchase shares of common stock and a $23.5 million sale-leaseback transaction.
The following is a summary of data relating to the credit facility:
Years ended December 31, ----------------------- 2000 1999 - -------------------------------------------------------------------------------- Long Term - --------- Outstanding balance at year end $ 60,150 $ 90,000 Average amount outstanding 85,569 75,061 Maximum amount outstanding 97,500 90,750 Weighted average interest rate during the year 7.99% 6.18% Commitment fee on unused balances 0.325% 0.200%
TRANSPORT CORPORATION OF AMERICA, INC.
Long-term debt consists of the following:
The aggregate annual maturities of long-term debt at December 31, 2000, are as follows:
(5) ACCRUED EXPENSES
Accrued expenses are as follows:
TRANSPORT CORPORATION OF AMERICA, INC.
(6) COMMON STOCK WITH NON-DETACHABLE PUT
In July 1998, as part of its acquisition of North Star, the Company issued 1.2 million shares of common stock with a non-detachable put option. The shares are considered issued and outstanding as of December 31, 1999 and December 31, 1998.
The put gave the stockholder the right to sell some or all of the 1.2 million shares of the Company's common stock back to the Company at $16.89 per share, payable in cash, during a 60-day period commencing June 30, 2001.
The effect of the 1.2 million shares associated with the put is included in the computations of both basic and diluted earnings per share. Additionally, for dilutive earnings per share, the reverse treasury stock method is applied to the 1.2 million shares because the Company's average stock price has been below the put price of $16.89. The dilutive effect for 2000, 1999 and 1998 is $0.10, $0.05 and $0.03 per share, respectively.
In January 2000, 45,000 shares of the common stock with the non-detachable put option valued at $16.89 per share were converted to common stock.
In December 2000, the Company repurchased the remaining 1,155,000 common shares with the put right for $11.7 million of subordinated debt and $7.8 million in cash. The subordinated debt is due in equal installments on September 30, 2001 and 2002. Interest accrues on the principal balance commencing on October 1, 2001 at an annual rate of 8.0% and is payable on September 30, 2002. For financial statement purposes, the Company is accruing interest at an imputed rate of 3.1% over the term of the notes.
(7) STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN AND PREFERRED STOCK DISTRIBUTION
The Company has adopted a stockholder rights plan, which provides for a dividend of one Preferred Stock Purchase Right ("Right") for each outstanding share of the Company's common stock. The plan and dividend become operative in certain events involving the acquisition of 15% or more of the Company's voting stock by any person or group in a transaction not approved by the Board of Directors.
TRANSPORT CORPORATION OF AMERICA, INC.
Each Right entitles the holder to purchase two-hundredths of a share of Series A Junior Participating Preferred Stock for $60 upon the occurrence of certain specified events. Additionally, the Rights entitle the holder, upon the occurrence of certain specified events, to purchase common stock having a value of twice the exercise price of the Right; upon the occurrence of certain other specified events, to purchase from an entity acquiring at least 15% of the voting securities or voting power of the Company, common stock of the acquiring entity having twice the exercise price of the Right. The Rights may be redeemed by the Company at a price of $0.001 per Right. The Rights expire on February 25, 2007, and are not presently exercisable.
WARRANTS
At December 31, 1998, the Company had outstanding warrants for the purchase of 22,500 shares of the Company's common stock at $5.20 per share. All of the warrants were exercised prior to December 31, 1999. No warrants were granted from 1998 to 2000.
Warrant transactions are summarized as follows:
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company adopted an Employee Stock Purchase Plan ("the 1996 Plan"). The purpose of the 1996 Plan was to encourage employees to purchase shares of common stock in the Company, thereby providing a greater community of interest between the Company and its employees. There were 100,000 shares of the Company's common stock reserved for issuance under the 1996 Plan, which terminated on December 31, 2000, at which time 73,603 shares remained unissued.
The 1996 Plan permitted employees to purchase shares of Common Stock of the Company at a price equal to the lesser of 85% of the market value of the Common Stock at the commencement or termination dates of each phase. Each year, during the term of the 1996 Plan, there were two six-month phases commencing on January 1 and July 1, respectively. Employees who have been employed for one year and who are regularly scheduled to work more than 20 hours per week and who are less than 5% owners were eligible to participate in the 1996 Plan via payroll deductions. Purchases are limited to 10% of a participant's base pay during the respective phase.
TRANSPORT CORPORATION OF AMERICA, INC.
In November 2000, the Board of Directors approved the 2001 Employee Stock Purchase Plan, which replaced the 1996 Plan. The 2001 Plan is subject to approval of the Company's stockholders at the annual stockholder meeting to be held in May 2001. The 2001 Plan is effective for a ten-year period beginning January 1, 2001. 100,000 shares of common stock are reserved for issuance under the 2001 Plan. All other provisions of the 2001 Plan are substantially the same as in the 1996 Plan.
During 2000 and 1999, employees purchased 7,066 and 7,375 shares, respectively, at average prices of $7.38 and $10.20 per share, respectively, under the 1996 Plan.
TA REWARDS PROGRAM
The Company has an incentive program to reward employee drivers and independent contractor drivers who achieve certain performance and safety goals. Under this program, drivers are awarded points on a quarterly basis for achieving their safety and performance goals. Drivers may redeem these points for various rewards, including shares of the Company's common stock. Through 1998, the Company satisfied driver point redemptions for shares of the Company's common stock by purchasing the shares on the open market on behalf of the drivers.
In 1998, the Board approved the T.A. Rewards Program - Stock Component ("TA Rewards"). TA Rewards provides for the issuance of up to 100,000 shares of the Company's common stock for driver redemptions of their TA Rewards points. During 2000 and 1999, 11,399 and 7,471 common shares, respectively, were issued under this program.
STOCK OPTION PLANS
The Company has adopted two stock option plans that allow for the grant of options to officers and other key employees to purchase common shares at an exercise price not less than 100% of fair market value on the date of grant. Officers and other key employees of the Company who are responsible for, or contribute to, the management, growth and/or profitability of the business of the Company, as well as selected consultants under contract to the Company and non-employee directors are eligible to be granted awards.
These option plans allow for the grant of up to 725,000 shares. Options generally vest in cumulative annual increments over periods from one to four years and expire five or ten years from date of issuance. At December 31, 2000, the exercise prices of outstanding options ranged from $4.66 to $18.00, with a weighted average contractual life of approximately 3.8 years.
TRANSPORT CORPORATION OF AMERICA, INC.
Option transactions are summarized as follows:
The following table summarizes information about fixed stock options outstanding at December 31, 2000:
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized with respect to the Company's stock option plans or the Employee Stock Purchase Plan. Had compensation cost been determined on the basis of fair value pursuant to the provisions of SFAS No. 123, net earnings and net earnings per share would have been reduced to the pro forma amounts indicated below.
TRANSPORT CORPORATION OF AMERICA, INC.
2000 1999 ----------------------------------------------------------------------- Net earnings: As reported $ 4,673 $ 8,276 ========== ========== Pro forma $ 4,438 $ 8,142 ========== ========== Net basic earnings per share: As reported $ 0.56 $ 1.02 ========== ========== Pro forma $ 0.53 $ 1.00 ========== ========== Net diluted earnings per share: As reported $ 0.46 $ 0.97 ========== ========== Pro forma $ 0.44 $ 0.95 ========== ==========
The above pro forma amounts may not be representative of the effects on reported net earnings for future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 2000 and 1999:
2000 1999 - -------------------------------------------------------------------------------- Dividend yield 0.00% 0.00% Expected volatility 103.00% 55.00% Risk-free interest rate 5.00% 5.40% Expected lives 5 years 5 years
(8) EMPLOYEE BENEFIT PLANS
The Company has a savings retirement plan ("the Plan") for eligible employees under Section 401(k) of the Internal Revenue Code. The Plan allows employees to defer up to 19% of their compensation on a pretax basis. The Company may, at its discretion, match a portion of the employee deferrals. During 2000, 1999, and 1998, the Company contributed amounts equal to one-fourth of the employee deferrals, up to 1% of each participant's compensation. For participants who are employed as truck drivers with pay based on actual miles driven, the Company may also elect to contribute 1/2(cent) and 1(cent) per paid mile driven for drivers with over one and two years of service, respectively. On behalf of all employees, the Company contributed $748,000, $638,000, and $506,000 to the Plan in 2000, 1999, and 1998, respectively.
TRANSPORT CORPORATION OF AMERICA, INC.
(9) INCOME TAXES
The provision for income taxes consists of the following:
(In thousands)
The income tax expense differs from the "expected" tax expense as follows for the years ended December 31, 2000, 1999, and 1998:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999, are presented below:
TRANSPORT CORPORATION OF AMERICA, INC.
At December 31, 2000, the Company has net operating loss carryforwards for federal income tax purposes of approximately $9.9 million, which are available to offset future federal taxable income, if any, through 2019. The Company also has alternative minimum tax credit carryforwards of approximately $3.5 million, which are available to reduce future federal regular income taxes, if any, over an indefinite period.
The Company has reviewed the need for a valuation allowance relating to the deferred tax assets and has ascertained that no allowance is needed.
(10) MAJOR CUSTOMERS
Sales to the Company's five largest customers represented 43%, 45%, and 39% of total revenues for 2000, 1999, and 1998, respectively. One customer accounted for approximately 13% of operating revenues in 2000, 15% of operating revenues in 1999 and 14 % in 1998.
(11) COMMITMENTS
CAPITAL LEASES
In December 2000, the Company entered into a sale-leaseback agreement. Under the arrangement, the Company sold 1,300 trailers and leased them back for periods ranging from 53 to 70 months. The leaseback was accounted for as a capital lease. No gain or loss was incurred as a result of the transaction.
The Company also entered into capital leases for revenue equipment in 2000. The lease agreements are for terms of 36 to 60 months and contain TRAC (terminal rental adjustment clause) provisions, which require the Company to guarantee a termination value as a percentage of the original cost of the leased equipment at the lease termination date.
Following is a summary of revenue equipment under capital leases:
Years ended December 31, --------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Revenue Equipment $ 32,100,884 $ 0 Less accumulated depreciation (1,071,829) 0 - -------------------------------------------------------------------------------- $ 31,029,055 $ 0 ================================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
OPERATING LEASES
In 1999, the Company entered into a five-year operating lease for a new headquarters facility. Lease payments, which commenced in August 2000, are contingent on variable LIBOR rates. The weighted average rates for 2000 were 7.9%. Assuming an average rate of 7.9%, future rent payments are estimated to be $1.03 million per year. The lease provides for renewal and purchase options at the expiration of the lease term. The purchase option is $13 million. At the end of the lease term, there is a one-year renewal option at the same terms and conditions as the original lease.
Rental expense under facility operating leases was approximately $844,000 in 2000, $407,000 in 1999, and $286,000 in 1998.
Rental expense for revenue equipment operating leases was approximately $198,000 in 2000, $2,522,000 in 1999 and $3,477,000 in 1998.
Future minimum payments by year and in the aggregate, under the aforementioned capital and operating leases and other non-cancellable operating leases with initial or remaining terms in excess of one year as of December 31, 2000, are as follows:
GUARANTEE OF INDEBTEDNESS
The Company has a program whereby experienced Company drivers can purchase their own truck. As part of the program, the driver agrees to make certain commitments to the Company and to purchase a vehicle meeting certain specifications established by the Company. In exchange, the Company facilitates the financing of the vehicle and may guarantee some or all of the loans made to drivers participating in the program.
TRANSPORT CORPORATION OF AMERICA, INC.
To accommodate the financing for this program, the Company has entered into a loan, servicing, and guaranty agreement with two banks. Under the terms of the agreement, the Company guarantees 100% of individual driver loans for one bank and 10% of the driver loans with the other bank. The Company has the right to repossess the vehicle in the event a driver defaults on the loan. There were 78 loans with outstanding balances totaling $3.0 million at December 31, 2000, and 99 loans with outstanding balances totaling approximately $4.3 million as of December 31, 1999. No loans were in default. The Company guaranteed $1.1 and $2.4 million of the outstanding balances as of December 31, 2000 and 1999, respectively.
(12) ACQUISITION OF NORTH STAR TRANSPORT, INC.
On July 1, 1998, the Company acquired all of the issued and outstanding capital stock of North Star Transport, Inc. ("North Star"). The purchase price paid by the Company consisted of 1.2 million shares of the Company's Common Stock (valued at $16.89 per share) and $15.8 million in cash, for a total purchase price of $36.1 million. Additionally, beginning with the quarter ended June 30, 1999, the Company was obligated to pay $0.0756 per share of the Company's stock still owned by the sellers of North Star for each quarter through June 30, 2001. The Company made payments totaling $349,272 in 2000 and $272,160 in 1999 related to the contingent consideration. As a result of the restructuring of the put agreement as discussed in note 6, there is no further contingent consideration due to be paid at December 31, 2000.
The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of North Star have been included in the Company's consolidated financial statements since the date of acquisition. 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 $23.9 million 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 combined historical results 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 the beginning of fiscal 1998. No adjustments have been made to the historical results to reflect anticipated improvements which may be realized in the future. Accordingly, the pro forma information may not be indicative of actual results of operations which would have been obtained, or which may be realized in the future, if the acquisition had occurred on January 1, 1998.
TRANSPORT CORPORATION OF AMERICA, INC.
(In thousands, except per share amounts) - -------------------------------------------------------------------------------- Operating revenues $ 283,275 Net earnings $ 10,934 Net earnings per share: Basic $ 1.38 Diluted $ 1.34 - --------------------------------------------------------------------------------
(13) ACQUISITION OF ROBERT HANSEN TRUCKING, INC.
On May 1, 1999, the Company issued 350,000 shares (valued at $13.00 per share) of its common stock as a portion of the purchase price to acquire Robert Hansen Trucking, Inc. ("RHT"). The Company subsequently retired 40,000 of these shares as part of the final purchase price adjustment. The purchase price consisted of $2.7 million in cash and the 310,000 net shares of the Company's common stock, for a total purchase price of $6.2 million.
The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of RHT have been included in the Company's consolidated financial statements since the date of acquisition. 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 $3.9 million 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 combined historical results are based on available information and certain assumptions, which management believes are reasonable and appropriate to give effect to the RHT acquisition as if the transaction occurred at the beginning of fiscal 1999 and 1998. No adjustments have been made to the historical results to reflect anticipated improvements that may be realized in the future. Accordingly, the pro forma information may not be indicative of actual results of operations that would have been obtained, or that may be realized in the future, if the acquisition had occurred on January 1, 1998.
(In thousands, except per share amounts) 1999 1998 - -------------------------------------------------------------------------------- Operating revenues $ 295,074 $ 307,208 Net earnings $ 7,965 $ 10,778 Net earnings per share: Basic $ 0.97 $ 1.31 Diluted $ 0.92 $ 1.27 - --------------------------------------------------------------------------------
TRANSPORT CORPORATION OF AMERICA, INC.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000, 1999, and 1998:
(In thousands, except per share amounts)
* Includes $2.7 million pre-tax special bad debt provision due to increased exposure risk in the fourth quarter of 1999.
(15) RELATED PARTY TRANSACTIONS
During fiscal 2000, 1999, and 1998, the Company paid MicroMation, Inc. $151,710, $469,357, and $193,362, respectively, for information technology services, primarily for the development of the Company's web site and document imaging systems. Robert J. Meyers, the Company's President and Chief Executive Officer, is a founder, former executive officer, and current stockholder of MicroMation, Inc.