Nevada
|
88-0320154
|
|
(State
or other jurisdiction of incorporation
|
(I.R.S.
Employer Identification No.)
|
|
or
organization)
|
||
400
Birmingham Hwy.
|
||
Chattanooga,
TN
|
37419
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
PART
I
FINANCIAL
INFORMATION
|
||
Page
Number
|
||
Item
1.
|
Financial
Statements
|
|
Consolidated
Condensed Balance Sheets as of March 31, 2006 (Unaudited) and December
31,
2005
|
3
|
|
Consolidated
Condensed Statements of Operations for the three months ended March
31,
2006 and 2005 (Unaudited)
|
4
|
|
Consolidated
Condensed Statements of Cash Flows for the three months ended March
31,
2006 and 2005 (Unaudited)
|
5
|
|
Notes
to Consolidated Condensed Financial Statements (Unaudited)
|
6
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
23
|
Item
4.
|
Controls
and Procedures
|
24
|
PART
II
OTHER
INFORMATION
|
||
Page
Number
|
||
Item
1.
|
Legal
Proceedings
|
25
|
Item
1A.
|
Risk
Factors
|
25
|
Item
6.
|
Exhibits
|
25
|
COVENANT
TRANSPORT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
BALANCE SHEETS
(In
thousands, except share data)
|
|||||||
ASSETS
|
March
31, 2006
(unaudited)
|
December
31, 2005
|
|||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
1,135
|
$
|
3,618
|
|||
Accounts
receivable, net of allowance of $2,100 in 2006 and
$2,200
in 2005
|
59,375
|
77,969
|
|||||
Drivers'
advances and other receivables
|
10,740
|
3,932
|
|||||
Inventory
and supplies
|
4,716
|
4,661
|
|||||
Prepaid
expenses
|
13,901
|
16,199
|
|||||
Deferred
income taxes
|
16,763
|
16,158
|
|||||
Income
taxes receivable
|
6,090
|
7,559
|
|||||
Total
current assets
|
112,720
|
130,096
|
|||||
Property
and equipment, at cost
|
320,223
|
301,129
|
|||||
Less
accumulated depreciation and amortization
|
(86,168
|
)
|
(86,767
|
)
|
|||
Net
property and equipment
|
234,055
|
214,362
|
|||||
Other
assets, net
|
23,898
|
26,803
|
|||||
Total
assets
|
$
|
370,673
|
$
|
371,261
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Securitization
facility
|
47,281
|
47,281
|
|||||
Accounts
payable
|
12,535
|
8,457
|
|||||
Accrued
expenses
|
16,965
|
17,088
|
|||||
Insurance
and claims accrual
|
18,082
|
18,529
|
|||||
Total
current liabilities
|
94,863
|
91,355
|
|||||
Long-term
debt, less current maturities
|
33,000
|
33,000
|
|||||
Insurance
and claims accrual, net of current portion
|
20,264
|
23,272
|
|||||
Deferred
income taxes
|
33,494
|
33,910
|
|||||
Total
liabilities
|
181,621
|
181,537
|
|||||
Commitments
and contingent liabilities
|
|||||||
Stockholders'
equity:
|
|||||||
Class
A common stock, $.01 par value; 20,000,000 shares authorized;
13,465,090
and 13,447,608 shares issued; 11,646,690 and 11,629,208
outstanding
as of March 31, 2006 and December 31, 2005, respectively
|
135
|
134
|
|||||
Class
B common stock, $.01 par value; 5,000,000 shares authorized;
2,350,000
shares issued and outstanding as of March 31, 2006 and
December
31, 2005
|
24
|
24
|
|||||
Additional
paid-in-capital
|
91,764
|
91,553
|
|||||
Treasury
stock at cost; 1,818,400 shares as of March 31, 2006 and
December
31, 2005, respectively
|
(21,582
|
)
|
(21,582
|
)
|
|||
Retained
earnings
|
118,711
|
119,595
|
|||||
Total
stockholders' equity
|
189,052
|
189,724
|
|||||
Total
liabilities and stockholders' equity
|
$
|
370,673
|
$
|
371,261
|
Three
months ended March 31,
(unaudited)
|
|||||||
2006
|
2005
|
||||||
Freight
revenue
|
$
|
129,434
|
$
|
123,570
|
|||
Fuel
surcharge revenue
|
22,091
|
14,356
|
|||||
Total
revenue
|
$
|
151,525
|
$
|
137,926
|
|||
Operating
expenses:
|
|||||||
Salaries,
wages, and related expenses
|
58,642
|
53,946
|
|||||
Fuel
expense
|
41,915
|
33,491
|
|||||
Operations
and maintenance
|
8,497
|
7,228
|
|||||
Revenue
equipment rentals and purchased transportation
|
14,678
|
15,360
|
|||||
Operating
taxes and licenses
|
3,302
|
3,339
|
|||||
Insurance
and claims
|
8,226
|
8,834
|
|||||
Communications
and utilities
|
1,591
|
1,639
|
|||||
General
supplies and expenses
|
4,304
|
4,150
|
|||||
Depreciation
and amortization, including gains and losses on
disposition
of equipment
|
10,020
|
9,663
|
|||||
Total
operating expenses
|
151,175
|
137,650
|
|||||
Operating
income
|
350
|
276
|
|||||
Other
(income) expenses:
|
|||||||
Interest
expense
|
1,124
|
614
|
|||||
Interest
income
|
(137
|
)
|
(44
|
)
|
|||
Other
|
(53
|
)
|
(236
|
)
|
|||
Other
expenses, net
|
934
|
334
|
|||||
Loss
before income taxes
|
(584
|
)
|
(58
|
)
|
|||
Income
tax expense
|
300
|
591
|
|||||
Net
loss
|
$
|
(884
|
)
|
$
|
(649
|
)
|
|
Loss
per share:
|
|||||||
Basic
and diluted loss per share:
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
|
Basic
and diluted weighted average common shares outstanding
|
13,985
|
14,669
|
|||||
Three
months ended March 31,
(unaudited)
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(884
|
)
|
$
|
(649
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|||||||
Provision
for losses on accounts receivable
|
158
|
370
|
|||||
Depreciation
and amortization
|
10,160
|
9,514
|
|||||
Deferred
income taxes (benefit)
|
(1,020
|
)
|
(600
|
)
|
|||
Tax
benefit from exercise of stock options
|
-
|
50
|
|||||
Stock
based compensation expense
|
4
|
-
|
|||||
Loss
(gain) on disposition of property and equipment
|
(140
|
)
|
149
|
||||
Changes
in operating assets and liabilities:
|
|||||||
Receivables
and advances
|
15,965
|
11,745
|
|||||
Prepaid
expenses and other assets
|
2,299
|
(301
|
)
|
||||
Inventory
and supplies
|
(55
|
)
|
(248
|
)
|
|||
Insurance
and claims accrual
|
(3,455
|
)
|
3,147
|
||||
Accounts
payable and accrued expenses
|
3,962
|
(1,127
|
)
|
||||
Net
cash flows provided by operating activities
|
26,994
|
22,050
|
|||||
Cash
flows from investing activities:
|
|||||||
Acquisition
of property and equipment
|
(44,227
|
)
|
(26,673
|
)
|
|||
Proceeds
from disposition of property and equipment
|
14,542
|
14,301
|
|||||
Net
cash flows used in investing activities
|
(29,685
|
)
|
(12,372
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Exercise
of stock options
|
192
|
418
|
|||||
Excess
tax benefits from exercise of stock options
|
16
|
-
|
|||||
Repurchase
of company stock
|
-
|
(1,807
|
)
|
||||
Proceeds
from issuance of debt
|
10,000
|
20,000
|
|||||
Repayments
of debt
|
(10,000
|
)
|
(31,869
|
)
|
|||
Deferred
costs
|
-
|
(27
|
)
|
||||
Net
cash provided by (used in) financing activities
|
208
|
(13,285
|
)
|
||||
Net
change in cash and cash equivalents
|
(2,483
|
)
|
(3,607
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
3,618
|
5,066
|
|||||
Cash
and cash equivalents at end of period
|
$
|
1,135
|
$
|
1,459
|
|||
(in
thousands except per share data)
|
Three
months ended
March
31,
|
||||||
2006
|
2005
|
||||||
Numerator:
|
|||||||
Net
loss
|
$
|
(884
|
)
|
$
|
(649
|
)
|
|
Denominator:
|
|||||||
Denominator
for basic earnings per share - weighted-
average
shares
|
13,985
|
14,669
|
|||||
Effect
of dilutive securities:
|
|||||||
Employee
stock options
|
—
|
—
|
|||||
Denominator
for diluted earnings per share -
adjusted
weighted-average shares and assumed
conversions
|
13,985
|
14,669
|
|||||
Net
loss per share:
|
|||||||
Basic
and diluted loss per share:
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
(in
thousands except per share data)
|
Three
months ended
March
31, 2005
|
|||
Net
loss, as reported:
|
$
|
(649
|
)
|
|
Deduct:
Total stock-based employee compensation
expense
determined under fair value based method for
all
awards, net of related tax effects
|
(398
|
)
|
||
Pro
forma net loss
|
$
|
(1,047
|
)
|
|
Basic
and diluted loss per share:
|
||||
As
reported
|
$
|
(0.04
|
)
|
|
Pro
forma
|
$
|
(0.07
|
)
|
|
Number
of options
(in
thousands)
|
Weighted
average exercise price($)
|
Weighted
average remaining contractual term
|
Aggregate
intrinsic value
(in
thousands)
|
|
|
||||
Outstanding
at beginning of the
period
|
1,454
|
$14.33
|
||
Options
granted
|
-
|
-
|
||
Options
exercised
|
(15)
|
$12.38
|
||
Options
forfeited
|
-
|
-
|
||
Options
expired
|
(5)
|
$15.88
|
||
Outstanding
at end of period
|
1,434
|
$14.35
|
5.4
years
|
$1,948
|
Exercisable
at end of period
|
1,424
|
$14.37
|
5.3
years
|
$1,913
|
(in
thousands)
|
Three
months ended
March
31,
|
||||||
2006
|
2005
|
||||||
Net
liability for derivatives at January 1
|
$
|
(13
|
)
|
$
|
(439
|
)
|
|
Gain
in value of derivative instruments that do not qualify as hedging
instruments
|
13
|
195
|
|||||
Net
liability for derivatives at March 31
|
$
|
-
|
$
|
(244
|
)
|
(in
thousands)
|
March
31, 2006
|
December
31, 2005
|
|||||
|
|||||||
Securitization
Facility
|
$
|
47,281
|
$
|
47,281
|
|||
Borrowings
under Credit Agreement
|
$
|
33,000
|
$
|
33,000
|
|||
Total
long-term debt
|
33,000
|
33,000
|
|||||
Less
current maturities
|
-
|
-
|
|||||
Long-term
debt, less current portion
|
$
|
33,000
|
$
|
33,000
|
•
|
Expedited
long
haul
service. Focused attention on teams has produced a substantial increase
in
average length of haul, average miles per tractor, and average freight
revenue per tractor. As a result of greater productivity, the previous
decline in team-driven tractors has stabilized. Revenue per truck
in our
Expedited long
haul
service has increased 6% while our length of haul has grown 18% to
1,493,
and its revenue has grown by 12% during the first quarter of 2006
over the
2005 period.
|
•
|
Refrigerated
service. Prioritizing certain lanes and the allocation of teams to
this
service offering increased average length of haul, average miles
per
tractor, and average revenue per tractor. In addition, we are increasing
the allocation of tractors to this service offering. Revenue per
truck in
our Refrigerated service increased 16% during the first quarter of
2006
versus the 2005 period, while our length of haul has grown 51% to
1,436.
Revenue for our total refrigerated operations, including our SRT
subsidiary, grew during this quarter by 32% over the first quarter
of
2005.
|
•
|
Dedicated
service. There has been essentially no change in Dedicated service
because
of the longer contract duration. In addition, we are continuing to
evaluate individual candidates to manage this business.
|
•
|
Regional
solo-driver service. This service offering is our largest and is
in the
beginning stages of significant changes in its operating lanes and
territories, freight mix, personnel, and policies and procedures.
Over the
long term we expect these changes to result in a shorter average
length of
haul and an increase in average freight revenue per tractor. However,
interim results may fluctuate substantially. We expect to allocate
trucks
to other service offerings until the operating results of this service
offering improve and become more
consistent.
|
Three
Months Ended
March
31,
|
Three
Months Ended
March
31,
|
|||||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||||
Total
revenue
|
100.0
|
%
|
100.0
|
%
|
Freight
revenue(1)
|
|
100.0
|
%
|
100.0
|
%
|
||||||
Operating
expenses:
|
Operating
expenses:
|
|||||||||||||||
Salaries,
wages, and related
expenses
|
38.7
|
39.1
|
Salaries,
wages, and related
expenses
|
45.3
|
43.7
|
|||||||||||
Fuel
expense
|
27.7
|
24.3
|
Fuel
expense (1)
|
|
15.3
|
15.5
|
||||||||||
Operations
and maintenance
|
5.6
|
5.2
|
Operations
and maintenance
|
6.6
|
5.8
|
|||||||||||
Revenue
equipment rentals
and
purchased
transportation
|
9.7
|
11.1
|
Revenue
equipment rentals
and
purchased
transportation
|
11.3
|
12.4
|
|||||||||||
Operating
taxes and licenses
|
2.2
|
2.4
|
Operating
taxes and licenses
|
2.6
|
2.7
|
|||||||||||
Insurance
and claims
|
5.4
|
6.4
|
Insurance
and claims
|
6.4
|
7.1
|
|||||||||||
Communications
and utilities
|
1.0
|
1.3
|
Communications
and utilities
|
1.2
|
1.4
|
|||||||||||
General
supplies and expenses
|
2.8
|
3.0
|
General
supplies and expenses
|
3.3
|
3.4
|
|||||||||||
Depreciation
and amortization
|
6.6
|
7.0
|
Depreciation
and amortization
|
7.7
|
7.8
|
|||||||||||
Total
operating expenses
|
99.8
|
99.8
|
Total
operating expenses
|
99.7
|
99.8
|
|||||||||||
Operating
income
|
0.2
|
0.2
|
Operating
income
|
0.3
|
0.2
|
|||||||||||
Other
expense, net
|
0.6
|
0.2
|
Other
expense, net
|
0.7
|
0.2
|
|||||||||||
Loss
before income taxes
|
(0.4
|
)
|
0.0
|
Loss
before income taxes
|
(0.5
|
)
|
0.0
|
|||||||||
Income
tax expense
|
0.2
|
0.4
|
Income
tax expense
|
0.2
|
0.5
|
|||||||||||
Net
loss
|
(0.6
|
)%
|
(0.4
|
)%
|
Net
loss
|
(0.7
|
)%
|
(0.5
|
)%
|
|||||||
(1)
|
Freight
revenue is total revenue less fuel surcharge revenue. Fuel surcharge
revenue is shown netted against the fuel expense category ($22.1
million
and $14.4 million in the three months ended March 31, 2006, and 2005,
respectively).
|
PART
II
OTHER
INFORMATION
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
From
time to time we are a party to ordinary, routine litigation arising
in the
ordinary course of business, most of which involves claims for personal
injury and property damage incurred in connection with the transportation
of freight. We maintain insurance to cover liabilities arising from
the
transportation of freight for amounts in excess of certain self-insured
retentions.
On
March 7, 2003, an accident occurred in Wisconsin involving a vehicle
and
one of our tractors. Two adult occupants of the vehicle were killed
in the
accident. The only other occupant of the vehicle was a child, who
survived
with little apparent injury. Suit was filed in the United States
District
Court in Minnesota by heirs of one of the decedents against us and
our
driver under the style: Bill
Kayachitch and Susan Kayachitch as co-trustees for the heirs and
next of
kin of Souvorachak Kayachitch, deceased, vs. Julie Robinson and Covenant
Transport, Inc.
The case was settled on October 10, 2005 at a level below the aggregate
coverage limits of our insurance policies and was formally dismissed
in
February 2006. Representatives of the child may file an additional
suit
against us.
|
ITEM
1A.
|
RISK
FACTORS
While
we attempt to identify, manage, and mitigate risks and uncertainties
associated with our business, some level of risk and uncertainty
will
always be present. Our Form 10-K for the year ended December 31,
2005, in
the section entitled Item
1A. Risk Factors,
describes some of the risks and uncertainties associated with our
business. These risks and uncertainties have the potential to materially
affect our business, financial condition, results of operations,
cash
flows, projected results, and future prospects. We do not believe
that
there have been any material changes to the risk factors previously
disclosed in our 2005 Form 10-K.
|
ITEM 6. | EXHIBITS | |
Exhibit
Number
|
Reference
|
Description
|
3.1
|
(1)
|
Restated
Articles of Incorporation
|
3.2
|
(1)
|
Amended
Bylaws dated September 27, 1994
|
4.1
|
(1)
|
Restated
Articles of Incorporation
|
4.2
|
(1)
|
Amended
Bylaws dated September 27, 1994
|
31.1
|
#
|
Certification
pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002, by David R. Parker,
the
Company's Chief Executive Officer
|
31.2
|
#
|
Certification
pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002, by Joey B. Hogan,
the
Company's Chief Financial Officer
|
32.1
|
#
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, by David R. Parker, the Company's
Chief
Executive Officer
|
32.2
|
#
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002, by Joey B. Hogan, the Company's Chief
Financial Officer
|
References:
|
||
(1)
|
Incorporated
by reference from Form S-1, Registration No. 33-82978, effective
October
28, 1994.
|
|
#
|
Filed
herewith.
|
COVENANT
TRANSPORT, INC.
|
||
Date:
May 8, 2006
|
/s/
Joey B. Hogan
|
|
Executive
Vice President and Chief Financial Officer,
in
his capacity as such and on behalf of the
issuer.
|