U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ____ to ____
Commission File Number: 000-18601
TRANSIT GROUP, INC.
-------------------
(Exact name of registrant as specified in its charter)
State of Florida 59-2576629
---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry, Suite 1740, Atlanta, Georgia 30339
----------------------------------------------------
(Address of principal executive offices) - (zip code)
(770) 444-0240
-------------
(Registrant's telephone number, including area code)
Check whether issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
There were 26,046,701 shares of the Company's common stock outstanding as of May
4, 1999.
<PAGE>
TRANSIT GROUP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1
Financial Statements
Consolidated Balance Sheets
as of March 31, 1999 (unaudited) and December 31, 1998 2
Consolidated Statements of Income (unaudited) for the three
months ended March 31, 1999 and 1998 3
Consolidated Statement of Changes in Total Non Redeemable
Preferred Stock, Common Stock and other Shareholder's
Equity (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3
Quantitative and Qualitative Disclosures About
Market Risk 13
PART II. OTHER INFORMATION
Item 6
Exhibits and Reports on Form 8-K 13
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
------------- --------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash $ 1,943,065 $ 2,019,715
Accounts receivable (net of allowance of $695,943 and $706,000) 35,525,541 28,437,208
Other current assets 8,218,126 5,611,332
Deferred income taxes 1,103,220 1,103,220
---------------- --------------
Total current assets 46,789,952 37,171,475
---------------- --------------
Noncurrent assets:
Property, equipment, and capitalized leases 66,224,821 42,818,024
Goodwill 54,903,276 50,061,862
Other assets 495,133 475,620
---------------- --------------
Total noncurrent assets 121,623,230 93,355,506
---------------- --------------
Total assets $ 168,413,182 $ 130,526,981
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current obligations under capital leases $ 1,539,255 $ 1,518,187
Current maturities of long-term debt 12,156,956 10,754,424
Accounts payable 10,165,369 6,169,561
Bank overdrafts 1,195,008 1,319,203
Accrued expenses and other current liabilities 11,723,425 10,028,776
Net current liabilities of discontinued operations 41,979 272,832
---------------- --------------
Total current liabilities 36,821,992 30,062,983
---------------- --------------
Noncurrent liabilities:
Long-term obligations under capital leases 2,987,074 2,429,245
Long-term debt 55,353,370 36,534,421
Note payable to affiliate of Chairman 4,000,000 3,500,000
Other liabilities 4,123,706 4,290,770
Deferred income taxes 3,891,285 438,958
---------------- --------------
Total noncurrent liabilities 70,355,435 47,193,394
---------------- --------------
Total liabilities 107,177,427 77,256,377
---------------- --------------
Redeemable common stock 3,675,400 5,115,071
---------------- --------------
<PAGE>
Non redeemable preferred stock, common stock
and other stockholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized,
none outstanding ----- -----
Note receivable secured by stock (742,500) (729,000)
Common Stock, $.01 par value, 30,000,000 shares
authorized, 26,046,701 and 23,610,190 shares issued and outstanding 250,258 222,177
Additional paid-in capital 76,868,981 68,411,245
Accumulated deficit (18,816,384) (19,748,889)
---------------- --------------
Total non redeemable preferred stock, common stock
and other stockholders' equity 57,560,355 48,155,533
---------------- --------------
Total liabilities and stockholders' equity $ 168,413,182 $ 130,526,981
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Operating revenues $ 64,843,382 $ 26,345,581
------------------ ------------------
Operating expenses:
Purchased transportation 25,517,355 11,750,926
Salaries, wages and benefits 15,641,484 6,093,245
Fuel 4,857,754 2,022,807
Operating supplies and expenses 6,873,349 1,240,350
Lease expense - revenue equipment 4,136,001 725,155
Insurance 794,196 655,049
Depreciation and amortization expense 2,295,263 1,321,813
General and administrative expense 1,766,981 814,775
------------------ ------------------
Total operating expenses 61,882,383 24,624,120
------------------ ------------------
Operating income 2,960,999 1,721,461
Interest expense 1,002,712 778,963
------------------ ------------------
Income before income taxes 1,958,287 942,498
Income taxes 1,025,782 100,257
------------------ ------------------
Net income $ 932,505 $ 842,241
================== ==================
Income per common share -- basic and diluted $ 0.04 $ 0.04
================== ==================
Weighted average number of common shares
outstanding - basic 24,432,823 20,822,664
================== ==================
Weighted average number of common shares
outstanding - diluted 25,208,372 22,061,261
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL
NON REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY
(Unaudited)
Total
Common Additional Note receivable Accumulated shareholders'
stock paid-in capital secured by stock deficit equity
----- --------------- ---------------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 222,177 $ 68,411,245 $ (729,000) $ (19,748,889) $ 48,155,533
Stock issued for acquisitions 27,711 8,291,678 ----- ----- 8,319,389
Stock purchased and retired (3,574) (1,381,400) ----- ----- (1,384,974)
Stock returned to settle contingencies
and retired (272) (118,595) ----- ----- (118,867)
Accrued interest ----- ----- (13,500) ----- (13,500)
Stock issued to affiliate of Chairman 501 230,097 ----- ----- 230,598
Stock no longer subject to redemption 3,715 1,435,956 ----- ----- 1,439,671
Net income ----- ----- ----- 932,505 932,505
=========== ================ ================= ================ ==================
Balance March 31, 1999 $ 250,258 $ 76,868,981 $ (742,500) $ (18,816,384) $ 57,560,355
=========== ================ ================= ================ ==================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 932,505 $ 842,241
--------------------- ---------------------
Adjustments to reconcile income to cash provided by continuing operations:
Depreciation and amortization 2,295,263 1,321,813
Gain on sale of equipment (146,451) (142,282)
Changes in assets and liabilities
Increase (decrease) in accounts receivable 273,841 (620,875)
Increase (decrease) in other assets 343,910 (400,566)
Increase (decrease) in accounts payable and accrued expenses 278,943 (907,785)
Other (471,677) (39,827)
--------------------- ---------------------
Total adjustments 2,573,829 (789,522)
--------------------- ---------------------
Net cash provided by continuing operations 3,506,334 52,719
Net cash used in discontinued operations (255) (55,159)
--------------------- ---------------------
Net cash provided by (used in) operating activities 3,506,079 (2,440)
--------------------- ---------------------
Cash flows from investing activities:
Business combinations, net of cash acquired (2,694,487) (210,196)
Proceeds from disposal of equipment 1,478,501 843,510
Purchase of equipment (2,025,403) (188,606)
Stock redeemed (1,384,974) -----
--------------------- ---------------------
Net cash (used in) provided by investing activities (4,626,363) 444,708
--------------------- ---------------------
Cash flows from financing activities:
Purchase of treasury stock ----- (75,000)
Repayment of capital lease obligations and long-term debt (4,517,350) (3,237,851)
Increase in long-term debt 6,513,095 3,119,931
Decrease in bank overdraft (952,111) -----
--------------------- ---------------------
Net cash provided by (used in) financing activities 1,043,634 (192,920)
--------------------- ---------------------
(Decrease) increase in cash (76,650) 249,348
Cash, beginning of period 2,019,715 789,791
--------------------- ---------------------
Cash, end of period $ 1,943,065 $ 1,039,139
===================== =====================
Supplemental cash flow data
Cash paid for interest $ 847,681 $ 910,279
===================== =====================
Business combinations
Fair value of assets acquired $ 41,437,000 $ 4,550,000
Fair value of liabilities assumed (30,093,000) (2,800,000)
Common stock issued (8,319,000) (1,540,000)
--------------------- ---------------------
Net cash payments $ 3,025,000 $ 210,000
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TRANSIT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The information presented herein as of March 31, 1999, and for the three months
ended March 31, 1999 and 1998 is unaudited. The December 31, 1998 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
1. Basis of Presentation
The consolidated balance sheet of Transit Group, Inc. ("Transit Group" or the
"Company") as of March 31, 1999, it's consolidated statements of income, and its
consolidated statements of cash flows for the three month periods ended March
31, 1999 and 1998 include the consolidated balance sheets of the Company and
it's fourteen acquired subsidiaries, and the results of operations and cash
flows for the periods since acquisition. The Company has made the following
acquisitions:
Company Date Acquired
------- -------------
Carolina Pacific Distributors, Inc. 07/11/97
Service Express, Inc. 08/16/97
Transit Leasing, Inc. 08/16/97
Carroll Fulmer Group, Inc. 08/30/97
Rainbow Trucking, Inc. 12/30/97
Transportation Resources and Management, Inc. 01/31/98
Certified Transport, Inc. 05/05/98
KJ Transportation, Inc. 06/17/98
Network Transportation, Inc. 07/13/98
Diversified Trucking, Inc. 08/05/98
Northstar Transportation, Inc. 08/11/98
Priority Transportation, Inc. 01/19/99
Massengill Trucking Service, Inc. 03/03/99
KAT, Inc. 03/22/99
Certain prior year balances have been reclassified to conform to the current
year financial statement presentation.
2. Summary of Significant Accounting Policies
Management's Representation
The accompanying interim consolidated financial statements have been prepared by
the Company in accordance and consistent with the accounting policies stated in
the Company's 1998 Annual Report on Form 10-KSB and should be read in
conjunction with the consolidated financial statements appearing therein. In the
opinion of management, all adjustments necessary for a fair presentation of such
consolidated financial statements are reflected in the interim periods
presented. Additionally, all adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
consolidated financial statements and notes of Transit Group.
3. Business Combinations
From July 1997 through December 1998 the Company acquired 11 truckload carriers.
In January 1999, the Company acquired Priority Transportation, Inc. an Olive
Branch, Mississippi based truckload carrier. Total consideration for all of the
outstanding shares of Priority was funded by the issuance of approximately
890,000 shares of Transit Group common stock, the payment of $1,000,000 cash,
and a $495,000 payment on a promissory note.
The Company acquired Massengill Trucking Service, Inc. in March 1999. Massengill
was a privately held truckload carrier based in Hickory Flat, Mississippi. The
acquisition was funded by the issuance of approximately 1,070,000 shares of
Transit Group common stock, a cash payment of $1.3 million at closing, and
approximately $850,000 over a five year period.
Also in March 1999, the Company acquired Chesterton, Indiana based KAT, Inc. for
consideration comprised of approximately 812,000 shares of Transit Group common
stock and $725,000 in cash.
The business combinations described above will be accounted for under the
purchase method of accounting. Accordingly, the operating results of the
acquired companies have been included in the Company's consolidated financial
statements since their respective dates of acquisition. Assets acquired and
liabilities assumed were recorded at fair market value.
The unaudited pro forma financial information reflects the operations of the 5
companies acquired in 1997, the 6 companies acquired in 1998, and the 3
companies acquired in 1999 as if they all had been acquired on January 1, 1998.
The following adjustments were made to the historical financial statements of
acquired companies prior to their acquisition by the Company:
- Reduced depreciation expense due to changes in depreciation policies
and estimated lives;
- Amortization of goodwill recorded in connection with the acquisitions;
- Additional interest costs for the cash portion of the acquisition costs;
- Interest costs of the acquired companies have been adjusted to reflect
the Company's financing costs; and
- Provision for income taxes at the Company's estimated annual
rates.
No projected provision for cost reductions (such as insurance, overhead,
purchasing, and fuel) have been reflected in the historical financial statements
of the subsidiaries from January 1, 1998 through the date of acquisition.
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Results of Operations
Three Months Ended March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Revenue $ 72,751,000 $
71,944,000
================== ==================
Net income $ 1,070,000 $ 1,048,000
================== ==================
Income per basic common share $ .04 $ .04
================== ==================
Income per diluted common share $ .04 $ .04
================== ==================
Weighted average number of basic common
shares outstanding 26,029,987 26,381,555
================== ==================
Weighted average number of diluted
common shares outstanding 26,805,536 27,620,152
================== ==================
</TABLE>
4. Income Taxes
At December 31, 1998, the Company had $27,401,275 of federal net operating loss
carryforwards potentially available to offset taxable income which expire during
the years 2007 to 2012. The Company recognized $7,504,000 in benefits for these
net operating losses in the December 31, 1998 financial statements because
management believed it is more likely than not that the benefits will be
realized. The Company will be limited in the amount of net operating loss which
can be offset against taxable income in any given year because of significant
changes in ownership. Certain pre-acquisition losses of acquired companies will
be unusable because of the change of ownership provisions and a valuation
allowance remains for those losses. To the extent these losses are utilized, any
benefit will be used to reduce goodwill as the losses were incurred by acquired
subsidiaries. At March 31, 1999 the net operating loss carryforwards are
approximately $26.6 million.
The company determines its provisions for income taxes using its best estimate
of the effective tax rate expected to be applicable for the full fiscal year.
The difference between the provision for income taxes and the amount that would
be expected using the Federal statutory income tax rate of 34% is related to
nondeductible goodwill amortization expense and certain other nondeductible
expenses.
5. Subsequent Events
On May 14, 1999 the Company consummated an equity financing transaction with
General Electric Capital Corporation ("GECC"). GECC invested $25 million in
exchange for 5 million shares of 9% cumulative preferred stock, which are
convertible to common shares at any time. The proceeds will be used primarily to
finance future acquisitions although initially the Company will pay down certain
borrowings under its revolving credit facility, and other borrowings.
<PAGE>
TRANSIT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements, including the footnotes, and is qualified in its entirety
by the foregoing and other more detailed financial information appearing
elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the Consolidated Statements of
Income, and any trends which may appear to be inferable therefrom, should not be
taken as being necessarily indicative of trends in operations or results of
operations for any future periods.
Comments in this Management's Discussion and Analysis of Financial Condition and
Results of Operations regarding the Company's business which are not historical
facts are forward looking statements that involve risks and uncertainties. Among
these risks are the Company is in a highly competitive business, has a history
of operating losses, and is pursuing a growth strategy that relies in part on
the completion of acquisitions of companies in the trucking industry. There can
be no assurance that in its highly competitive business environment, the Company
will successfully improve its operating profitability or consummate such
acquisitions.
Liquidity and Capital Resources
In November 1998, the Company increased the capacity of its revolving line of
credit with AmSouth Bank from $20 million to $30 million. At March 31, 1999,
$1.0 million was available under the credit facility. Concurrent with expanding
its credit facility, the Company converted $5 million of debt, which was due in
1999, to a term facility which amortizes over seven years and has a final
maturity in January 2002.
Also in November 1998, the Company entered into a $50 million equipment
operating lease facility with a commercial lender. The facility is available to
restructure the financing of certain existing equipment and the remainder to
support future equipment leases. At March 31, 1999 approximately $14 million was
available under this facility.
The Company's acquisition strategy and requirements for replacing its revenue
equipment require significant capital resources. For three months ended March
31, 1999, cash flow from operating activities was $3.5 million and capital
expenditures were $2.0 million for new trucks and trailers. There can be no
assurance that the Company can continue to finance its fleet through operations,
leases or commercial lenders.
On May 14, 1999 the Company consummated an equity financing transaction with
General Electric Capital Corporation ("GECC"). GECC invested $25 million in
exchange for 5 million shares of 9% cumulative preferred stock, which are
convertible to common shares at any time. The proceeds will be used primarily to
finance future acquisitions although initially the Company will pay down certain
borrowings under its revolving credit facility, and other borrowings.
The Company believes that the amounts available from operating cash flows, funds
available under its current facilities and its equipment lease facility will be
sufficient to meet the Company's expected operating needs and planned capital
expenditures for the foreseeable future.
Redemption Rights for Selling Shareholders in Acquisitions
In connection with the acquisitions of Capitol Warehouse, Service Express, and
Carroll Fulmer, the Company granted the selling shareholders the right to
require the Company to redeem a portion of the shares which they received in
exchange for selling their businesses to the Company. The dollar amount of stock
subject to mandatory redemption by the Company aggregated approximately $8.1
million upon acquisition of those companies.
At March 31, 1999, holders of redemption rights with respect to $3.7 million of
stock may require either the Company to redeem the stock or a major shareholder
of the Company to acquire the stock at a price of $3.60 per share. To the extent
such redemption rights are exercised, the Company will be required to fund the
cash required to meet its obligations under the redemption rights by drawing on
bank lines which may be available to its subsidiaries, or to call upon a major
shareholder to purchase the stock under such shareholder's obligations and
guarantees associated with the acquisition contracts.
<PAGE>
Results of Operations - Three months ended March 31, 1999 compared with the
three months ended March 31, 1998
The following table sets forth items in the Consolidated Statement of Income for
the three months ended March 31, 1999 and 1998 as a percentage of operating
revenues.
<TABLE>
<CAPTION>
Percentage of
Operating Revenues
March 31,
--------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Operating revenues 100.00% 100.00%
------------ -------------
Purchased transportation 39.35 44.60
Salaries, wages and benefits 24.12 23.13
Fuel 7.49 7.68
Operating supplies and expenses 10.60 4.71
Lease expense - revenue equipment 6.38 2.75
Insurance 1.22 2.49
Depreciation and amortization expense 3.54 5.02
General and administrative expense 2.73 3.09
-------------
------------
Total expenses 95.43 93.47
------------ -------------
Operating income 4.57 6.53
Interest expense 1.55 2.95
------------ -------------
Income before income taxes 3.02 3.58
Income taxes 1.58 .38
------------ -------------
Net income 1.44% 3.20%
============ =============
</TABLE>
Operating revenue increased from $26.3 million in 1998 to $64.8 million, or
146.1%, for 1999. The increase is due primarily to the acquisition of nine
companies from January 1998 through March 1999. Purchased transportation
increased from $11.8 million in 1998 to $25.5 million, or 117.2%. Purchased
transportation as a percentage of operating revenues decreased from 44.60% in
1998 to 39.35% in 1999. Changes in the fleet mix from brokerage and
owner-operators to company owned trucks as a result of the acquisitions resulted
in the decline in purchase transportation as a percentage of sales.
Salaries, wages and benefits increased from $6.1 million in 1998 to $15.6
million, or 156.7%, in 1999. Salaries, wages and benefits as a percentage of
operating revenues increased from 23.13% in 1998 to 24.12% in 1999. The increase
as a percentage of operating revenues is attributed to the change in revenue mix
discussed in the preceding paragraph as well as continued pressure on driver
wages. Should driver wages continue to increase as a result of the industry-wide
driver shortage, there can be no assurance that these costs can be passed along
through increased freight rates.
Fuel increased from $2.0 million in 1998 to $4.9 million, or 140.1%, in 1998.
Fuel as a percentage of operating revenues decreased from 7.68% in 1998 to 7.49%
in 1999. Fuel costs as a percentage of operating revenues decreased as a result
of lower fuel prices compared with the prior year, the Company's ability to
negotiate more favorable fuel contracts and improved gas mileage from the
purchase of new, more efficient equipment. In the first quarter of 1999, fuel
costs began to increase over the amount paid in the fourth quarter of 1998.
Should fuel costs continue to increase, there can be no assurance that these
costs can be passed along to our customers.
Operating supplies and expenses increased from $1.2 million in 1998 to $6.9
million, or 454.1%, in 1999. Operating supplies and expenses as a percentage of
operating revenues increased from 4.71% in 1998 to 10.60% in 1999. The increase
as a percentage of operating revenues is attributed to the change in the fleet
and revenue mix discussed above.
Lease expense - revenue equipment increased from $.7 million in 1998 to $4.1
million, or 470.4% in 1999. Expressed as a percent of operating revenues, lease
expense - revenue equipment increased from 2.75% in 1998 to 6.38% in 1999. This
increase is related to the utilization of the Company's $50 million equipment
operating lease facility.
<PAGE>
Insurance expense increased from $.7 million in 1998 to $.8 million, or 21.2%,
in 1999. Insurance expense as a percentage of operating revenues decreased from
2.49% in 1998 to 1.22% in 1999. The decrease as a percentage of operating
revenues is due to the Company's ability to negotiate more favorable insurance
rates because of its larger, more diverse insurance base.
Depreciation and amortization expense increased from $1.3 million in 1998 to
$2.3 million, or 73.6%, in 1999. Depreciation and amortization expense as a
percentage of operating revenues decreased from 5.02% in 1998 to 3.54% in 1999.
The decrease as a percentage of operating revenues is due to the increased use
of leased equipment.
General and administrative expense increased from $.8 million in 1998 to $1.8
million, or 116.8%, in 1999. General and administrative expense as a percentage
of operating revenues decreased from 3.09% in 1998 to 2.73% in 1999. The
decrease as a percentage of operating revenues is related to the ongoing
consolidation of certain accounting, finance, and legal administrative
functions.
Operating income increased from $1.7 million in 1998 to $3.0 million, or 72.0%,
in 1999. Operating income as a percentage of operating revenues decreased from
6.53% in 1998 to 4.57% in 1999 as a result of the factors discussed above.
Interest expense increased from $.8 million in 1998 to $1.0 million, or 28.7%,
in 1999 as a result of increased borrowings to fund acquisitions offset by more
favorable interest rates and the increased use of leased equipment.
Income taxes increased from $.1 million in 1998 to $1.0 million in 1999 as the
Company recognized the future value of net operating loss carryforwards in the
fourth quarter of 1998. Previously these benefits were recognized when realized
which lowered the effective tax rates in prior periods.
Income per basic and diluted common share was $.04 in both periods presented.
Results of Operations - Unaudited Pro Forma Three months ended March 31, 1999
compared with the three months ended March 31, 1998
Since July 1997, the Company has acquired 14 truckload carriers. Transit Group
has enabled these companies to reduce certain costs particularly in the areas of
insurance, interest and leasing costs, fuel, and redundant overhead. The
Company's strategy is to allow the acquired companies to focus on marketing,
customer service, and operations while administrative and financial costs are
centralized in the Corporate Services Division of TGT.
The unaudited pro forma financial information reflects the operations of the 14
acquired companies as if they all had been acquired on January 1, 1998. The
following adjustments were made to the historical financial statements of
acquired companies prior to their acquisition by the Company:
- Reduced depreciation expense due to changes in depreciation policies
and estimated lives;
- Amortization of goodwill recorded in connection with the acquisitions;
- Additional interest costs for the cash portion of the acquisition costs;
- Interest costs of the acquired companies have been adjusted to reflect
the Company's financing costs; and
- Provision for income taxes at the Company's estimated annual
rates.
No projected provision for cost reductions (such as insurance, overhead,
purchasing, and fuel) have been reflected in the historical financial statements
of the subsidiaries from January 1, 1998 through the date of acquisition.
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Results of Operations
March 31, 1999 March 31, 1998
-------------------------------- ---------------------------------
$ % $ %
---------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 72,751,000 100.00% $ 71,944,000 100.00%
---------------- ------------ ----------------- ------------
Operating expenses 64,658,000 88.88 61,825,000 85.93
Depreciation and amortization 2,579,000 3.54 3,723,000 5.18
General and administrative expenses 1,913,000 2.63 2,153,000 2.99
---------------- ------------ ----------------- ------------
Total operating expenses 69,150,000 95.05 67,701,000 94.10
---------------- ------------ ----------------- ------------
Operating income 3,601,000 4.95 4,243,000 5.90
Interest expense 1,356,000 1.86 1,914,000 2.66
---------------- ------------ ----------------- ------------
Income before income taxes 2,245,000 3.09 2,329,000 3.24
Income taxes 1,175,000 1.62 1,281,000 1.78
---------------- ------------ ----------------- ------------
Net income 1,070,000 1.47 1,048,000 1.46
================ ============ ================= ============
Income per basic common share $ .04 $ .04
================ =================
Income per diluted common share $ .04 $ .04
================ =================
Weighted average number of basic common
shares outstanding 26,029,987 26,381,555
================ =================
Weighted average number of diluted
common shares outstanding 26,805,536 27,620,152
================ =================
</TABLE>
Excluding the impact of the Rainbow/Capitol merger discussed below, comparable
unaudited pro forma revenues increased by approximately $1.9 million (2.7%) for
the three months ended March 31, 1999 compared to the same period in 1998.
The Company phased out the warehouse operations of Capitol Warehouse due to its
marginal profitability and merged its trucking operations into those of Rainbow
Trucking during fiscal 1998. The combined operations had a decrease in revenue
of $1.0 million in unaudited pro forma 1999 compared to unaudited pro forma
1998.
Operating expenses increased from $61.8 million in unaudited pro forma 1998 to
$64.6 million in unaudited pro forma 1999. Operating expenses as a percent of
total revenues and other income increased from 85.93% in 1998 to 88.88% in 1999.
These increases are related to the Company's increased use of leased equipment
as compared to purchasing revenue equipment.
Depreciation and interest costs have declined both in terms of dollars and
percent of revenue as a result of the Company's lower cost of capital compared
to the acquired companies and emphasis on leasing rather than purchasing
equipment.
On an unaudited pro forma basis, the operating ratio increased from 94.10% to
95.05% for the three months ended March 31, 1999 compared to the same period in
the prior year. This change is primarily a result of the increased emphasis on
leased equipment compared to purchasing equipment in the prior period.
<PAGE>
Year 2000
The Company is aware of the seriousness associated with the issues related to
the Year 2000 and its potential impact. In response to this unprecedented event,
management believes that it has identified, outlined and set forth actions that
will upgrade all information technology and non-information technology systems
that are not Year 2000 compliant with year 2000 compliant systems by no later
than September 1999. Currently, management estimates that the Company is 90%
complete in its efforts to be Year 2000 compliant.
Due to the contractual relationships with current software and hardware vendors,
the majority of the costs associated with Year 2000 compliance have been covered
under the annual maintenance fees that the Company normally pays. Since the
majority of expenses are spread throughout the year, management has not
specifically itemized expenses related to the Year 2000. Management estimates
that the Company has spent approximately $225,000 to date on Year 2000
compliance and estimates spending an additional $75,000 towards Year 2000
compliance during the remainder of 1999.
During its review of the Company's Year 2000 compliance plan, management
realized that as important as internal systems are to its mission of Year 2000
compliance, customers, vendors and community resources (utilities, local
telephone company, etc), represent a significant portion of the business
processes as well. To that end, the Company is asking its critical partners to
provide to the Company in writing, their own Year 2000 progress plans. Although
management cannot guarantee the Company's compliance, it will continue to
monitor its progress during the remainder of 1999 and refine plans, as
information becomes available.
The Company has identified its billing, dispatch, settlement, and fleet
monitoring system as its mission critical internal system that could be affected
by the Year 2000. The Company plans to begin testing the Year 2000 compliant
version of this software in the second quarter of 1999.
The Company has developed a contingency plan that includes external vendor
readiness as well as the possibility of an internal system failure. If external
vendors are not Year 2000 compliant by September 1999, the Company will find
alternate sources to supply it with needed products and services if at all
possible. If internal systems were to fail, the Company will have a manual
system in place to provide the necessary business activities to its customers
until the Company can correct any such failure.
Although the possibility of failure exists, management believes that its Year
2000 efforts will be completed, and its systems tested in a production
environment in accordance with its plan by September 1999.
TRANSIT GROUP, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
TRANSIT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3i.1 Amended and Restated Articles of Incorporation
11.1 Statement Regarding Computation of Earnings per Share.
27.1 Financial Data Schedule.
(b) The Company filed no Current Reports on Form 8-K during the first quarter
of 1999.
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Transit Group, Inc.
Date: May 17, 1999
By: /s/Wayne N. Nellums
-------------------
Wayne N. Nellums
Senior Vice President,
Chief Financial Officer
and Secretary
Exhibit 3.i.1 Amended and Restated Articles of Incorporation
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TRANSIT GROUP, INC.
Pursuant to Section 607.1007 of the Florida Business Corporation Act,
Transit Group, Inc., (the "Corporation") hereby amends and restates its Articles
of Incorporation, as they may have previously been amended or restated as set
forth below:
Article I. Name
The name of this Corporation is TRANSIT GROUP, INC. (the "Corporation").
Article II. Purpose
The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any and all lawful act or activity
for which corporations may be organized under the Florida Business Corporation
Act as now or hereinafter in force. The Corporation shall possess and exercise
all of the powers and privileges granted by the Florida Business Corporation
Act, by any other law or by these Articles, together with all such powers and
privileges incidental thereto as may be necessary or convenient to the conduct,
promotion or attainment of the purposes of the Corporation.
Article III. Share Structure
(a) This Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
120,000,000 shares, of which 100,000,000 shares are Common Stock, $.01 par value
per share, and 20,000,000 shares are Preferred Stock, no par value per share.
The rights and preferences of all outstanding shares of Common Stock shall be
identical. The holders of outstanding shares of Common Stock shall have the
right to vote on all matters submitted to a vote of the stockholders of the
Corporation, on the basis of one vote per share of Common Stock owned.
(b) The Preferred Stock may be issued from time to time in one
or more classes and series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board of Directors), and such resolution or
resolutions shall also set forth the voting powers, full or limited or none, of
each such class and/or series of Preferred Stock and shall fix the preferences,
limitations and relative rights thereof. The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued class or series of
Preferred Stock and to fix the number of shares of any class or series of
Preferred Stock and the designation of any such class or series of Preferred
Stock to the fullest extent permitted by the Florida Business Corporation Act.
The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any class or series, may increase or decrease (but not
below the number of shares in any such series then outstanding) the number of
shares thereof subsequent to the issue of shares of that series.
Article IV. Duration
The Corporation shall have perpetual existence.
Article V. Board of Directors
The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors, which shall exercise all
powers conferred under the laws of the State of Florida. The number of directors
shall be determined in accordance with the Bylaws of the Corporation. The
election of directors of the Corporation may, but need not, be by ballot.
<PAGE>
Article VI. Liability of Directors
To the fullest extent permitted by the Florida Business
Corporation Act, as the same now exists or may hereafter be amended in a manner
more favorable to directors, a director of the Corporation shall not be
personally liable to the Corporation, its stockholders or any other person for
monetary damages for breach of fiduciary duty as a director. If the law of the
State of Florida is amended after the filing of these Articles to authorize
corporate action further limiting or eliminating the personal liability of
directors of the Corporation, then the liability of directors to the Corporation
or its stockholders shall be limited or eliminated to the fullest extent
permitted by law of the State of Florida, as so amended from time to time. Any
repeal or modification of the provisions of this Article VI, either directly or
by the adoption of an inconsistent provision of these Articles, shall be
prospective only and shall not adversely affect any right or protection set
forth herein existing in favor of a particular individual at the time of such
repeal or modification.
Article VII. Indemnification
(a) The Corporation shall indemnify, and upon request shall
advance expenses (including attorneys' fees), in the manner and to the fullest
extent permitted by law, to any officer or director of the Corporation (or the
estate of any such person) who was or is a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan (an "indemnitee"), if
he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interest of the Corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. To the fullest extent permitted by law, the
indemnification and advances provided for herein shall include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the indemnitee. The indemnification provided
herein shall not be deemed to limit the right of the Corporation to indemnify
any other person for any such expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement to the fullest extent permitted by law,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
(b) Notwithstanding any provision of this Article VII to the
contrary, the Corporation shall indemnify any indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
(c) Neither any amendment nor repeal of this Article VII, nor
the adoption of any provision of this Corporation's Articles of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, with respect to any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
Article VIII. Bylaws
The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal bylaws of the Corporation.
Article IX. Corporate Books
The books of the Corporation may be kept (subject to any
provision of law) outside the State of Florida at such place or places as may be
designated from time to time by the Board of Directors or in the bylaws of the
Corporation.
<PAGE>
Article X. Stockholder Proposals
Advance notice of new business to be brought before any
meeting of the stockholders and stockholder nominations for the election of
directors shall be given in the manner and to the extent provided in the Bylaws
of the Corporation.
IN WITNESS WHEREOF, the undersigned has duly executed these Amended and Restated
Articles of Incorporation on the ______ day of ________, 1999.
TRANSIT GROUP, INC.
ATTEST: BY: ____________________________________
Philip A. Belyew, Chief Executive Officer
- -------------------------------
Wayne N. Nellums, Secretary
Exhibit 11.1 Statement regarding computation of earnings per share.
The following tables represents the reconciliation of weighted average shares
for purposes of calculating basic and diluted earnings per share for the three
months ended March 31, 1999 and 1998.
Weighted-average shares for the three months ended March 31, 1999 is calculated
as follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - January 3 23,610,190 3/90 787,006
Retirement of common stock on January 4 (384,637)
---------------------
January 4 - January 18 23,225,553 15/90 3,870,926
Issuance of common stock on January 19 890,000
---------------------
January 19 - February 22 24,115,553 35/90 9,378,271
Issuance of common stock on February 23 50,130
---------------------
February 23 - March 2 24,165,683 8/90 2,148,061
Issuance of common stock on March 3 1,069,518
---------------------
March 3 - March 18 25,235,201 16/90 4,486,258
Issuance of common stock on March 19 811,500
---------------------
March 19 - March 31 26,046,701 13/90 3,762,301
--------------------- ---------------------
Weighted average shares 24,432,823
=====================
</TABLE>
Weighted-average shares for the three months ended March 31, 1998 is calculated
as follows:
<TABLE>
<CAPTION>
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
----------- ----------- --------- --------------
<S> <C> <C> <C>
January 1 - January 29 20,574,626 29/90 6,629,602
Issuance of common stock on January 30 365,957
---------------------
January 30 - March 31 20,940,583 61/90 14,193,062
--------------------- ---------------------
Weighted average shares 20,822,664
=====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Weighted-average shares: 24,432,823 20,822,664
Plus: Incremental shares from
assumed
Conversions of warrants and options 775,549 1,238,597
------------------ -----------------
Adjusted weighted average shares 25,208,372 22,061,261
================== =================
</TABLE>
<TABLE>
<CAPTION>
Three Months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Stock Options:
Outstanding beginning of 3,413,058 2,754,158
period
Granted during period 27,500 119,000
Exercised/redeemed (641,833) -----
Forfeited or expired (5,500) (20,000)
================== =================
Outstanding at end of period 2,793,225 2,853,158
================== =================
</TABLE>
The equation for computing (basic and diluted) EPS is:
Income available to common stockholders
---------------------------------------------------
Weighted-average shares
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the consolidated
Statements of Income and Balance Sheets and
is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-START> JAN-1-1999
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,943,065
<SECURITIES> 0
<RECEIVABLES> 36,221,884
<ALLOWANCES> 695,943
<INVENTORY> 0
<CURRENT-ASSETS> 46,789,952
<PP&E> 76,280,189
<DEPRECIATION> 10,053,368
<TOTAL-ASSETS> 168,413,182
<CURRENT-LIABILITIES> 36,821,992
<BONDS> 0
<COMMON> 250,258
0
0
<OTHER-SE> 57,400,097
<TOTAL-LIABILITY-AND-EQUITY> 168,413,182
<SALES> 64,843,382
<TOTAL-REVENUES> 64,843,382
<CGS> 0
<TOTAL-COSTS> 61,882,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,002,712
<INCOME-PRETAX> 1,958,287
<INCOME-TAX> 1,025,782
<INCOME-CONTINUING> 932,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 932,505
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
