SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 000-18601
TRANSIT GROUP, INC.
(Exact name of Registrant as specified in its charter)
State of Florida
(State or other jurisdiction of incorporation or organization)
59-2576629
(I.R.S. Employer Identification No.)
2859 Paces Ferry Road, Suite 1740, Atlanta, GA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (770) 444-0240
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which registered
Common Stock NASDAQ SmallCap Market
Warrants(two warrants entitle the holder NASDAQ SmallCap
to purchase at a price of $7.50 per share,
one share of common stock)
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 __
Check if there is disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and disclosure will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K.[ ]
The aggregate market value of the voting common stock held by the non-affiliates
of the registrant was $83,537,346 based on the closing sale price reported on
March 24, 2000.
There were 31,823,751 shares of the Company's common stock outstanding as of
March 24, 2000.
Documents Incorporated by Reference: Portions of the Proxy Statement for the
Registrant's 2000 Annual Meeting of Shareholders are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. BUSINESS
Introduction
Transit Group, Inc. is a holding company concentrating on the acquisition,
consolidation, and operation of short and long haul trucking, logistics and
intermodal companies. To date we have acquired 19 trucking companies throughout
the U.S. and Canada.
Forward-Looking Statement
This Annual Report on Form 10-K contains certain forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995, including or
related to our future results (including certain projections and business
trends).
These and other statements, which are not historical facts, are based largely on
current expectations and assumptions of management and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. Assumptions related
to forward-looking statements include that we will continue to be competitive,
our acquisition strategy will remain successful, we will retain key personnel
and competitive conditions within our markets will not change materially or
adversely.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this Annual Report, the words "estimate," "project," "intend," and
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in the
forward-looking information will be realized. Management decisions are
subjective in many respects and susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause us to alter our business strategy or capital expenditure plans
which may, in turn, affect our results of operations. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as our
representation that any strategy, objectives or other plans will be achieved.
The forward-looking statements contained in this Annual Report speak only as of
the date of this Annual Report, and we do not have any obligation to publicly
update or revise any of these forward-looking statements. Any forward looking
statements should be read in conjunction with the risk factors contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 13 herein.
<PAGE>
Industry Overview
The trucking industry can be divided into four general categories: Package
Delivery, Less-than-Truckload, Household Goods, and Truckload ("TL"). We operate
in the TL segment of the trucking industry, which is highly fragmented with over
35,000 companies.
The following trends are evolving in the TL segment:
o Shippers are limiting the number of carriers to larger more
efficient trucking companies who can provide a consistent level of
service at a competitive price.
o Companies are outsourcing their shipping needs to trucking
companies who can offer a full range of logistic services.
o The advent of just-in-time inventory systems has demanded
significant levels of technology to provide reliable,
time-definite service.
Many smaller trucking companies face increasing obstacles in competing in this
environment. We believe that many of these companies would benefit from an
affiliation with a larger organization such as Transit Group. We believe that
our size, range of services offered and continued growth will enable us to take
advantage of these trends in the TL segment of the trucking industry. Based on
industry statistics, management believes that we are the ninth largest truckload
carrier in North America.
History and Development
The Company was incorporated on August 28, 1985 as General Parcel Service, Inc.,
a Florida corporation engaged in the parcel delivery business. Operations began
in Jacksonville, Florida and expanded into Georgia, North Carolina and South
Carolina. Due to unprofitable results parcel delivery operations ceased in March
1997.
In January 1997, the Company reorganized into a holding company structure and we
began the acquisition of mid-size short and long haul trucking companies. We
have acquired 19 companies during the period from July 1997 through December
1999. These companies operate both directly and through agents to provide
truckload, logistics and intermodal services to our customers.
Acquisitions
We have built a national trucking company by acquiring TL, logistic and
intermodal carriers, which meet certain criteria. Initially, our primary source
of acquisition candidates was brokers. Currently, the primary source of
acquisition candidates is through referrals.
We seek to identify for acquisition trucking companies with the following
attributes:
o Profitable
o Revenues in excess of $5 million
o Strong market position
o Sound management with key personnel committed to our strategy
o Commitment to a high level of quality and service
Our expansion plans are dependent upon the availability of, among other things,
suitable acquisition candidates, adequate financing, qualified personnel, and
our future operations and financial condition. When identified, a potential
candidate is evaluated on its ability to open new lanes and geographic areas or
its capacity to exploit existing markets, customers, and lanes.
<PAGE>
If it is determined that the candidate will be a "fit," certain financial
screens are utilized to further evaluate potential acquisitions. We have sought
to acquire companies principally on a multiple of pre-tax income and EBITDA
(earnings before interest, taxes, depreciation, and amortization). If the target
passes these screens, we will perform our operational, financial, legal, and
environmental due diligence procedures. Depending upon the complexity of the
organization and time devoted to negotiating the purchase price, it can take
from three to six months to consummate an acquisition.
During 1999, we talked with approximately 150 trucking companies who expressed
interest in being acquired by us. Of these 150 companies, approximately 50 were
visited by our personnel, and an outside accounting firm performed certain
procedures at nine of the companies, eight of which were ultimately acquired
during 1999.
We have acquired the following 19 companies since July 1997:
Date
Company Acquired
Carolina Pacific Distributors, Inc. 07/11/97
Service Express, Inc. (1) 08/16/97
Capitol Warehouse, Inc. 08/16/97
Carroll Fulmer Group, Inc. (2) 08/30/97
Rainbow Trucking, Inc. (3) 12/30/97
Transportation Resources and Management, Inc. (4) 01/31/98
Certified Transport, Inc. (5) 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
R&M Enterprises, Inc. 07/19/99
MDR Cartage, Inc. 07/30/99
Bestway Trucking Services, Inc. 07/30/99
Fox Midwest, Inc. 09/27/99
Land Transportation, LLC 11/04/99
(1) In connection with the acquisition of Service Express, we granted the
selling shareholders the right, through August 15, 1998, (extended to
February 1999) to require us to redeem $1.8 million of the shares that
they received. Through December 31, 1998, these shareholders sold
certain shares in a private transaction for a price of $0.4 million.
The shareholders sold a portion of these shares to a third party and we
acquired the remaining shares for an aggregate price of $1.4 million in
January 1999.
(2) In connection with the acquisition of Carroll Fulmer, we granted the
selling shareholders the right to require that either we redeem or a
major shareholder acquire up to $6.0 million of stock at a price of
$3.60 per share. These redemption rights expire August 29, 2003.
Through December 31, 1999, we have redeemed $75,000 in stock from a
selling shareholder and the shareholders have sold shares in a private
transaction for approximately $2.25 million, thereby reducing our
remaining obligation to approximately $3.675 million.
(3) We have made loans to certain selling shareholders in the aggregate
amount of $675,000, which became due on June 30, 1999. If the average
closing price per share of our common stock for the period June 23,
1999 through June 29, 1999 was less than $6.625 per share, the notes
would be non-recourse to such extent and the debtor would not be
personally liable for such deficiency, but we would be entitled to a
return of a proportionate amount of our stock. For the period June 23,
1999 through June 29, 1999 the average price of our common stock was
$6.35 per share. In July 1999, these shareholders redeemed 101,887
shares in full satisfaction of this obligation.
(4) A $0.2 million recourse loan, due April 30, 1999, was made to a selling
shareholder. In April 1999, we advanced an additional $200,000 to the
shareholder and extended the note to May 31, 2000.
(5) A $0.4 million recourse loan, due November 4, 1999 was made to a
selling shareholder. In November, this note was extended to May 4, 2000
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Operations
Our business operations are divided between the corporate office, currently
located in Atlanta, Georgia and its operating divisions and locations. The
corporate office is responsible for the overall direction of our operations,
information systems, finance, banking, human resources, and financial reporting.
Carolina Pacific Distributors ("Carolina Pacific") - Founded in 1977 and
headquartered in High Point, North Carolina, Carolina Pacific provides dry van
and refrigerated transportation services between major markets in the Carolinas
and the West Coast. Carolina Pacific transports a variety of general
commodities, including textiles and tobacco, and serves as a carrier for the
produce industry.
Service Express ("Service Express") - Service Express, founded in 1963, is
headquartered in Tuscaloosa, Alabama. Service Express operates primarily in the
Southeastern United States and transports a variety of general commodities,
including paper, resins, magnetic tapes and chemicals.
Transit Leasing, formerly known as Capitol Warehouse ("Capitol Warehouse") -
Located in Louisville, Kentucky, Transit Leasing had both trucking and
warehousing operations. During fiscal 1998 the trucking operations were merged
into those of Rainbow Trucking (see below) and the warehouse component was
phased out and terminated in March 1999.
Carroll Fulmer Group ("Carroll Fulmer") - Carroll Fulmer is a general
commodities hauler headquartered in Groveland, Florida. Carroll Fulmer operates
primarily through 19 agent offices. Approximately 42% of its revenues are
generated through brokerage operations and the balance through owner/operators
and company owned equipment. Carroll Fulmer transports, among other items,
beverages, household goods and foodstuffs.
Rainbow Trucking Services, Inc. ("Rainbow") - Rainbow was founded in 1982 and
was headquartered in Louisville, Kentucky. During 1998, the trucking operations
of Transit Leasing was merged into Rainbow. Rainbow transported a wide range of
general commodities, including plastics, paper and glass throughout the United
States. In 1999 the operations of Rainbow were merged into Bestway Trucking,
Inc. (see below).
Transportation Resources and Management ("TRM") - Founded in 1979, TRM is
headquartered in Fort Wayne, Indiana. TRM operates primarily in the Midwest
(Northern Indiana, Ohio, Illinois and Michigan) and transports a variety of
general commodities, including copper wire and carpet padding.
Certified Transport ("Certified") - Headquartered in Indianapolis, Indiana,
Certified began operations in 1991. Certified's lanes are primarily in the
Midwest and Canada. Certified maintains a logistics division in addition to its
trucking operation, which services the automotive, wrapping and air cargo
industries.
KJ Transportation ("KJ") - KJ is located in Farmington, New York. KJ operates
several divisions including, a brokerage division, which generates approximately
28% of their revenue, and a trucking division, which can be divided between a
dry van and a refrigerated division. A truck leasing operation and a maintenance
division, which services the equipment of certain Transit Group companies and
third parties, are conducted through J&L Truck Leasing, Inc. of Farmington, New
York. The trucking division operates throughout the U.S. with primary lanes from
the Northeast to the Southeast and from the Northeast to the West Coast. KJ
transports a variety of commodities with particular emphasis in the food and
beverage industries.
Network Transportation ("Network") - Network was our first acquisition outside
the U. S. Network operates a fleet of dry van and refrigerated units and
services the food industry in the Toronto - Montreal corridor with additional
service to the Northern U.S.
Diversified Trucking ("Diversified") - Diversified operates out of LaGrange,
Georgia and is a carrier for the apparel, paper and consumer goods industries.
Northstar Transportation ("Northstar") - Northstar is headquartered in Dothan,
Alabama. Northstar services the food, paper, and industrial products industries.
Northstar is the third company acquired by us in Alabama.
Priority Transportation, Inc. ("Priority") - Priority, located in northeastern
Mississippi, was acquired in January 1999 and is a carrier for the consumer
electronics, paper, and paint industries. Priority also maintains warehouse and
cross dock facilities for its customers.
Massengill Trucking Service, Inc. ("Massengill") - Massengill was acquired in
March 1999. Organized in 1950, Massengill is a carrier for the furniture
industry, servicing the Midwest and Northeast.
KAT, Inc. ("KAT") - Headquartered in Chesterton, Indiana, KAT was acquired in
March 1999. Approximately 65% of its revenue is derived from its refrigerated
operations. KAT's primary operational area is east/west from Denver, Colorado to
upstate New York. KAT is a carrier for the food industry.
R&M Enterprises ("R&M") - R&M and its brokerage affiliate, Williams Brothers,
are headquartered in Gretna, Nebraska. Acquired in July 1999, R&M is primarily a
refrigerated carrier that operates in an east - west pattern from the mid-west
to the west coast of the U.S.
MDR Cartage, Inc. ("MDR") - MDR was also acquired in July 1999 and operates out
of their headquarters in Jonesboro, Arkansas. A dry van carrier MDR has
satellite locations in Ohio, Tennessee, Alabama and North Carolina.
Bestway Trucking, Inc ("Bestway") - Bestway is located in Jeffersonville,
Indiana (near the Indiana - Kentucky border) with additional operations in
Nashville and Gibson, Tennessee. In connection with this acquisition, the
operations of Rainbow and Capitol were merged into those of Bestway.
Transit Logistics, LLC ("Transit Logistics") - Headquartered in Fort Wayne,
Indiana Transit Logistics was organized in August 1999 to manage a portion of
the freight operations of Superior Essex Wire.
Fox Midwest Transport, Inc. ("Fox") - Acquired in September 1999, Fox and its
dedicated fleet operation, Shippers Distribution Services, Inc., is
headquartered in Green Bay, Wisconsin. Fox is a major carrier for the paper and
paper products industries.
Land Transportation, LLC ("Land") - Land was our first non-asset based
acquisition. Land is comprised of three operations: an owner operator division
(approximately 70% of revenue) a brokerage division (approximately 15% of
revenue) and an intermodal division (approximately 15% of revenue.)
We have engaged in ongoing discussions with other truckload carriers. The
resolution of these discussions is dependent upon, among other things, the
ability to secure financing, the price of our common stock, market conditions,
and the status of the economy.
Structure
We plan to expand our growth strategy from the acquisition of trucking companies
exclusively, to the partnering with agents. Further, we believe that we can
enhance profitability by allowing the operating divisions to focus on increasing
sales volumes, maintaining and enhancing customer service and hiring and
retaining drivers and by continuing to develop an organization that takes
advantage of operating synergies and improved purchasing power. Progress towards
these objectives include:
o At December 31, 1999 we had merged 16 of our 19 corporate entities into our
wholly owned subsidiary - Transit Group Transportation, LLC ("TGT").
Bestway and Land will be merged into TGT by the end of 2000. These mergers
should reduce the filing requirements of our companies in the area of
income taxes, franchise fees, fuel taxes, plating and registration fees,
and other licensing requirements.
o We announced the relocation of our corporate office to Groveland, Florida.
The relocation of the corporate office should enhance the functionality of
our existing Corporate Services division. With this relocation, all
consolidated back office functions including accounting, financial
reporting, fuel taxes, risk management, payroll, credit and collections,
disbursements, safety and purchasing will be managed from one location. It
is anticipated that this will reduce the cost of performing these functions
on a decentralized basis.
o We are committed to converting to one operating system. We anticipate that
all of our 19 divisions will be operating on the same platform by September
2000. This common operating system should facilitate load matching, enhance
equipment utilization, and increase revenue per mile.
o Due to our size we are realizing increased fuel discounts for both company
equipment and owner operators. As a result, we have experienced an
improvement in the hiring and retention of owner operators.
o During 1999, we entered into an agreement to purchase 600 Freightliner
tractors with Cummins engines over the next two years. Through December
1999, we have acquired 280 of these units. We believe that the purchase
price of this equipment is lower than any of the individual companies could
have negotiated on their own. Additionally, this commitment will allow the
Company to further standardize our fleet thereby reducing maintenance and
training costs and enhancing equipment utilization.
o We are committed to installing satellite communications and monitoring
equipment throughout our fleet. During 1998, we agreed to acquire 3,000
units from Qualcomm, a leading communications software vendor in the
transportation industry over a three-year period. Many national shipping
customers require communication between dispatch and drivers. To date
substantially all of our trucks are utilizing communication software.
Sales, Marketing, and Logistics
We market our services through our own sales force and a developed network of
brokers and agents operating throughout the U.S., Canada, and Mexico.
Substantially all of the companies we acquired are core carriers for one or more
shippers. They were limited from expanding that relationship due to various
financial and operational constraints. Due to the capacity of the affiliated
companies and the enhanced financial resources of the consolidated group, we
have been able to expand certain core carrier relationships and have initiated
discussions for the expansion of others.
In August 1999, we entered into an agreement with Superior Essex Wire (located
in Fort Wayne, Indiana) to handle certain of their distribution requirements. We
anticipate this agreement will increase that operations' annual revenues by
approximately $20 million in 2000.
Internet Solutions
We recognize the needs and opportunities created by the increased use of the
internet. In the first quarter of 2000, we introduced our affiliated entities to
The Transit Load Sharing internet site. All of our unmatched loads for those
divisions on the Innovative operating system are automatically posted to this
site. Divisions not yet converted to the Innovative operating system post
unmatched loads manually. Affiliates have constant, real-time access to this
data. We anticipate that this site will enhance equipment utilization, reduce
deadhead miles and increase our rate per mile.
Customers, after passing certain security and password barriers, will also be
able to locate their shipment and determine its arrival time, thereby improving
customer service.
We intend to continue to enhance the services offered to our customers and our
divisions through the internet. To assure that we develop competitive internet
solutions, we are discussing alliances with certain software developers who
would manage the development on our behalf.
Fleet Summary
We have a policy to trade-in power units on a 3-4 year cycle (400,000 - 500,000
miles) and trailers approximately every 5-7 years. A summary of our fleet is as
follows (number of units):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1999 1998
--------------------- -------------------
<S> <C> <C>
Company Tractors 2,305 1,401
Owner/Operators 1,346 566
--------------------- -------------------
Total Power Units 3,651 1,967
===================== ===================
Trailers 7,164 3,921
===================== ===================
</TABLE>
The average age of our tractors and trailers is 2.0 and 4.5 years, respectively.
Debt Conversion
In May 1997, we agreed to a debt-for-equity conversion that reduced our
long-term debt. T. Wayne Davis, Chairman of the Board, and his affiliates
assumed approximately $4.7 million of our debt in exchange for 2.7 million
shares of our common stock. In May 1997, we also received a capital infusion of
approximately $1.2 million from Messrs. Davis and Belyew in exchange for the
issuance of an aggregate of 687,000 shares of our restricted common stock.
Discontinued Operations
In December 1997, we sold the parcel delivery business to a corporation
controlled by affiliates of our Chairman. In this transaction, the buyer assumed
liabilities of approximately $4.0 million in excess of assets. To compensate for
the estimated excess liabilities assumed by the buyer, we issued 876,569 shares
of restricted common stock to the buyer. In 1999, we issued an additional 50,130
shares of common stock in final satisfaction of all liabilities assumed by the
buyer.
Competition
The trucking industry is highly competitive and subject to pressures from major
business cycles. We believe that competition in the trucking industry is based
primarily on service and efficiency.
The shipping requirements of "just-in-time" inventory systems demand
geographically diverse trucking companies with well-developed tracking and
dispatching information systems. We anticipate that the trucking industry will
continue to consolidate and remain extremely competitive for both customers and
qualified personnel and that TGI's current size and anticipated growth will
allow us to participate in the consolidating trucking industry. However, there
is significant disparity in our revenues and financial resources and those of
the largest trucking companies. There is no assurance that we can continue to
maintain our growth.
We compete with many trucking companies located in the market areas we serve. We
believe that there is not a dominant competitor in the trucking industry that
competes directly with us.
<PAGE>
Potential Liability
Potential liability associated with accidents in the trucking industry is severe
and occurrences are unpredictable. The industry is also subject to substantial
workers' compensation expense. A material increase in the frequency or severity
of accidents, workers' compensation claims, or an unfavorable development of
existing claims can be expected to adversely affect our operating income. We
believe that we have insurance coverage sufficient to cover most expected
losses.
Regulation
Prior to 1995, the trucking industry was regulated by the Interstate Commerce
Commission ("ICC"). Effective January 1, 1995, the ICC was eliminated and
substantially all of its key functions were transferred to the Department of
Transportation ("DOT"). The DOT governs such activities as drug and alcohol
testing, hours of service, rates, insurance, reporting, and accounting systems.
We are also subject to the regulations promulgated by the Environmental
Protection Agency and similar state regulatory agencies regarding environmental
laws and regulations. These agencies address matters concerning the management
of hazardous wastes, the discharge of pollutants into the air, surface, and
underground waters, and the disposal of certain substances. Violation of certain
applicable laws and regulations could result in clean-up costs, property damage,
and other fines or penalties. We believe that our operations are in material
compliance with current laws and regulations.
Employees
We employ approximately 3,100 employees, of which approximately 2,200 are
drivers, 200 work in various garage facilities, and 700 work in administrative
and operational capacities at the divisional locations and in the corporate
office. None of our employees are covered by collective bargaining agreements,
and we believe that our relationship with our employees is satisfactory.
Fuel
Fuel represents a significant cost of operating our fleet. In the fourth quarter
of 1999 fuel was approximately 37% higher than the same period a year ago. In
the first quarter of 2000 fuel prices continued to increase. We have been unable
to pass along all of these increases to our customers. If prices continue at
these levels or increase further, our operations may be negatively impacted.
<PAGE>
Item 2. PROPERTIES
We have our primary operations at the following locations:
Lease/
Location Own
- ---------------------------------------- -------------------
High Point, North Carolina Lease
Tuscaloosa, Alabama Lease
Groveland, Florida Own
Fort Wayne, Indiana Lease
Indianapolis, Indiana(1) Lease
Farmington, New York Lease
Mississauga, Canada Lease
La Grange, Georgia Lease
Dothan, Alabama Lease
Olive Branch, Mississippi(1) Lease
Hickory Flat, Mississippi Own
Chesterton, Indiana Lease
Gretna, Nebraska Lease
Jonesboro, Arkansas Lease
Jeffersonville, Indiana Lease
Green Bay, Wisconsin Lease
Forest Park, Georgia Lease
(1) Includes warehouse facilities.
Our headquarters, are currently located in Atlanta, Georgia and include
approximately 2,700 square feet of office space. We intend to relocate our
headquarters to Groveland, Florida in the second quarter of 2000.
Item 3. LEGAL PROCEEDINGS
The Company and its property are not a party to or a subject of any material
pending legal proceedings other than routine litigation that is incidental to
its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common stock is traded on the NASDAQ SmallCap Market under the trading
symbol "TRGP." Our warrants are traded on the NASDAQ SmallCap Market, under the
trading symbol "TRGPW." As of March 24, 2000, there were 367 shareholders of
record of the common stock and 12 warrant holders of record, not including
individuals and entities holding shares in street name. The closing sale price
for our common stock on March 24, 2000, was $2.625, and the closing price of our
warrants was $1.063.
The quarterly high and low closing bid prices of our common stock are shown
below:
<TABLE>
<CAPTION>
Market Price of Common Stock - TRGP
2000(1) 1999 1998
----------------------- ---------------------- ----------------------
Quarter High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First $3.125 $1.875 $5.250 $3.938 $6.500 $5.000
Second ---- ---- 6.750 4.313 8.000 5.87
Third ---- ---- 6.688 3.938 7.875 3.250
Fourth ---- ---- 4.594 3.000 6.000 3.125
</TABLE>
(1) Includes through March 24, 2000.
The quarterly high and low closing bid prices of our warrants are shown below:
<TABLE>
<CAPTION>
Market Price of Warrants - TRGPW
2000(1) 1999 1998
----------------------- ---------------------- ----------------------
Quarter Quarter High Low High Low High Low
------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First $1.063 $1.000 $1.625 $1.438 $2.500 $1.625
Second ---- ---- 1.500 1.438 1.750 1.500
Third ---- ---- 1.500 1.469 1.688 1.563
Fourth ---- ---- 1.469 1.063 1.563 1.563
</TABLE>
(1) Includes through March 24, 2000.
We have not declared any common stock dividends and we do not expect to pay such
dividends in the foreseeable future. Future dividend policy will be determined
by our Board of Directors based on the conditions then existing, including our
financial condition, capital requirements, cash flow, profitably, business
outlook, general economic conditions, and other factors. Our Board of Directors
currently anticipates retaining earnings to provide funds for the operation and
expansion of our business.
<PAGE>
Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
The selected consolidated financial data presented below for each of the years
in the five-year period ended December 31, 1999 is derived from the Company's
Consolidated Financial Statements. The Consolidated Financial Statements as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999 and the independent auditors' report thereon, are
included in Item 8 of this Form 10-K. This data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included in Item 8
of this Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
----------- ------------ ------------ ----------- -----------
1999 1998 1997 1996 1995
----------- ------------ ------------ ----------- -----------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenue and other income $ 355,526 $ 177,553 $ 34,011 $ 0 $ 0
=========== ============ ============ =========== ===========
Operating income (loss) $ 12,964 $ 8,892 $ 1,378 $ (359) $ (265)
Interest expense 6,853 4,310 1,045 0 0
----------- ------------ ------------ ----------- -----------
Income (loss) from continuing operations
before income taxes 6,111 4,582 333 (359) (265)
Income taxes (benefit) 1,731 (7,114) 71 0 0
----------- ------------ ------------ ----------- -----------
Income (loss) from continuing operations 4,380 11,696 262 (359) (265)
Loss from discontinued operations 0 0 (6,114) (4,790) (2,740)
Loss on disposal of discontinued operations 0 0 (5,792) 0 0
----------- ------------ ------------ ----------- -----------
Net income (loss) form continuing operations 4,380 11,696 (11,644) (5,149) (3,005)
Preferred stock dividend requirement (1,420) 0 (385) (429) (175)
----------- ------------ ------------ ----------- -----------
Income (loss) to common shareholders $ 2,960 $ 11,696 $ (12,029) $ (5,578) $ (3,180)
=========== ============ ============ =========== ===========
Basic earnings per share:
Income (loss) from continuing operations $ 0.11 $ 0.52 $ (0.01) $ (0.21) $ (0.12)
Loss from discontinued operations 0.00 0.00 (0.55) (1.27) 0.00
Loss on disposal of discontinued operations 0.00 0.00 (0.52) 0.00 0.00
----------- ------------ ------------ ----------- -----------
Net income (loss to) common shareholders $ 0.11 $ 0.52 $ (1.08) $ (1.48) $ (0.12)
=========== ============ ============ =========== ===========
Diluted earnings per share:
Income (loss) from continuing operations $ 0.10 $ 0.49 $ (0.01) $ (0.21) $ (0.12)
Loss from discontinued operations 0.00 0.00 (0.55) (1.27) (0.73)
Loss on disposal of discontinued operations 0.00 0.00 (0.52) 0.00 0.00
----------- ------------ ------------ ----------- -----------
Net income (loss to) common shareholders $ 0.10 $ 0.49 $ (1.08) $ (1.48) $ (0.85)
=========== ============ ============ =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $ 43,255 $ 7,108 $ (5,344) $ (3,770) $ (239)
=========== ============ ============ =========== ===========
Total assets $ 326,414 $ 130,527 $ 75,055 $ 5,820 $ 3,007
=========== ============ ============ =========== ===========
<PAGE>
Long-term debt, capital lease obligations
and redeemable preferred stock $ 164,325 $ 42,463 $ 27,652 $ 0 $ 0
=========== ============ ============ =========== ===========
Redeemable common stock $ 3,675 $ 5,115 $ 7,452 $ 0 $ 0
=========== ============ ============ =========== ===========
Stockholders' equity (deficit) $ 78,097 $ 48,156 $ 18,717 $ 2,013 $ (234)
=========== ============ ============ =========== ===========
</TABLE>
The Company discontinued its general parcel and courier business effective June
30, 1997. Accordingly, we had no revenues from continuing operations until July
11, 1997 with the purchase of Carolina Pacific and such revenues continued to
increase with the acquisitions of four additional companies in 1997, six
companies in 1998, and eight companies in 1999.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with the Consolidated
Financial Statements, including the footnotes, and understand that this
discussion 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 Operations, 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.
These and other statements, which are not historical facts, are based largely on
current expectations and assumptions of management and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. Assumptions and
risks related to forward-looking statements include that we had a history of
operating losses and we are pursuing a growth strategy that relies in part on
the completion of acquisitions of companies in the trucking, logistics and
intermodal industries; we will continue to price and market our services
competitively; conditions within our markets will not change materially or
adversely; the demand for our services will remain strong; and we will retain
key managers, drivers and other personnel.
Assumptions relating to forward-looking statements involve judgements with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many which are beyond our control. When
used in this Annual Report, the words "estimates", "projects", and "expect" and
similar expressions are intended to identify forward-looking statements.
Although we believe that assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in the forward-looking
information will be realized
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy,
which may in turn, affect our results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as our representation that
any strategy, objectives or other plans will be achieved. The forward-looking
statements contained in this Annual Report speak only as of the date of this
Annual Report, and we do not have any obligation to publicly update or revise
any of these forward-looking statements.
Restructuring Charge. In connection with companies acquired in 1998 and 1997 we
determined certain administrative positions were redundant and accrued $4.2
million for severance related to the elimination of those positions. The
liability recorded was charged to the goodwill of the companies acquired. During
1999, $1 million was paid in cash and an adjustment of $.2 million was recorded
to reduce the liability with a corresponding reduction in goodwill. The
remaining balance will be paid through 2003 in accordance with certain
employment contracts.
Early in 1999 the Company began formulating a plan to consolidate most "back
office operations" at its service center in Groveland, Florida. The plan was
finalized during the fourth quarter of 1999. The first phase of the plan
involves consolidating the back office functions of the companies acquired
during 1999 with a resulting increase to the purchace price of $.5 million was
recorded as part of the acquisition costs of the companies acquired and charged
to goodwill . The employee groups covered were notified during December 1999. As
a result of this plan, a charge of $.5 million which was recorded as part of the
acquisition cost of the companies acquired and charged to goodwill. The charge
is intended to cover severance for approximately 100 employees affected and the
relocation of three employees to the Groveland service center. The amount of
severance each employee is entitled to is based on the years of employment of
each employee affected. The plan is expected to be completed by September 2000
at which time the severance will be paid. Beginning in 2001, the Company expects
the elimination of these positions will result in annual pretax savings of
$1.0-2.0 million.
During the first quarter of 2000, we finalized a plan to consolidate the back
office operations of all remaining divisions. In connection with the plan, the
Company will record a charge to income of between $0.9 million and $1.0 million
during the quarter ending March 31, 2000 to cover severance from the termination
of 55 employees. Each employee affected will be entitled to an amount based on
the number of years of employment with the Company and his position within the
Company. We expect the project to be completed by December 2000 at which time
the severance will be paid. We expect the elimination of these positions will
result in annual pretax savings of $1.0-2.0 million.
Tax Benefit. On June 25, 1999, new consolidated return regulations were issued
that changed the rules for using our operating loss carryovers by eliminating
the requirement to apply the separate return limitation loss years limitation to
situations in which a change of ownership, as defined in Section 382 of the
Internal Revenue Code, occurred within six months of an acquired company
becoming a member of a consolidated group.
Prior to this change in the consolidated return regulations, we had limited the
income tax benefit recognized in the financial statements for certain net
operating losses of acquired companies by establishing a valuation allowance for
deferred tax assets.
The Emerging Issues Task Force addressed the accounting for decreases in
deferred tax asset valuation allowances established in a purchase business
combination as a result of a change in tax regulations and reached a consensus
that the change in the valuation amount should be recognized through operating
income.
Because the consensus of the Emerging Issues Tax Force was released after our
second quarter's operating results were released, we are restating the second
quarter of 1999, to include the benefit arising from the change in the
consolidated return regulations.
Results of Operations-Historical Results. We discontinued our general parcel and
courier business effective June 30, 1997. Accordingly, we had no revenues from
continuing operations until July 11, 1997 with the purchase of Carolina Pacific
and such revenues continued to increase with the acquisitions of four additional
companies in 1997, six companies in 1998, and eight companies in 1999.
<PAGE>
The following table sets forth items in the Consolidated Statement of Operations
for the year ended December 31, 1999, 1998 and 1997 as a percentage of operating
revenues.
<TABLE>
<CAPTION>
Percentage of
Operating Revenues
December 31,
1999 1998 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
Total operating revenue 100.00% 100.00% 100.00%
-------------- ------------- ----------------
Purchased transportation 36.93 43.58 46.11
Salaries, wages and benefits 25.76 22.91 21.94
Fuel 8.96 7.29 7.64
Operating supplies and expenses 11.02 9.21 9.00
Lease expense - revenue equipment 5.75 3.41 .63
Insurance 1.35 1.60 2.49
Depreciation and amortization expense 3.90 4.23 4.73
General and administrative expense 2.69 2.76 3.41
-------------- -------------- ---------------
Total expenses 96.36 94.99 95.95
-------------- ------------- ----------------
Operating income 3.64 5.01 4.05
Interest expense 1.92 2.42 3.07
-------------- ------------- ----------------
Income before income taxes 1.72 2.59 .98
Income taxes (benefit) .49 (4.01) .21
-------------- ------------- ----------------
Net income 1.23 6.60 .77
Preferred dividend requirement (.40) ---- ----
-------------- ------------- ----------------
Income available to common shareholders .83% 6.60% .77%
============== ============= ================
</TABLE>
Year ended December 31, 1999 vs. 1998
Total operating revenues. Total operating revenue increased from $177.6 million
in 1998 to $355.5million, or 100.2% in 1999. The increase is due primarily to
the acquisition of eight companies in 1999 ($123.8 million) and a full year of
revenues for those companies acquired in 1998.
Purchased transportation. Purchased transportation increased from $77.3 million
in 1998 to $131.3 million or 69.7% in 1999. As a percentage of total operating
revenue, purchased transportation decreased from 43.58% in 1998 to 36.93% 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. Salaries, wages and benefits increased from $40.7
million in 1998 to $91.6 million, or 125.2% in 1999. Salaries, wages and
benefits as a percentage of total operating revenue increased from 22.91% in
1998 to 25.76% in 1999. The increase as a percentage of total operating revenue
is attributed to the change in revenue mix discussed in the preceding paragraph
as well as continued pressure on driver wages as well as the growth of our
corporate services area. 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. Fuel increased from $12.9 million in 1998 to $31.9 million, or 146.4% in
1999. Fuel as a percentage of total operating revenue increased from 7.29% in
1998 to 8.96% in 1999. In addition to the change in fleet mix, fuel costs have
increased approximately 37% over the prior year. Should fuel costs stay at the
levels experienced in the fourth quarter of 1999, or increase further, we do not
believe we can transfer all of these higher costs to our customers. As a result,
future operations could be negatively impacted.
Operating supplies and expenses. Operating supplies and expenses increased from
$16.4 million in 1998 to $39.2 million, or 139.6%, in 1999. As a percentage of
total operating revenue operating supplies and expenses increased from 9.21% in
1998 to 11.0% in 1999. The increase as a percentage of total operating revenue
is attributed to the change in mix of company equipment and owner operators.
Insurance. Insurance expense increased from $2.8 million in 1998 to $4.8
million, or 68.8%, in 1999. Insurance expense as a percentage of total operating
revenue decreased from 1.60% in 1998 to 1.35% in 1999. The decrease as a
percentage of total operating revenue is due to our ability to negotiate more
favorable insurance rates because of our larger, more diverse insurance base.
Lease expense. Lease expense increased from $6.1 million in 1998 to $20.4
million in 1999, an increase of 237.4%. Expressed as a percentage of total
operating revenue, lease expense increased from 3.41% in 1998 to 5.75% in 1999.
The increase is a result of our fully utilizing our $50 million operating lease
facility.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $7.5 million in 1998 to $13.9 million, or 84.3%, in 1999.
Depreciation and amortization expense as a percentage of total operating revenue
decreased from 4.23% in 1998 to 3.90% in 1999. The decrease as a percentage of
total operating revenue is due to the increased use of leased equipment offset
by higher levels of goodwill amortization ($1.2 million in 1998 compared with
$1.8 million in 1999.)
General and administrative expense. General and administrative expense increased
from $4.9 million in 1998 to $9.5 million, or 94.3% in 1999. General and
administrative expense as a percentage of total operating revenue decreased from
2.76% in 1998 to 2.69% in 1999. The decrease as a percentage of total operating
revenue is related to the ongoing consolidation of certain accounting, finance,
legal and administrative functions.
Operating income. Operating income increased from $8.9 million in 1998 to $13.0
million, or 45.8%, in 1999. As a percentage of total operating revenue,
operating income declined from 5.01% in 1998 to 3.64% in 1999 as a result of the
various factors discussed above.
Interest expense. Interest expense increased from $4.3 million in 1997 to $6.9
million, or 59.0%, in 1999 as a result of increased borrowings to fund
acquisitions offset by more favorable interest rates and the increased use of
leased equipment. Expressed as a percentage of total operating revenue interest
expense declined from 2.42% in 1998 to 1.93% in 1999.
Income taxes. In 1998, we recognized the future value of net operating loss
carryforwards by reducing the valuation allowance in the amount of approximately
$7.5 million. Due to non-deductible goodwill, and the non-deductible portion of
per diems paid to drivers we have incurred a tax rate of approximately 50%
(before the utilization of any net operating losses.) In the first quarter of
2000, we discontinued per diems. As a result, our tax rate is expected to
decline in 2000. In 1999, as a result of changes in Federal tax laws, we reduced
the valuation allowance for net operating loss carryforwards and recognized a
benefit of $2.7 million. The Company recognized this benefit effective June 30,
1999. As a result the June 1999 quarter will be restated to reflect the adoption
of this policy.
Income per diluted common share. Amounts available to common shareholders, per
diluted common share, decreased from income of $.49 per diluted common share to
$.11 in 1999 because of the factors noted above.
Weighted average number of diluted common shares outstanding. The weighted
average number of diluted common shares outstanding increased as a result of the
shares issued for our various acquisitions.
Weighted average number of basic common shares outstanding. The weighted average
number of basic common shares outstanding increased as a result of the shares
issued for our various acquisition. The convertible preferred shares are not
included in the diluted common shares because the effect would be anti-dilutive.
Year ended December 31, 1998 vs. 1997
Total operating revenue. Total operating revenue increased from $34.0 million in
1997 to $177.6 million, or 422.0%, in 1998. The increase is due primarily to the
acquisition of six companies in 1998 ($93.0 million) and a full year of revenues
for those companies acquired in 1997 ($50.6 million).
Purchased transportation. Purchased transportation increased from $15.7 million
in 1997 to $77.4 million, or 393.3% in 1998. Purchased transportation as a
percentage of total operating revenue decreased from 46.11% in 1997 to 43.58% in
1998. The acquisitions caused a change in the fleet mix from brokerage and
owner-operators to company owned trucks and resulted in the decline in purchase
transportation as a percentage of sales.
Salaries, wages and benefits. Salaries, wages and benefits increased from $7.5
million in 1997 to $40.7 million, or 445.2%, in 1998. As a percentage of total
operating revenue, salaries, wages and benefits increased from 21.94% in 1997 to
22.91% in 1998. The increase as a percentage of total operating revenue is
attributed to the change in revenue mix discussed in the preceding paragraph as
well as continued pressure on driver wages.
Fuel. Fuel increased from $2.6 million in 1997 to $12.9 million, or 397.8%, in
1998. As a percentage of total operating revenue, fuel decreased from 7.64% in
1997 to 7.29% in 1998. Fuel costs as a percentage of total revenues decreased as
a result of lower fuel prices, our ability to negotiate more favorable fuel
contracts and improved gas mileage from the purchase of new, more efficient
equipment.
Operating supplies and expenses. Operating supplies and expenses increased from
$3.0 million in 1997 to $16.4 million, or 434.4%, in 1998. Operating supplies
and expenses as a percentage of total operating revenue increased from 9.00% in
1997 to 9.21% in 1998. The increase as a percentage of total revenues and other
income is attributed to the change in mix of brokerage and owner operators to
company trucks and the increased use of leased equipment.
Lease expense. During 1998, we entered into a $50 million operating lease
facility. As a result lease expense increased $5.8 million from prior year
levels. As a percent of total operating revenue lease expense increased from
.63% to 3.41%.
Insurance. Insurance expense increased from $.9 million in 1997 to $2.8 million,
or 236.2%, in 1998. Insurance expense as a percentage of total operating revenue
decreased from 2.49% in 1997 to 1.60% in 1998. The decrease as a percentage of
total operating revenue is due to our ability to negotiate more favorable
insurance rates because of its larger, more diverse insurance base.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $1.6 million in 1997 to $7.5 million, or 366.9%, in 1998.
Depreciation and amortization expense as a percentage of total operating revenue
decreased from 4.73% in 1997 to 4.23% in 1998. The decrease as a percentage of
total operating revenue is due to the increased use of leased equipment.
General and administrative expense. General and administrative expense increased
from $1.2 million in 1997 to $4.9 million, or 323.6%, in 1998. General and
administrative expense as a percentage of total operating revenue decreased from
3.41% in 1997 to 2.76% in 1998. The decrease as a percentage of total operating
revenue is related to the ongoing consolidation of certain accounting, finance,
and legal administrative functions.
Operating income. Operating income increased from $1.4 million in 1997 to $8.9
million, or 544.8%, in 1998. Operating income as a percentage of total operating
revenue increased from 4.05% in 1997 to 5.01% in 1998 as a result of the various
factors noted above.
Interest expense. Interest expense increased from $1.0 million in 1997 to $4.3
million, or 312.4%, in 1998 as a result of increased borrowings to fund
acquisitions offset by more favorable interest rates and the increased use of
leased equipment.
Income taxes. Income taxes attributable to continuing operations decreased from
a provision of $70,665 in 1997 to a benefit of $7.1 million in 1998 as we
recognized the future value of net operating loss carryforwards.
Income (loss) to common shareholders. Income (loss) to common shareholders
increased from a loss of $12.0 million in 1997 to income of $11.7 million in
1998 because of the various factors noted above and the sale of the parcel
delivery business in 1997.
Income (loss) per diluted common share. Income (loss) per diluted common share
increased from a loss of $1.08 per diluted common share to income of $0.49 per
diluted common share because of the factors noted above.
Income (loss) per basic common share. Income (loss) per basic common share
increased from a loss of $1.08 per basic common share to income of $.52 per
basic common share because of the factors noted above.
Weighted average number of basic and diluted common shares outstanding. The
weighted average number of basic and diluted common shares outstanding increased
as a result of the shares issued for the various acquisitions by us.
<PAGE>
Results of Operations - Unaudited Pro Forma results year ended December 31, 1999
compared with the year ended December 31, 1998
Since July 1997, we have acquired 19 truckload carriers. Combining the
purchasing power of these companies has enabled us to reduce certain costs
particularly in the areas of insurance, interest and leasing costs, fuel, and
overhead. Our 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 Transit Group Transportation,
LLC.
The unaudited pro forma financial information reflects the operations of the 19
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 us:
o Reduced depreciation expense due to changes in depreciation policies and
estimated lives;
o Amortization of goodwill recorded in connection with the
acquisitions;
o Recognition of lease expense incurred in connection with certain
sale-lease back transactions;
o Additional interest costs for the cash portion
of the acquisition costs;
o Interest costs of the acquired companies have been
adjusted to reflect our financing costs; and
o Provision for income taxes at our
estimated annual rates.
o Excluded the impact of the change in the valuation allowance for deferred tax
assets.
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 Results of Operations - Year Ended December 31, 1999 vs. Year Ended
December 31, 1998
Unaudited Pro Forma Combined Results of Operations
(In thousands except share data)
Year ended
---------------------------------------------------------------------
December 31, 1999 December 31, 1998
--------------------------------- --------------------------------
$ % $ %
---------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 493,968 100% $ 468,156 100%
---------------- ------------- ---------------- ------------
Operating expenses 439,396 88.95 402,650 86.01
Depreciation and amortization 21,915 4.44 24,350 5.20
General and administrative expenses 12,242 2.48 13,584 2.90
---------------- ------------- ---------------- ------------
Total operating expenses 473,553 95.87 440,584 94.11
---------------- ------------- ---------------- ------------
Operating income 20,415 4.13 27,572 5.89
Interest expense 11,285 2.28 13,735 2.93
---------------- ------------- ---------------- ------------
Income before income taxes 9,130 1.85 13,837 2.96
Income taxes 4,566 .93 6,694 1.43
---------------- ------------- ---------------- ------------
Net income
$ 4,564 .92% $ 7,143 1.53%
================ ============= ================ ============
Income per basic common share $ .14 $ .22
================ ================
Income per diluted common share $ .14 $ .21
================ ================
Weighted average number of basic common shares
outstanding 31,887,857 32,194,435
================ ================
Weighted average number of diluted common
shares outstanding 32,743,056 33,449,366
================ ================
</TABLE>
Comparable revenues (excluding the impact of Transit Leasings' warehouse
operation) increased by 6.0% in 1999 over 1998 levels reflecting our successful
efforts to expand existing customer relationships throughout the Transit Group.
Pro forma depreciation and interest expense declined from year ago periods as we
utilized our $50 million operating lease facility. Conversely, higher lease
costs are reflected in 1999 operating expenses which exceed prior year levels.
Pro forma general and administrative expenses declined over prior year levels as
we continued the consolidation of our back office functions. In 2000 this
consolidation process has been accelerated which may cause these expenses to
increase in the near term and decrease as duplicate functions and personnel are
eliminated.
Pro forma operating income is lower in 1998 because certain of those companies
acquired in 1999 are not performing at the levels anticipated at acquisition,
and fuel costs have increased significantly over the prior year.
<PAGE>
The impact of pro forma, non-deductible goodwill amortization, non-deductible
per diem costs and pre-acquisition losses incurred by the acquired companies
caused an increase in our effective income tax rate. Per diems were discontinued
in March 2000. It is anticipated that our actual effective income tax rate in
the future will approximate 40%.
New Accounting Pronouncements. In June 1998, the FASB issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activies." SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction. The accounting for
this standard is not expected to have a material impact on the company's
financial statements.
Liquidity and Capital Resources. Our acquisition strategy and requirements for
replacing our revenue equipment require significant capital resources.
In July 1997, an affiliate of our Chairman loaned us $4 million to consummate
the acquisition of Carolina Pacific Distributors, Inc. During August, September
and October of 1997, the affiliate loaned us an additional $2.6 million to fund
the continuing operations of the parcel delivery and courier operations and fund
certain expenses associated with the acquisition of the truckload companies. Of
the $6.6 million borrowed, $2.6 million was assumed by the purchaser of the
parcel delivery and courier operations, leaving a balance of $4 million. We
repaid $0.5 million in the fourth quarter of 1998 and $.5 million in the first
quarter of 1999. In March 1999, we borrowed an additional $1 million from an
affiliate of the Chairman. All of these loans were paid off in the fourth
quarter of 1999.
In November 1998, we increased the capacity of our revolving line of credit with
AmSouth Bank from $20 million to $30 million. The facility bore interest at a
rate of 2.25% over LIBOR and was secured by accounts receivable. This facility
was paid off with proceeds from our new credit facility.
Concurrent with expanding its credit facility, we converted $5 million of debt,
which was due in 1999, to a term facility which amortized over seven years and
had a final maturity in January 2002. The loan was cross-collateralized with the
$30 million facility discussed above.
Also in November 1998, we entered into a $50 million equipment lease facility
with a commercial lender. The facility was available to refinance certain
existing equipment and the remainder to support future equipment leases. The
terms of the leases vary from 30-48 months for used equipment, and up to 60
months for new equipment. Initial fundings under the facility bore interest at
rates between 5.50% and 6.00%. Interest rates on future fundings were subject to
changes in the 3-year U.S. Treasury interest rates. At the expiration of the
lease, we may renew the lease, return the equipment subject to the payment of a
Terminal Rate Adjustment Clause or purchase the equipment. At December 31, 1999,
this facility was fully utilized.
In October 1999, we entered into a new $150 million credit facility which
replaced our $35 million revolving credit and term facility. The new credit
facility is comprised of a $110 million working capital revolver, which is
secured by receivables and equipment, and a $40 million acquisition credit. The
revolver is interest only with a 5-year term. The acquisition credit is interest
only for one year at which time it converts to a 4-year term facility with
quarterly principal payments. Both the working capital revolver and the
acquisition component bear interest at LIBOR plus 2% through December 31, 1999,
at which time the spread over LIBOR will be determined by our financial ratios.
At December 31, 1999, $7.0 million was available under the working capital
revolver and $30.0 million under the acquisition facility.
The facility contains customary financial covenants that include limitations on
dividends, indebtedness, mergers, sale of assets, and the repurchase of common
stock. Requirements exist to maintain minimum levels of coverage for a Fixed
Charge Coverage Ratio, Asset Coverage Ratio, and a Minimum Consolidated Net
Worth (all defined). We were in compliance with all covenants with the exception
of the Fixed Charge Coverage Ratio at December 31, 1999. This covenant was
waived at that date and we believe that this covenant will be maintained during
2000. Accordingly, the credit facility remains classified according to the terms
of the agreement.
In May 1999, GE Equity (the private equity arm of GE Capital) purchase five
million shares of 9% Redeemable Preferred Stock for $5.00 per share. Each
Redeemable Preferred Share may be converted at any time, at the option of the
preferred shareholder, for one share of our common stock. The Redeemable
Preferred Stock agreement contains certain anti-dilutive provisions which would
require the issuance of additional Redeemable Preferred Shares if we issue any
of our common stock at less than $5.00 per share. Beginning three years from the
date of issuance (and for the succeeding two years) of the Redeemable Preferred
Shares, the preferred shareholders can cause us to purchase up to 33% per year
of the outstanding Redeemable Preferred Stock for $5.00 per share. In addition,
certain events such as a change in control would allow the preferred
shareholders to redeem all of the outstanding Redeemable Preferred Stock.
The Company is required to provide financial information and maintain certain
financial conditions. The conditions involve limitations on mergers,
acquisitions, asset sales, and additional indebtedness. The Company was in
compliance of all of requirements of this Agreement. Should an Event of Default
occur and remain, the holders of the Preferred Stock will have the right to
elect two members to the Board of Directors of the Company.
In 1998, we recognized the future value of net operating loss carryforwards by
reducing the valuation allowance in the amount of approximately $7.5 million.
Due to non-deductible goodwill, and the non-deductible portion of per diems paid
to drivers we have incurred a tax rate of approximately 50% (before the
utilization any net operating looses. In the first quarter of 2000 we
discontinued per diems. As a result, our tax rate is expected to decline in
2000. In 1999, as a result of changes in Federal tax laws, we reduced the
valuation allowance for net operating loss carryforwards and recognized a
benefit of $2.7 million of net operating loss benefits of companies acquired in
1997 and 1999. The Company recognized this benefit effective June 30, 1999. As a
result the June 1999 quarter will be restated to reflect the adoption of this
policy.
In 1999, 1998, and 1997 cash (deficit) flow from operating activities was $(8.0)
million, $8.4 million, and $.1 million, respectively, and capital expenditures
were $21.6 million, $7.1 million and $.2 million, respectively, for new trucks
and trailers. The first and fourth quarters are typically the weakest quarters
in the fiscal year. In the fourth quarter of 1999, higher fuel costs and the
poor performance by certain of our 1999 acquisitions resulted in a loss for the
quarter. Tags, plates and permits require significant cash payments during the
first quarter of each year. The cash required to fund our growth strategy and
the capital requirements for new equipment is significant. In addition, our
internal growth has required us to finance a significant increase in accounts
receivable. These factors have combined to negatively impact our cash flow. We
expect that the seasonal increase in business and the continued concentration on
collection of accounts receivable will alleviate these cash constraints. Capital
expenditures for 2000 are expected to range from $36.0-$40.0 million and will be
financed under our existing credit facility and by other commercial lenders.
Amounts available from future cash flows and funds available under our credit
facilities should be sufficient to meet our expected operating needs and planned
capital expenditures for the foreseeable future. However, there can be no
assurance that we can continue to finance our business strategy through
operations or commercial lenders.
Redemption Rights for Selling Shareholders in Acquisitions. In connection with
the acquisitions of Capitol Warehouse, Service Express, and Carroll Fulmer, we
granted the selling shareholders the right to require us to redeem a portion of
the shares which they received in exchange for selling their businesses to us.
The dollar amount of stock subject to mandatory redemption by us aggregated
approximately $8.1 million upon acquisition of those companies.
At December 31, 1999, holders of redemption rights with respect to $3.7 million
of stock may require either us to redeem the stock or our major shareholder to
acquire the stock at a price of $3.60 per share. Holders of redemption rights
with respect to $1.4 million of stock at $3.875 per share had the right to
require us to redeem their shares, which was guaranteed by a major shareholder.
These shares were either sold by the shareholder or acquired by us in the first
quarter of 1999.
To the extent such redemption rights are exercised, we will be required to fund
the cash required to meet our obligations under the redemption rights by drawing
on bank lines which may be available or to call upon a major shareholder to
purchase the stock under such shareholder's obligations and guarantees
associated with the acquisition contracts.
Year 2000. During 1999, we identified our critical systems for Year 2000
compliance and invested approximately $250,000 to assure that our systems were
Year 2000 compliant. To date we have not experienced any disruptions that relate
to the year 2000.
Risk Factors
Accumulated Deficit
We incurred substantial operating losses and cash flow deficits from inception
through 1997. In the fourth quarter of 1999 we incurred a net loss. There can be
no assurance that we can sustain consistently profitable operations or raise
additional external capital funding.
Debt Covenants
Our credit facility contains customary financial covenants that include
limitations on dividends, indebtedness, mergers, sale of assets, and the
repurchase of common stock. Requirements exist to maintain minimum levels of
coverage for a Fixed Charge Coverage Ratio, Leverage Ratio, Asset Coverage
Ratio, and Minimum Consolidated Net Worth (all defined). We were in compliance
with all covenants with the exception of the Fixed Charge Coverage Ratio at
December 31,1999. This covenant was waived at that date and we believe that this
covenant will be maintained during 2000. Accordingly, the credit facility
remains classified according to the terms of the agreement.
Competition
The trucking industry is extremely competitive and fragmented. Some of the
trucking companies with which we compete have greater financial resources, own
more revenue equipment and carry a larger volume of freight than us. We also
compete with other motor carriers for the services of drivers.
Management of Growth
We completed the acquisition of 19 operating companies from June 30, 1997,
through March 24, 2000, and may acquire additional companies in the near future.
The growth of our business and expansion of our operations has placed a
significant strain on our administrative, operational and financial resources.
Our recent growth has also resulted in a substantial increase in the number of
our employees and the scope of our operations. Our inability to assimilate these
newly acquired operations and support the growth of our business would have a
material adverse effect on our financial condition and results of operations.
Shares Available for Resale
Some of our presently outstanding common stock may be deemed "restricted
securities" and may be sold in compliance with Rule 144 adopted under the 1933
Act. Sales under Rule 144 may have a depressive effect on the market price of
our common stock.
Fuel Prices
A major cost of our operation is diesel fuel. Since December 1998, fuel prices
have increased approximately 37%. We are not able to pass all of these costs
along to our customers. Should fuel cost stay at this level, or increase
further, we believe that our profits may decline.
No Intent to Pay Dividends
We have not paid any dividends on our common stock and intend to follow a policy
of retaining all of our earnings, if any, to finance the development and
expansion of our business.
Continued NASDAQ Listing; Liquidity
Our common stock is currently listed on the NASDAQ SmallCap Market. There can be
no assurance that we will continue to meet the requirements to maintain our
NASDAQ listing. If our common stock were no longer quoted on NASDAQ, holders of
common stock may have greater difficulty identifying potential purchasers for
their securities. This reduced liquidity could adversely affect the market value
of our common stock.
Volatility of Stock Price.
The market price of the common stock may be significantly affected by factors
such as announcements of our proposed acquisitions, as well as variations in our
results of operations and market conditions. The price may also be affected by
market movements in prices of stocks in general. There is no assurance that the
current market price for the common stock will be maintained.
Control by Principal Shareholders, Directors and Officers
T. Wayne Davis, our Chairman of the Board and his affiliates currently own a
significant number of shares of our voting stock. As a result, he is able to
influence or control substantially all matters requiring approval of our
shareholders, including the election of directors.
Potential Liability
Potential liability associated with accidents in the trucking industry is severe
and occurrences are unpredictable. The industry is also subject to substantial
workers' compensation expense. A material increase in the frequency or severity
of accidents or workers' compensation claims or the unfavorable determination of
existing claims and pending litigation can be expected to adversely affect our
operating income and financial condition. We believe that we have insurance
coverage sufficient to cover most expected losses.
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to interest rates relate primarily to our cash equivalents and
certain debt obligations. Any interest earned on cash is recorded as interest
income on our statements of operations.
We do not trade in derivative financial instruments, nor do we engage in any
foreign currency trading activities.
Our line of credit bears interest at the rate of LIBOR (London Interbank Offered
Rate) plus 2.00%. LIBOR is subject to various pressures from various economic
factors. Currently, we do not hedge against interest rate increases nor do we
limit interest rate declines. At December 31, 1999 we had $88.3 million
outstanding under our credit facility.
Fuel costs represents approximately 9% of our revenue. During 1999 worldwide
demand for fuel increased and the OPEC nations began limiting supply. As a
consequence, our fuel prices have increased approximately 37% over the prior
year and have continued to increase in the first quarter of 2000. Each $.10 per
gallon increase in the cost of fuel would decrease operating income by
approximately $250,000 per month to the extent these increases could not be
passed on to our customers. Presently, we have no hedges on fuel prices and are
subject to fluctuations caused by demand issues and OPEC restrictions.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item begins on page 27 of this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors contained under the caption "Election of
Directors - Nominees" in our Proxy Statement for the 2000 Annual Meeting of
Shareholders is incorporated herein by reference.
The information regarding executive officers contained under the caption:
"Executive Officers" in our Proxy Statement for the 2000 Annual Meeting of
Shareholders is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information contained under the caption "Election of Directors - Executive
Compensation" in our Proxy Statement for the 2000 Annual Meeting of Shareholders
is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Voting Securities and Principal
Holders Thereof - Security Ownership of Certain Beneficial Owners" in our Proxy
Statement for the 1999 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Transactions" in our Proxy
Statement for the 2000 Annual Meeting of Shareholders is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601, Regulation S-K
3. Articles of Incorporation and By-Laws
3.1 Amended and Restated Articles of Incorporation (incorporated
by reference from Exhibit 3.1 to the Registrant's Form 8-K
dated May 17, 1999).
3.2 Amendment to Amended and Restated Articles of Incorporation,
(incorporated by reference from Exhibit 3.1 to Registrant's
Form 8-K filed on June 10, 1999).
3.3 Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions thereof
(Incorporated by reference from Exhibit 3.2 to the Form 8-K
dated June 10, 1999)
4. Instruments defining the Rights of Security holders
4.1 Specimen Stock Certificate (incorporated by reference from
Exhibit 4.1 to Registrant's Form S-18, Registration No.
33-30123A).
4.2 Warrant granting stock purchase warrants to J. Ray Gatlin
(incorporated by reference from Exhibit 4.2 to the
Registrant's Form S-18, Registration No. 33-30123A).
4.3 Warrant granting stock purchase rights to T. Wayne Davis
(incorporated by reference from Exhibit 4.3 to Registrant's
Form S-18, Registration No. 33-30123A).
4.4 Warrant granting stock purchase rights to T. Wayne Davis
(incorporated by reference from Exhibit 4.4 to Registrant's
Form S-18, Registration No. 33-30123A).
4.5 Warrant granting stock purchase rights to Drue B. Linton
(incorporated by reference from Exhibit 4.5 to Registrant's
Form S-18, Registration No. 33-30123A).
4.6 Warrant granting stock purchase rights to Steven C. Koegler
(incorporated by reference from Exhibit 4.7 to Registrant's
Form S-18, Registration No. 33-30123A).
4.7 Warrant granting stock purchase rights to J. Ray Gatlin
(incorporated by reference from Exhibit 4.8 to Registrant's
Form S-18, Registration No. 33-30123A).
4.8 Form of Warrant issued (incorporated by reference from Exhibit
4.9 to Registrant's Form S-18, Registration No. 33-30123A).
4.9 Form of Warrant between the Company and American Transtech,
Inc., as Warrant Agent (incorporated by reference from Exhibit
4.10 to Registrant's Form S-18, Registration No. 33-30123A).
4.10 Preferred Stock Purchase Agreement and specimen stock
certificate between the Company and T. Wayne Davis
(incorporated by reference from Exhibit Z to Registrant's 1993
Form 8-K).
10. Material Contracts
10.1 Incentive Stock Option Plan (incorporated by reference from
Exhibit 10.2 to Registrant's Form S-18, Registration No.
33-30123A).
10.2 Termination of Lease Agreements between Transit Leasing, Inc.
(formerly known as Capitol Warehouse, Inc.) and Jerry W. and
Anna Pennington dated February 9, 1999.
10.3 Agreement and Plan of Reorganization dated as of May 5, 1998
governing the merger of Certified Transport, Inc. and Venture
Logistics, Inc. and a wholly-owned subsidiary of the Company
(incorporated by reference from Exhibit 2.6 to Registrant's
Form 8-K dated May 5, 1998).
10.4 Agreement and Plan of Reorganization dated as of June 16, 1998
governing the merger of K. J. Transportation with a
wholly-owned subsidiary of the Company (incorporated by
reference from Exhibit 2.6 to Registrant's Form 8-K dated June
17, 1998).
10.5 Promissory Note for $2,645,451.00 dated as of November 12,
1998, by and among General Electric Capital Corporation and
certain wholly-owned subsidiaries of the Company.
(Incorporated by reference from Exhibit 10.24 to
Registrant's Form 10-K dated March 31, 1999).
10.6 Master Lease Agreement dated as of November 12, 1998, by and
among General Electric Capital Corporation, Transit Group,
Inc. and certain wholly-owned subsidiaries of the Company.
(Incorporated by reference from Exhibit 10.25 to
Registrant's Form 10-K dated March 31, 1999).
10.7 Corporate Guaranty dated as of November 12, 1998, by and among
General Electric Capital Corporation and certain wholly-owned
subsidiaries of the Company. (Incorporated by reference from
Exhibit 10.26 to Registrant's Form 10-K dated March 31,
1999).
10.8 Master Security Agreement dated as of November 12, 1998, by
and among General Electric Capital Corporation and certain
wholly-owned subsidiaries of the Company. (Incorporated by
reference from Exhibit 10.27 to Registrant's Form 10-K dated
March 31, 1999).
10.9 Loan Agreement and Security Agreement for a $1.5 million
facility dated as of November 5, 1998, by and between AmSouth
Bank and the Company. (Incorporated by reference from Exhibit
10.28 to Registrant's Form 10-K dated March 31, 1999).
10.10 Unconditional guarantee for a $1.5 million facility dated as
of November 5, 1998, by and between AmSouth Bank and certain
wholly-owned subsidiaries of the Company. (Incorporated by
reference from Exhibit 10.29 to Registrant's Form 10-K dated
March 31, 1999).
10.11 Promissory Note for $1.5 million dated as of November 5, 1998,
by and among AmSouth Bank and the Company. (Incorporated by
reference from Exhibit 10.30 to Registrant's Form 10-K dated
March 31, 1999).
10.12 Loan Agreement and Security Agreement for a $3.5 million
facility dated as of November 5, 1998, by and between AmSouth
Bank and the Company. (Incorporated by reference from Exhibit
10.31 to Registrant's Form 10-K dated March 31, 1999).
10.13 Unconditional guarantee for a $3.5 million facility dated as
of November 5, 1998, by and between AmSouth Bank and certain
wholly-owned subsidiaries of the Company. (Incorporated by
reference from Exhibit 10.32 to Registrant's Form 10-K dated
March 31, 1999).
10.14 Promissory Note for $3.5 million dated as of November 5, 1998,
by and among AmSouth Bank and the Company. (Incorporated by
reference from Exhibit 10.33 to Registrant's Form 10-K dated
March 31, 1999).
10.15 Advised Revolving Line of Credit Agreement dated as of
November 5, 1998, by and between AmSouth Bank and certain
wholly-owned subsidiaries of the Company. (Incorporated by
reference from Exhibit 10.34 to Registrant's Form 10-K dated
March 31, 1999).
10.16 Revolving Credit Note dated as of November 5, 1998, by and
among AmSouth Bank and certain wholly-owned subsidiaries of
the Company. (Incorporated by reference from Exhibit 10.35
to Registrant's Form 10-K dated March 31, 1999).
10.17 Unconditional Guarantee dated as of November 5, 1998, between
AmSouth Bank and the Company. (Incorporated by reference from
Exhibit 10.36 to Registrant's Form 10-K dated March 31,
1999).
10.18 Security Agreement dated November 5, 1998, by and among
AmSouth Bank and certain wholly-owned subsidiaries of the
Company. (Incorporated by reference from Exhibit 10.37 to
Registrant's Form 10-K dated March 31, 1999).
10.19 1998 Stock Incentive Plan of Transit Group, Inc. (incorporated
by reference from Exhibit 99.1 to Registrant's December 11,
1998 S-8, Registration No. 333-68807)
10.20 1998 Employee Stock Purchase Plan of Transit Group, Inc.
(incorporated by reference from Exhibit 99.2 to Registrant's
December 11, 1998 S-8, Registration No. 333-68807)
10.21 Agreement and Plan of Merger dated December 23, 1998 by and
among certain wholly-owned subsidiaries of the Company.
(Incorporated by reference from Exhibit 10.40 to
Registrant's Form 10-K dated March 31, 1999).
10.22 Agreement and Plan of Merger dated December 23, 1998 by and
among certain wholly-owned subsidiaries of the Company.
(Incorporated by reference from Exhibit 10.41 to
Registrant's Form 10-K dated March 31, 1999).
10.23 Lease Agreement governing the Company's terminal in Olive
Branch, Mississippi dated January 19, 1999 between the Company
and Horvath & Horvath, LLC. (Incorporated by reference from
Exhibit 10.42 to Registrant's Form 10-K dated March 31,
1999).
10.24 Lease Agreement governing the Company's terminal in
Chesterton, Indiana dated March 18, 1999 between the Company
and Ameling Properties, LLC. (Incorporated by reference from
Exhibit 10.43 to Registrant's Form 10-K dated March 31,
1999).
10.25 Agreement and Plan of Reorganization made as of July 2, 1999
by and between Transit Group, Inc., a Florida corporation, R&M
Enterprises, Inc., a Nebraska corporation, Michael P. Sortino
and Randy A. Williams (Incorporated by reference from Exhibit
2.1 to the Form 8-K dated July 30, 1999)
10.26 Stock Purchase Agreement made as of July 2, 1999, by and
between Transit Group, Inc., a Florida corporation, Michael P.
Sortino and Randy A. Williams (Incorporated by reference from
Exhibit 2.2 to the Form 8-K dated October 13, 1999)
10.27 Agreement and Plan of Reorganization made as of July 30, 1999,
by and between Transit Group, Inc., a Florida corporation, MDR
Cartage, Inc., an Arkansas corporation, C. Frank Mitchell and
Bobby W. Riley (Incorporated by reference from Exhibit 2.1 to
the Form 8-K dated October 13, 1999)
10.28 Agreement and Plan of Reorganization made as of July 30, 1999,
by and between Transit Group, Inc., a Florida corporation,
Bestway Trucking, Inc., a Kentucky corporation, and David L.
Summitt (Incorporated by reference from Exhibit 2.2 to the
Form 8-K dated August 13, 1999)
10.29 Membership Interest Purchase Agreement made as July 30, 1999,
by and between Transit Group, Inc., a Florida corporation,
David L. Summitt and Jenny Summitt (Incorporated by reference
from Exhibit 2.3 to the Form 8-K dated August 13, 1999)
10.30 Stock Purchase Agreement made as of July 30, 1999, by and
between Transit Group, Inc., a Florida corporation, and David
L. Summitt (Incorporated by reference from Exhibit 2.4 to the
Form 8-K dated August 13, 1999)
10.31 Acquisition Credit Agreement dated as of October 25, 1999
among the Registrant, the Lenders named therein and Bank One,
N.A. (Incorporated by reference from Exhibit 2.1 to the Form
8-K dated November 8, 1999)
10.32 Credit Agreement dated as of October 25, 1999, among the
Registrant, the Lenders named therein and Bank One, N.A.
(Incorporated by reference from Exhibit 2.2 to the Form 8-K
dated November 8, 1999)
10.33 Pledge and Security Agreement dated as of October 25, 1999,
among the Registrant, the subsidiaries of the Registrant
listed therein and Bank One, N.A. (Incorporated by reference
from Exhibit 2.3 to the Form 8-K dated November 8, 1999)
10.34 Subsidiary Guaranty dated as of October 25, 1999 made by the
Registrant listed therein for the benefit of the Lenders
(Incorporated by reference from Exhibit 2.4 to the Form 8-K
dated November 8, 1999)
10.35 Purchase Agreement dated May 13, 1999 by and between Transit
Group, Inc., and GE Capital Equity Investments, Inc.
(Incorporated by reference from Exhibit 10.1 to the Form 8-K
dated June 10, 1999) 10.36 Stockholders' Agreement
(Incorporated by reference from Exhibit 10.3 to the Form 8-K
dated June 10, 1999) 10.37 Registration Rights Agreement
(Incorporated by reference from Exhibit 10.4 to the Form 8-K
dated June 10, 1999)
11.1 Statement re: Computation of Per Share Earnings Pages 56-61
21. Subsidiaries of the Registrant Page 61
23.1 Consent of PricewaterhouseCoopers LLP Page 62
27. Financial Data Schedule (for SEC purposes only)
We filed the following reports on Form 8-K during the fourth quarter of
1999:
(1) On October 4, 1999, we filed a report on Form 8-K/A to file
financial statements for R&M Enterprises, Inc. and Williams
Truck Brokers, Inc., two companies that we acquired, and pro
forma financial statements to reflect the combination of these
companies with us.
(2) On October 15, 1999, we filed a report on Form 8-K/A to file
financial statements for MDR Cartage, Inc. and BF
Transportation, Inc., two companies that we acquired, and pro
forma financial statements to reflect the combination of these
companies with us.
(3) On October 15, 1999, we filed an additional report on Form
8-K/A to file financial statements for Bestway Trucking, Inc.,
who we acquired, and pro forma financial statements to reflect
the combination of Bestway with us.
(4) On November 8, 1999, we filed a report on Form 8-K to report
that we had entered into a five year, $150 million credit
facility with Banc One, N.A. as agent.
<PAGE>
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.
TRANSIT GROUP, INC.
BY: /s/ Philip A. Belyew
----------------------------------------
Philip A. Belyew, President, Chief Executive Officer, and
Director
Date: March 30, 2000
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 in the
capabilities and on the date indicated.
<TABLE>
Signature Title Date
<CAPTION>
<S> <C> <C>
/s/ T. Wayne Davis Chairman of the Board March 30, 2000
--------------------------------- of Directors
T. Wayne Davis
/s/ Philip A. Belyew Director, President, and March 30, 2000
--------------------------------- Chief Executive Officer
Philip A. Belyew (principal executive officer)
/s/ Carroll L. Fulmer Director March 30, 2000
---------------------------------
Carroll L. Fulmer
/s/ Derek E. Dewan Director March 30, 2000
---------------------------------
Derek E. Dewan
/s/ Robert R. Hermann Director March 30, 2000
---------------------------------
Robert R. Hermann
/s/ Ford G. Pearson Director March 30, 2000
---------------------------------
Ford G. Pearson
/s/ Wayne N. Nellums Executive Vice President March 30, 200
--------------------------------- and Chief Financial Officer
Wayne N. Nellums (principal financial officer)
/s/ Scott J. Tsanos Vice President March 30, 2000
--------------------------------- (principal accounting officer)
Scott J. Tsanos
</TABLE>
<PAGE>
TRANSIT GROUP, INC.
1999 CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Pages
Report of Independent Accountants 33
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998 34
Consolidated Statements of Operations for the years ended 35
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Total Non Redeemable
Preferred Stock, Common Stock and Other Stockholders' Equity 36
for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended 37
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 38-55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Transit Group, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Transit Group, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 30, 2000
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
December 31,
-----------------------------------
1999 1998
-------------- --------------
Current assets:
<S> <C> <C>
Cash $ 2,156 $ 2,020
Accounts receivable (net of allowance of $3,441 and $706) 71,543 28,437
Other current assets 10,259 5,611
Refundable income taxes 4,210 -----
Deferred income taxes 9,655 1,103
-------------- --------------
Total current assets 97,823 37,171
-------------- --------------
Noncurrent assets:
Property, equipment, and capitalized leases 114,718 42,818
Goodwill 112,197 50,062
Other assets 1,676 476
-------------- --------------
Total noncurrent assets 228,591 93,356
-------------- --------------
Total assets $ 326,414 $ 130,527
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current obligations under capital leases $ 1,586 $ 1,518
Current maturities of long-term debt 22,404 10,754
Accounts payable 11,014 6,170
Bank overdrafts 2,856 1,319
Accrued expenses and other current liabilities 16,679 10,029
Net current liabilities of discontinued operations 29 273
-------------- --------------
Total current liabilities 54,568 30,063
-------------- --------------
Noncurrent liabilities:
Long-term obligations under capital leases 1,952 2,429
Long-term debt 137,578 36,534
Note payable to affiliate of Chairman ----- 3,500
Other liabilities 267 4,291
Deferred income taxes 25,482 439
-------------- --------------
Total noncurrent liabilities 165,279 47,193
-------------- --------------
Total liabilities 219,847 77,256
-------------- --------------
Commitments and contingencies (Note 15)
Redeemable common stock 3,675 5,115
-------------- --------------
Redeemable preferred stock 24,795 -----
-------------- --------------
Non redeemable preferred stock, common stock and other
stockholders' equity:
Preferred stock, no par value, 20,000,000 and 5,000,000
shares authorized, none outstanding ----- -----
Note receivable secured by stock ----- (729)
Common Stock, $.01 par value, 100,000,000 and 30,000,000 shares
authorized, 31,823,751 and 23,610,190 shares issued and
outstanding 308 222
Additional paid-in capital 94,577 68,411
Accumulated deficit (16,788) (19,748)
-------------- --------------
Total non redeemable preferred stock, common stock
and other stockholders' equity 78,097 48,156
-------------- --------------
Total liabilities and stockholders' equity $ 326,414 $ 130,527
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Years ended December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Total operating revenues $ 355,526 $ 177,553 $ 34,011
------------- ------------ -------------
Operating expenses:
Purchased transportation 131,296 77,372 15,683
Salaries, wages and benefits 91,574 40,670 7,460
Fuel 31,862 12,932 2,598
Operating supplies and expenses 39,187 16,353 3,060
Lease expense-revenue equipment 20,436 6,057 216
Insurance 4,802 2,845 846
Depreciation and amortization expense 13,856 7,518 1,610
General and administrative expense 9,549 4,914 1,160
------------- ------------ -------------
Total operating expenses 342,562 168,661 32,633
------------- ------------ -------------
Operating income 12,964 8,892 1,378
Interest expense 6,853 4,310 1,045
------------- ------------ -------------
Continuing operations:
Earnings from continuing operations
before income taxes 6,111 4,582 333
Income taxes (benefit) attributable to
continuing operations 1,731 (7,114) 71
------------- ------------ -------------
Income from continuing operations 4,380 11,696 262
Discontinued operations:
Loss from discontinued operations ----- ----- (6,114)
Loss on disposal including provision
for operating losses through disposal date ----- ----- (5,792)
------------- ------------ -------------
Net income (loss) 4,380 11,696 (11,644)
Preferred stock dividend requirement (1,420) ----- (385)
------------- ------------ -------------
Income (loss) to available common
shareholders $ 2,960 $ 11,696 $ (12,029)
============= ============ =============
Income (loss) per basic common share:
Continuing operations $ $ 0.11 $ 0.52 $ (0.01)
Discontinued operations:
Loss from discontinued operations ----- ----- (0.55)
Loss on disposal ----- ----- (0.52)
------------- ------------ -------------
Net income (loss) per basic common share $ 0.11 $ 0.52 $ (1.08)
============= ============ =============
Weighted average number of basic
common shares outstanding 28,048,889 22,391,142 11,094,207
============= ============ =============
Income (loss) per diluted common share:
Continuing operations $ 0.10 $ 0.49 $ (0.01)
Discontinued operations:
Loss from discontinued operations ----- ----- (0.55)
Loss on disposal ----- ----- (0.52)
------------- ------------ -------------
Net income (loss) per diluted common share $ 0.10 $ 0.49 $ (1.08)
============= ============ =============
Weighted average number of diluted
common shares outstanding 28,904,089 23,646,073 11,094,207
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL
NON REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER STOCKHOLDERS' EQUITY
(Dollars in thousands)
Total
Preferred Common Note receivable Additional Accumulated stockholders'
stock stock secured by stock paid-in capital deficit equity
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $ 4 $ 38 $ ----- $ 21,386 $ (19,415) $ 2,013
Dividends on preferred stock ----- ----- ----- ----- (385) (385)
Conversion of preferred stock (4) 43 ----- 346 ----- 385
Sale of common stock ----- 7 ----- 1,212 ----- 1,219
Stock issued in satisfaction
of debt ----- 27 ----- 4,682 ----- 4,709
Stock issued for acquisitions ----- 82 ----- 26,371 ----- 26,453
Stock issued in connection with
sale of GPS ----- 9 ----- 4,024 ----- 4,033
Stock subject to redemption ----- (20) ----- (7,432) ----- (7,452)
Note secured by stock ----- ----- (675) ----- ----- (675)
Exercise of common stock options ----- ----- ----- 62 ----- 62
Net Loss ----- ----- ----- ----- (11,644) (11,644)
--------- --------- ------------- ------------- ------------- -------------
Balance December 31, 1997 ----- 186 (675) 50,651 (31,444) 18,718
Stock retired ----- ----- ----- (109) ----- (109)
Exercise of stock options ----- ----- ----- 155 ----- 155
Accrued interest ----- ----- (54) ----- ----- (54)
Stock issued for acquisitions ----- 30 ----- 15,383 ----- 15,413
Stock subject to redemption ----- 6 ----- 2,331 ----- 2,337
Net income ----- ----- ----- ----- 11,696 11,696
--------- --------- ------------- ------------- ------------- -------------
Balance December 31, 1998 ----- 222 (729) 68,411 (19,748) 48,156
Exercise of stock options ----- ----- ----- 271 ----- 271
Accrued interest ----- ----- (41) ----- ----- (41)
Preferred stock dividends ----- ----- ----- ----- (1,420) (1,420)
Redemption of non recourse note ----- (1) 770 (769) ----- -----
Stock returned to settle
contingencies and retired ----- (4) ----- (1,544) ----- (1,548)
Stock issued to affiliate of
Chairman ----- 1 ----- 230 ----- 231
Stock issued for acquisitions ----- 86 ----- 26,542 ----- 26,628
Stock subject to redemption ----- 4 ----- 1,436 ----- 1,440
Net income ----- ----- ----- ----- 4,380 4,380
---------- -------- ------------- ------------- ------------- -------------
Balance December 31, 1999 $ ----- $ 308 $ ----- $ 94,577 $ (16,788) $ 78,097
========== ======== ============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
-----------------------------------------------------------
1998 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 4,380 $ 11,696 $ 262
------------- ------------- --------------
Adjustments to reconcile net income to cash
(used) provided by continuing operations:
Depreciation and amortization 13,856 7,518 1,610
Deferred income taxes 1,138 (7,666) -
Gain on disposal of fixed assets (544) - -
Bad debt expense 390 - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (17,009) (2,797) 2,062
(Increase) decrease in other assets (4,184) 162 258
(Decrease) increase in accounts payable (1,328) (2,498) 283
(Decrease) increase in accrued expenses (3,762) 2,027 (42)
(Decrease) increase in other long-term
liabilities (215) 22 208
Other (505) 355 84
------------- ------------- --------------
Total adjustments (12,163) (2,877) 4,463
------------- ------------- --------------
Net cash (used) provided by
continuing operations (7,783) 8,819 4,725
Net cash used by discontinued operations (244) (413) (4,584)
------------- ------------- --------------
Net cash (used) provided by
operating activities (8,027) 8,406 141
------------- ------------- --------------
Cash flows from investing activities:
Business combinations, net of cash acquired (28,413) (3,812) (3,883)
Proceeds from disposal of equipment 24,803 15,044 314
Purchase of equipment (21,553) (7,067) (146)
Other 608 82 619
------------- ------------- --------------
Net cash (used) provided by
investing activities (24,555) 4,247 (3,096)
------------- ------------- --------------
Cash flows from financing activities:
Proceeds from issuance of redeemable
preferred stock 24,795 - -
Proceeds from issuance of stock - - 1,282
Exercise of common stock options 271
Retirement of common stock (1,548) - -
Dividends paid on preferred stock (1,420) - (282)
Increase in short-term borrowings - 606 1,938
Increase in long-term debt and
capital lease obligations 128,882 17,799 7,615
Repayment of long-term debt and
capital lease obligations (118,025) (30,485) (5,194)
(Decrease) increase in bank overdraft (236) 657 (1,621)
------------- ------------- --------------
Net cash prov (used) by
financing activities 32,719 (11,423) 3,738
------------- ------------- --------------
Increase in cash 137 1,230 783
Cash beginning of period 2,020 790 7
------------- ------------- --------------
Cash end of period $ 2,157 $ 2,020 $ 790
============= ============= ==============
Supplemental cash flow data:
Cash paid for interest $ 6,252 $ 3,917 $ 841
============= ============= ==============
Business combinations:
Fair value of assets acquired $ 177,846 $ 57,055 $ 80,703
Fair value of liabilities assumed (122,766) (37,141) (50,100)
Common stock issued (26,628) (15,413) (26,453)
------------- ------------- --------------
Net cash payments $ 28,452 $ 4,501 $ 4,150
============= ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
37
TRANSIT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
NOTE 1: Organization and Basis of Presentation
Transit Group, Inc. ("Transit Group" or the "Company") is a Florida corporation
engaged, through subsidiaries, in the short and long haul transportation
services business. The Company formerly known as General Parcel Service, Inc.
("GPS") changed its name effective June 30, 1997.
In conjunction with the name change, the Company approved a plan to dispose of
all operations previously performed by GPS. The Company has accounted for this
disposal as a discontinued operation (See Note 4 to the Consolidated Financial
Statements).
NOTE 2: Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include accounts of the Company and its wholly-owned subsidiaries. All material
inter-company accounts and balances have been eliminated.
Reclassifications - Certain prior year balances have been reclassified to
conform to the current year financial statement presentation.
Estimates - The process of preparing financial statements requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts.
Revenue Recognition - Revenues and related expenses are recognized in accordance
with EITF 91-9 "Revenue and Expense Recognition for Freight Services in
Process".
Cash - The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. The
Company's cash management program utilizes zero balance accounts.
Concentrations of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of trade accounts
receivable. No single customer accounted for a significant amount of the
Company's sales, and there were no significant accounts receivable from a single
customer. The Company reviews a customer's credit history before extending
credit and generally does not require collateral. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information. The Company's
historical experience in collection of accounts receivable falls within the
recorded allowances. Due to these factors, no additional credit risk beyond
amounts provided for collection losses is believed inherent in the Company's
trade accounts receivable.
Equipment - Equipment is stated at historical cost, (except for equipment
obtained in connection with the Company's business acquisitions which is stated
at fair market value on the date of acquisition) net of accumulated depreciation
and amortization. Except for life extending repair costs (such as engine
overhauls), all equipment maintenance and repair costs are charged to operating
expense as incurred. The Company periodically reviews the value of its equipment
to determine if an impairment has occurred. The Company measures the potential
impairment of its equipment by the undiscounted value of expected future
operating cash flows in relation to the fair value of the equipment. Based on
its review the Company does not believe an impairment of its equipment has
occurred. Depreciation is provided using the straight-line method over the
estimated useful life of the asset. Leased equipment is amortized over varying
periods not in excess of the estimated useful life of the asset or lease term
depending on the type of capital lease. Gain or loss upon retirement or disposal
of equipment is recorded as income or expense. The ranges of depreciable lives
used for financial reporting purposes are:
Years
Autos, trucks, trailers and life extending repairs 2 to 10
Office equipment and furniture 3 to 10
Terminal equipment 3 to 10
Buildings and improvements 10 to 20
Goodwill - Goodwill, representing the excess of cost over fair value of net
assets acquired in business combinations accounted for by the purchase method,
is amortized by the straight-line method over 40 years. The Company periodically
reviews the value of its goodwill to determine if an impairment has occurred.
The Company measures the potential impairment of recorded goodwill by the
undiscounted value of expected future operating cash flows in relation to its
net capital investment in the acquired business. If an impairment were
determined to exist, goodwill would be written down to fair market value. Based
on its review, the Company does not believe that an impairment of its goodwill
has occurred. Amortization expense was $1.8 million, $1.0 million, and $.3
million, in 1999, 1998 and 1997, respectively. Accumulated amortization was $3.0
million and $1.2 million at December 31, 1999 and 1998, respectively.
Income Taxes - Deferred tax liability or assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse.
Foreign Currency Translation - Balance sheet accounts are translated at the
exchange rate in effect at each year-end and income accounts are translated at
the average rates of exchange prevailing during the year. Gains and losses
resulting from foreign currency transactions are currently included in income.
Comprehensive Income - The Company has no items of other comprehensive income at
December 31, 1999, 1998 and 1997.
Business Segments - Management views the Company as operating in a single
segment.
Earnings Per Share ("EPS") - Basic EPS is calculated using the weighted average
number of outstanding common shares for the period, which were 28,048,889,
22,391,142 and 11,094,207 in 1999, 1998 and 1997 respectively. Diluted EPS
reflects the potential dilution that could occur if securities were exercised or
converted into common stock or resulted in the issuance of common stock that
would then share in earnings. Shares used in the diluted EPS calculation were
28,904,089 and 23,646,073 in 1999 and 1998 respectively. The difference between
basic and diluted shares represents the number of common shares issuable upon
exercise of diluted options. In 1997, options were not included in the
computation of fully dilutive earnings per share because to do so would have
been anti-dilutive.
NOTE 3: Business Combinations
The business combinations describe below were 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 at the date of acquisition.
In July 1997, the Company acquired Carolina Pacific, Inc., a privately held
North Carolina corporation, and the business and related assets operated by the
owners of Carolina Pacific. Carolina Pacific is a truckload carrier based in
High Point, North Carolina. Pursuant to the Stock Purchase Agreement executed at
closing, the Company purchased all of the outstanding capital stock of Carolina
Pacific and the business and related assets operated and owned by the
shareholders of Carolina Pacific for $3.7 million in cash, the issuance of
1,733,000 shares of common stock of the Company to the shareholders of Carolina
Pacific, and the assumption of approximately $0.6 million in debt.
In August 1997, the Company acquired Service Express, Inc., an Alabama
corporation with operations based in Tuscaloosa, Alabama. Pursuant to the
Agreement and Plan of Reorganization executed at closing, a wholly-owned Alabama
subsidiary of Transit Group was merged with and into Service Express in a
reverse triangular merger, with Service Express remaining as the surviving
corporation of the merger. Upon consummation of the merger, all of the
outstanding common stock of Service Express was converted into 903,226 shares of
Transit Group common stock. In connection with the acquisition of Service
Express, the Company granted the selling shareholders the right through August
15, 1998 (extended to February 1999) to require the Company to redeem up to $1.8
million of shares of the Company at $3.875 per share. Through December 31, 1998,
selling shareholders had sold $.4 million of stock to third parties and $1.4
million was redeemed by the Company in the first quarter of 1999.
Also in August 1997, the Company acquired Capitol Warehouse, Inc., a Kentucky
corporation with operations based in Louisville, Kentucky. Pursuant to the
Agreement and Plan of Reorganization executed at closing, a wholly-owned
Kentucky subsidiary of Transit Group was merged with and into Capitol Warehouse
in a reverse triangular merger, with Capitol Warehouse remaining as the
surviving corporation of the merger. Upon consummation of the merger, all of the
outstanding common stock of Capitol Warehouse was converted into 641,283 shares
of Transit Group common stock. In connection with the acquisition of Capitol
Warehouse, the Company granted the selling shareholder the right to require the
Company to redeem up to $.3 million of the Company's stock at $6.75 per share.
The shareholders have exercised their redemption rights for all of these shares
which were purchased by third parties.
In August 1997, the Company consummated the acquisition of Carroll Fulmer Group,
Inc., a Florida corporation with operations based in Groveland, Florida.
Pursuant to the Agreement and Plan of Reorganization executed at closing,
Carroll Fulmer merged with and into Transit Group Sub., Inc. a wholly-owned
Florida subsidiary of Transit Group (the "Subsidiary"), in a forward triangular
merger, with the Subsidiary remaining as the surviving corporation of the
merger. Upon consummation of the merger, the Company executed a promissory note
in the amount of $2.25 million payable over 5 years, and all of the outstanding
common stock of Carroll Fulmer was converted into 4,166,666 shares of Transit
Group common stock, and the Subsidiary's name was changed to Carroll Fulmer
Group, Inc. In connection with the acquisition of Carroll Fulmer, the Company
granted the selling shareholders the right to require either the Company redeem
or a major shareholder of the Company acquire up to $6.0 million of stock at a
price of $3.60 per share. Of this $6.0 million, redemption rights in the amount
of $2.5 million were exercisable before August 29, 1998 when an additional $3.5
million became exercisable. All redemption rights expire August 29, 2003.
Through December 31, 1999, the Company has received notification that
shareholders have exercised their redemption rights with respect to
approximately $2.3 million. Of this amount, approximately $2.25 million of stock
has been purchased by third parties and $.08 million has been redeemed by the
Company, thereby reducing the Company's obligation. The remaining $3.7 million
will be either sold to third parties, redeemed by the Company or acquired by a
major shareholder. In the second quarter of 1999, the Company loaned $.5 million
to one of the selling shareholders in the form of an 8% secured promissory note
due on demand.
In December 1997, the Company acquired the net assets of Rainbow Trucking
Services, Inc., a Kentucky corporation engaged in the full load, long-haul
trucking business. Upon consummation of this acquisition all of the common stock
of Rainbow Trucking (and two affiliate companies) was converted into 679,246
shares of Transit Group common stock. The Company made loans to the selling
shareholders in the amount of $675,000. Such loans became due on June 30, 1999
at which time the notes were redeemed in exchange for 101,887 of the Company's
common shares.
In January 1998, the Company acquired Transportation Resources & Management,
Inc. ("TRM"), an Indiana corporation with operations based in Fort Wayne,
Indiana. Pursuant to the Reorganization Agreement executed at closing, the
Company purchased all the outstanding capital stock of TRM and the business and
related assets operated and owned by the shareholders of TRM for $.2 million in
the form of a secured promissory note and 365,957 shares of the Company's common
stock. The promissory note was increased by $.2 million and the due date
extended to May 2000 from its original due date of April 1999. In accordance
with the terms of the Purchase Agreement if the Company's common stock price did
not exceed a specified target price on February 1, 1999, the selling
shareholders were entitled to additional shares. In the second quarter of 1999,
20,823 additional common shares were issued.
In May 1998, the Company acquired Certified Transport and Venture Logistics,
Inc., Indiana corporations with headquarters in Indianapolis. The Company
purchased all of the outstanding capital stock of Certified and Venture for $.8
million in cash, a $.4 million secured promissory note and 1,072,165 shares of
the Company's common stock. The original due date of the loan was extended from
November 1999 to May 2000.
In June 1998, the Company consummated the acquisition of KJ Transportation,
Inc., a New York corporation with operations based in Farmington, New York.
Pursuant to the Agreement and Plan of Reorganization executed at closing, KJ
merged with and into Transit Group Subsidiary, Inc. in a forward triangular
merger with the Subsidiary remaining as the surviving corporation of the merger.
Upon consummation of the merger all of the outstanding stock of KJ was converted
into 878,688 shares of the Company's stock and a cash payment in the amount of
$3.0 million. Simultaneously with the acquisition of KJ, we acquired all of the
outstanding stock of J&L Leasing, Inc. of Farmington, New York for $.5 million.
In July 1998, the Company purchased all of the issued and outstanding stock of
two Canadian numbered companies which together own 100% of the outstanding stock
of Network Transport, Ltd. a Toronto, Canada based trucking company. The Company
made a cash payment of $.25 million and issued 191,491 shares of the Company's
common stock in exchange for all of the issued and outstanding shares of the two
numbered companies.
In August 1998, the Company issued 178,519 common shares in exchange for all of
the issued and outstanding shares of Diversified Trucking Corporation, an
Opelika, Alabama based trucking company.
Also in August 1998, the Company acquired all of the issued and outstanding
shares of Dothan, Alabama - based Northstar Transportation, Inc. in exchange for
349,091 shares of Transit Group common stock.
In January 1999, the Company acquired Olive Branch, Mississippi - based Priority
Transportation, Inc. in exchange for a cash payment of $1.5 million and 890,000
shares of the Company's common stock.
In March 1999, the Company made two acquisitions. First, the Company acquired
Massengill Trucking Services, Inc. in a forward triangular merger. Based in
Hickory Flat, Mississippi, the Company issued 1,069,518 shares of the Company's
common stock and paid $2.2 million in cash for all of the issued and outstanding
shares of Massengill. Next the Company acquired KAT, Inc., headquartered in
Chesterton, Indiana for a cash payment of $.75 million and the issuance of
811,500 shares of the Company's common stock.
In July 1999, the Company acquired three more companies. Based in Gretna,
Nebraska, the Company acquired R&M Transportation, Inc., and its affiliate
Williams Brothers Trucking for cash of $1.4 million and the issuance of
1,215,000 shares of the Company's common stock. Headquartered in Jeffersonville,
Indiana, Bestway Trucking, Inc. and its affiliates DLS and Connection One were
acquired for 1,542,501 shares of the Company's common stock and a cash payment
of $6.8 million. The Company's third July acquisition was MDR Cartage, Inc.,
headquartered in Jonesboro, Arkansas. In exchange for all of the issued and
outstanding shares of MDR, the Company issued 2,450,000 shares of its common
stock and paid $1.8 million in cash.
In September 1999, the Company acquired Green Bay, Wisconsin based Fox Midwest,
Inc. and its affiliate SDS Distributors in exchange for a cash payment of $1.875
million and the issuance of 510,204 shares of its common stock.
In November 1999, the Company completed the acquisition of Atlanta, Georgia
based - Land Transportation, LLC. The Company issued 100,000 shares of its
common stock and paid $18 million (including a $6 million note) for the accounts
receivables and container operations of Land Transportation, the intermodel
marketing arm of Land Transportation and the related brokerage operation.
In connection with companies acquired in 1998 and 1997 we determined certain
administrative positions were redundant and accrued $4.2 million for severance
related to the elimination of those positions. The liability recorded was
charged to the goodwill of the companies acquired. During 1999, $1 million was
paid in cash and an adjustment of $.2 million was recorded to reduce the
liability with a corresponding reduction in goodwill. The remaining balance will
be paid through 2003 in accordance with certain employment contracts.
Early in 1999 the Company began formulating a plan to consolidate most
"backoffice operations" at its service center in Groveland, Florida. The plan
was finalized during the fourth quarter of 1999 with the completion of the last
acquisition. The first phase of the plan involves consolidating accounting,
financial reporting, fuel taxes, risk management, payroll, credit and
collections, disbursements, certain safety functions and purchasing of the
companies acquired during 1999. The employee groups covered were notified during
December 1999. As a result of this plan, a charge of $.5 million was recorded as
part of the acquisition cost of the companies acquired and charged to goodwill.
The charge is intended to cover severance for approximately 100 employees
affected and the relocation of three employees to the Groveland service center.
The amount of severance each employee is entitled to is based on the years of
employment of each employee affected. The plan is expected to be completed by
September 2000 at which time the severance will be paid. Beginning in 2001, the
Company expects the elimination of these positions will result in annual pretax
savings of $1.0-$2.0 million.
See note 13 for the Unaudited Pro Forma results of the acquisitions discussed
above.
NOTE 4: Discontinued Operations
During the second quarter of 1997, the Company approved a plan to dispose of its
parcel delivery and courier operations. After negotiations with a third party
failed, the Company executed a contract for the sale of the parcel delivery
business to a company controlled by Transit Group's Chairman. The sale contract
became effective on September 30, 1997. Under the contract, the buyer assumed
certain net liabilities related to the parcel delivery operations and received
876,569 shares of the Company's common stock in exchange. In 1999 the Company
issued an additional 50,130 shares of its common stock in final satisfaction of
all liabilities.
Revenues attributable to the discontinued business were $14.7 million for the
year ended December 31, 1997 and zero thereafter.
The loss from discontinued operations has been reflected as a disposal of a
segment. The December 31, 1997 consolidated statements of operations and cash
flows for the year then ended have been restated to separately reflect the
financial position, results of operations, and cash flows of the discontinued
parcel delivery and courier businesses. Net liabilities of discontinued
operations were nil and $.3 million at December 31, 1999 and 1998 respectively.
NOTE 5: Preferred Stock and Non Redeemable Preferred Stock.
In the second quarter of 1997 the holders of the Company's outstanding preferred
stock elected to convert their preferred stock and accrued dividends of $385,000
to common stock. The Company issued 4,323,922 shares of common stock upon the
conversion.
In May 1999 the Company issued five million shares of 9% Redeemable Preferred
Stock for $5.00 per share. Each Redeemable Preferred Share may be converted at
any time, at the option of the preferred shareholder, for one share of the
Company's common stock. The Redeemable Preferred Stock agreement contains
certain anti-dilutive provisions which would require the issuance of additional
Redeemable Preferred Shares if the Company issues any of its common stock at
less than $5.00 per share. Beginning three years from the date of issuance of
the Redeemable Preferred Shares, (and for the succeeding two years) the
preferred shareholders can cause the Company to purchase up to 33% per year of
the outstanding Redeemable Preferred Stock for $5.00 per share. In addition,
certain conditions such as a change in ownership can accelerate the redemption
requirement.
The Company is required to provide financial information and maintain certain
financial conditions. The conditions involve limitations on mergers,
acquisitions, asset sales, and additional indebtedness. The Company was in
compliance of all of requirements of this Agreement. Should an Event of Default
occur and remain, the holders of the Preferred Stock will have the right to
elect two members of the Board of Directors of the Company.
<PAGE>
NOTE 6: Income Taxes
The (benefit) provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1999 1998 1997
------------------- ------------------- ------------------
Current:
<S> <C> <C>
Federal $ 189 $ 145 -----
Foreign 34 13 -----
State 370 394 -----
------------------- ------------------- ------------------
Total current 593 552 43
------------------- ------------------- ------------------
Deferred:
Federal 643 (7,190) -----
Foreign 99 ----- -----
State 396 (476) 28
------------------- ------------------- ------------------
Total deferred 1,138 (7,666) 28
------------------- ------------------- ------------------
Provision (benefit) for income taxes $ 1,731 $ (7,114) $ 71
=================== =================== ==================
The components of the net deferred tax liability are as follows:
Years ended December 31,
--------------------------------------------
1999 1998
-------------------- -------------------
Depreciation $ 27,232 $ 7,024
Net operating loss (9,626) (10,290)
AMT credits (368) ----
Cash to accrual 616 466
Bad debt reserve (919) (262)
Accrued expenses (1,502) (428)
Valuation of notes payable (995) (161)
Other 271 27
-------------------- -------------------
14,709 (3,624)
Valuation allowance 1,118 2,960
-------------------- -------------------
Net deferred income tax liability $ 15,827 $ (664)
==================== ===================
</TABLE>
<PAGE>
The difference between the provision for income taxes attributable to continuing
operations and the amounts that would be expected using the Federal statutory
income tax rate of 34% is explained below.
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Tax at federal statutory rate - continuing operations $ 2,078 $ 1,558 $ 113
Tax at federal statutory rate - discontinued operations ---- ---- (4,048)
Change in deferred tax asset valuation allowance (2,671) (9,710) 3,710
Nondeductible expenses 1,903 1,080 226
State taxes, net 288 (54) 47
Foreign tax 133 12 23
------------------ ------------------ -----------------
Net provision (benefit) for income taxes $ 1,731 $ (7,114) $ 71
================== ================== =================
</TABLE>
At December 31, 1999, the Company has $31,024 of federal net operating loss
carryforwards potentially available to offset taxable income which expire during
the years 2009 to 2018. In 1998, the Company recognized $7,504 in benefits for
these net operating losses because management believed it was 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. In 1999, Federal consolidated
return regulations were issued that changed the rules for using operating loss
carryovers by eliminating the requirement to apply the separate return
limitation loss years limitations to situations in which a change of ownership
as defined in Section 382 of the Internal Revenue Code occurred within six
months of an acquired company becoming a member of the group. As a result, the
Company reduced the valuation allowance for these net operating losses
carryforwards by $2.7 million by recording a tax benefit to the statement of
operations. Effective for tax year beginning after August 5, 1997, the
carryforward period for net operating losses has been extended from 15 to 20
years. Tax loss carryforwards at December 31, 1999 expire as follows:
Year of Expiration Federal
---------------------------- ---------------------
2009 $ 434
2010 3,993
2011 9,680
2012 14,798
2017 1,339
2018 780
- ---------------------
$ 31,024
=====================
<PAGE>
<TABLE>
NOTE 7: Property, Equipment and Capitalized Leases
December 31,
-----------------------------------------
1999 1998
------------------- ------------------
Property and equipment:
- -
<S> <C> <C>
Land $ 1,083 $ 728
Building 3,734 2,815
Revenue equipment 106,950 38,078
Other 16,957 6,013
------------------- ------------------
Total 128,724 47,634
Less accumulated depreciation 18,782 7,362
------------------- ------------------
109,942 40,272
------------------- ------------------
Capitalized leases:
Revenue equipment 5,522 3,434
Other 896 380
------------------- ------------------
Total 6,418 3,814
Less accumulated amortization 1,642 1,268
------------------- ------------------
4,776 2,546
------------------- ------------------
$ 114,718 $ 42,818
=================== ==================
</TABLE>
Depreciation and amortization expense related to property, equipment and
capitalized leases was $12.1, $6.6 and $1.3 million for the years ended December
31, 1999, 1998 and 1997, respectively.
<PAGE>
<TABLE>
<CAPTION>
NOTE 8: Long-Term Debt
December 31,
------------------------------------------------
1999 1998
---------------------- ---------------------
Notes payable to commercial lenders, secured
primarily by revenue equipment; interest rates
from 5.7% to 12%; payable in monthly
installments through 2003
<S> <C> <C>
$ 70,212 $ 23,609
Notes payable to bank, secured by land and
building with a net book value of $3.4 million;
interest rates from 6.9% to 12%; payable in
monthly installments through 2015
1,425 1,523
Note payable to affiliate of the Chairman, unsecured;
9% interest; $.5 million due April 1999 and $1 million
due each year thereafter
------ 3,500
Note payable to bank, cross collateralized to credit
facility; interest at 2.50%over LIBOR (5.06% at December
31, 1998) payable monthly with final maturity in 2002
------ 5,000
Credit facility, secured by accounts receivable and
certain fixed assets:interest at 2.00% over LIBOR
(6.48% at December 31, 1999) interest only for one
year; acquisition credit converts to a four year term
facility payable quarterly with final maturity in 2004
88,345 ------
Credit facility secured by accounts receivable;
interest rate at 2.25% over LIBOR
------ 17,156
---------------------- ---------------------
159,982 50,788
Less current portion 22,404 10,754
---------------------- ---------------------
$ 137,578 $ 40,034
====================== =====================
</TABLE>
The credit facility contains customary financial covenants that include
limitations on dividends, indebtedness, mergers, sale of assets and the
repurchase of common stock. Requirements exist to maintain minimum levels of
coverage for a Fixed Charge Coverage Ratio, Leverage Ratio, Asset Coverage
Ratio, and Minimum Consolidated Net Worth (all defined). The Company was in
compliance with all covenants with the exception of the Fixed Charge Coverage
Ratio at December 31, 1999. This covenant was waived at that date and the
Company believes that this covenant will be maintained during 2000. Accordingly,
the credit facility remains classified according to the terms of the agreement.
At December 31, 1999, $36.7 million was available under the credit
facility.Long-term debt matures as follows:
<TABLE>
<CAPTION>
Years Ended Long-term
December 31, Debt
-------------------------------------- ------------------
<S> <C> <C>
2000 $ 22,404
2001 20,447
2002 14,705
2003 10,253
2004 86,896
Thereafter 5,277
------------------
Total long-term debt 159,982
Less current portion 22,404
------------------
Long-term portion of long-term debt $ 137,578
==================
</TABLE>
NOTE 9: Capitalized LeasesThe Company has entered into certain lease agreements,
which have been accounted for as capitalized leases. Substantially all of the
capitalized leases are for vehicles. The present value of such commitments for
the capitalized leases are as follows:
<TABLE>
<CAPTION>
Capitalized
Years Ended Lease
December 31, Obligations
-------------------------------------------- -----------------
<S> <C> <C>
2000 $ 1,586
2001 1,452
2002 500
-----------------
-----------------
Total minimum obligations 3,538
Less current portion 1,586
-----------------
Long-term capitalized lease obligations $ 1,952
=================
</TABLE>
Interest expense on obligations outstanding under capitalized leases was $.3
million for all years presented.NOTE 10: Operating LeasesIn November 1998, the
Company entered into a $50 million equipment lease facility with a commercial
lender. The facility is available to refinance of certain existing equipment and
the remainder to support future equipment leases. The terms of the leases will
vary from 30-48 months, for used equipment, and up to 60 months for new
equipment. Initial fundings under the facility bore interest at rates between
5.50% and 6.00%. Interest rates on future fundings will be subject to changes in
the 3-year U.S. Treasury interest rates. At the expiration of the lease, the
Company may renew the lease, return the equipment subject to the payment of a
Terminal Rate Adjustment Clause or purchase the equipment. At December 31, 1999,
this facility was fully utilized.The Company also leases terminal and office
facilities under non-cancelable operating lease agreements. Lease terms range
from one to five years and provide that the Company will pay real estate taxes,
maintenance, insurance and certain other expenses. At December 31, 1999 future
minimum payments under non-cancelable operating leases having an initial or
remaining term of more than one year were:
<TABLE>
<CAPTION>
Operating
Years Ended
Years ended Lease
Years Ended Years Ended
December 31, Obligations
------------------------ ---------------------
<S> <C> <C>
2000 $ 25,111
2001 22,263
2002 17,185
2003 10,465
2004 2,622
---------------------
Total $ 77,646
=====================
</TABLE>
Total rent expense under all operating leases was $20.4 million, $6.1 million
and $.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company believes that upon expiration of these leases it will
be able to negotiate new leases on acceptable terms although lease costs may
increase.NOTE 11: Fair Values of Financial Instruments For instruments including
cash, accounts receivable and payable, and accrued expenses, carrying amounts
approximate fair value. The carrying amount of long-term debt and capital lease
obligations which bear interest at floating rates, also approximate fair value.
Fixed-rate debt totaling $71.6 million has a fair value of $67.9 million. The
fair value of the preferred stock is approximately $24.0 million.NOTE 12: Stock
Options and WarrantsThe Company has granted options and warrants to acquire its
common stock at various times under various plans, contracts and employment
agreements that approximated or exceeded fair market value at the date of issue.
Options and warrants which vest over various periods (to a maximum of 4 years),
may be exercised over periods ranging up to ten years and generally expire in
five to ten years. The 1998 Stock Option Plan provides that the Board of
Directors or its delegate may grant stock options, stock appreciation rights
("SARs") or restricted stock awards, to selected employees, directors and
independent contractors. The maximum aggregate number of shares of common stock
that may be issued under the Plan is 2,000,000, plus 1% of the total issued and
outstanding shares as of December 31 of the year the Plan is in effect.A summary
of outstanding options and warrants is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1999 1998
----------------------------------- ------------------------------------
Weighted-Avg. Weighted-Avg.
Shares Exercise Price Shares Exercise Price
Outstanding beginning of
<S> <C> <C> <C> <C>
year 3,413,058 $ 3.69 2,754,158 $ 3.19
Granted during the year 903,700 4.49 807,000 5.81
Exercised (699,517) 2.93 (49,900) 4.54
Forfeited or expired (148,766) 4.80 (98,200) 6.01
-------------- ---------------
Outstanding at end of year 3,468,475 $ 3.99 3,413,058 $ 3.69
============== ===============
Exercisable at end of year 2,250,058 2,394,787
============== ===============
</TABLE>
Options and warrants outstanding at December 31, 1999 were exercisable at prices
ranging from $1.43 to $6.88. All stock options and warrants are
non-compensatory. Options and warrants outstanding at year end may be summarized
as follows:
<TABLE>
<CAPTION>
Range of Number Weighted -Average
Exercise Price Outstanding Exercise Price
---------------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C>
$1.43 - 1.99 36,250 $1.44
2.00 - 2.99 1,274,318 2.16
3.00 - 3.99 132,250 3.59
4.00 - 4.99 1,074,257 4.30
5.00 - 5.99 154,500 5.21
6.00 - 6.88 796,900 6.44
</TABLE>
Additionally, in conjunction with the initial public offering, the Company
issued 690,000 warrants. Two warrants entitle the holder thereof to purchase at
a price of $7.50 per share, one share of common stock at any time until November
16, 2000. The warrants are subject to redemption by the Company at $.05 per
warrant at any time on 30 days' written notice, provided that the average
closing bid price of the common stock on NASDAQ is at least $8.50 for ten
consecutive trading days ending five days prior to the date of the notice of
redemption.
<PAGE>
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation".
In accordance with the provisions of SFAS 123, the Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its stock option and warrant grants.
If the Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under this plan consistent with the
methodology prescribed by SFAS 123, the Company's results of operations would be
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ------------------ ---------------
<S> <C> <C> <C>
Net income (loss): As reported $ 4,380 $ 11,696 $ (11,644)
Unaudited pro forma $ 3,335 $ 10,873 $ (12,984)
Net income (loss) per share: As reported - basic .11 .52 (1.08)
Unaudited pro forma
basic .07 .49 (1.21)
As reported - diluted .10 .49 (1.08)
Unaudited pro forma
diluted .07 .46 (1.21)
</TABLE>
The fair value of each option and warrant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; expected
volatility of 22%, 1.02% and 1.22% and risk-free interest rates of 5.44%, 4.28%
and 5.48%, respectively. An expected option term of 5 years for both periods was
developed based on historical grant information. Because the Company has not
paid dividends and anticipates retaining earnings to provide funds for the
operation and expansion of the Company in the future, no dividends were assumed
in the Black-Scholes option pricing model.Because the Company's stock options
and warrants have characteristics significantly different from those of traded
options and warrants, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options and warrants.NOTE 13: Unaudited Pro Forma
Results of Operations Since July 1997, we have acquired 19 truckload carriers.
Combining the purchasing power of these companies has enabled us to reduce
certain costs particularly in the areas of insurance, interest and leasing
costs, fuel, and overhead. Our 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 Transit
Group Transportation, LLC.
The unaudited pro forma financial information reflects the operations of the 19
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 us:
o Reduced depreciation expense due to changes in depreciation policies and
estimated lives; o Amortization of goodwill recorded in connection with the
acquisitions; o Recognition of lease expense incurred in connection with certain
sale-lease back transactions; o Additional interest costs for the cash portion
of the acquisition costs; o Interest costs of the acquired companies have been
adjusted to reflect our financing costs; and o Provision for income taxes at our
estimated annual rates.
o Excluded the impact of the change in the valuation allowance for deferred tax
assets.
<PAGE>
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>
December 31,
-----------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Operating revenues $ 493,968 $ 468,156
================= =================
Net income $ 4,564 $ 7,143
================= =================
Income per basic common share $ .14 $ .22
================= =================
Income per diluted common share $ .14 $ .21
================= =================
Weighted average number of basic common shares
outstanding 31,887,857 32,194,435
================= =================
Weighted average number of diluted common
shares outstanding 32,743,056 33,449,366
================= =================
</TABLE>
NOTE 14: Related Party TransactionsThe Company leases certain facilities from
several of the former owners of the businesses acquired. During 1999, 1998 and
1997, rental payments under operating leases to related parties aggregated $1.4
million, $.1 million and $.2 million respectively. Payments to related parties
under capitalized leases totaled $1.6 million in 1999 and 1998 and $.8 million
in 1997.
The terms of the leases with related parties is, in the opinion of the Company,
no less favorable to the Company than could be obtained from unrelated third
parties.
In connection with the acquisition of three companies Transit Group loaned an
aggregate of $1.3 million to selling shareholders. A $.7 million note related to
the 1997 acquisition of Rainbow was redeemed in the third quarter of 1999 for
118,877 shares of the Company's common stock. A note receivable in the amount of
$.2 million was due in April 1999 at which time it was increased to $.4 million
and extended to May 2000. A $.4 million note due in November 1999 was extended
to May 2000. During 1999 $.5 million was loaned to a shareholder in the form of
an 8% demand note secured by stock and other advances of approximately $0.5
million were made to employees..
NOTE 15:
Commitments and ContingenciesIn 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. The redemption rights expire in the amounts of $2.1
million at August 15, 1998 and $6.0 million at August 29, 2003.
Holders of redemption rights with respect to $6.0 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. Through December 31, 1998, the
Company has received notification that shareholders have exercised their
redemption rights with respect to approximately $2.3 million. Of this amount,
approximately $2.25 million has been purchased by third parties and $0.08
million has been redeemed by the Company, thereby reducing the Company's
obligation. 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.
In connection with the sale of the Company's parcel delivery and courier
operations, the Company issued certain warranties regarding the value of certain
assets and liabilities transferred to the purchasers of the businesses and
remains contingently liable on certain real and personal property leases. To
provide for possible liabilities, which would arise under the warranties on
lease agreements, the Company has recorded a liability of approximately $.3
million and $. 6 million at December 31, 1998 and 1997, respectively.
The Company is a party to various other legal actions which are ordinary and
incidental to its business. While the outcomes of legal actions cannot be
predicted with certainty, the Company believes the outcome of any of these
proceedings, or all of them combined, will not have a material adverse effect on
its consolidated financial position or results of operations.
During 1999, the Company entered into an agreement to purchase 600 tractors over
a two year period at a fixed price per unit. The Company is not obligated to
purchase 600 tractors. The price for the tractors purchased will be
retroactively increased to reflect an appropriate price for the number of
tractors purchased. Based on the actual number of tractors purchased through
December 31, 1999 and planned purchases for 2000, the Company does not expect
any change to the price per tractor.
During 1998, the Company entered into an agreement to purchase 3,000 satellite
communications and monitoring units over a three year period at a fixed price
per unit. The Company is not obligated to purchase 3,000 units. However, should
the Company not purchase 3,000 units, the price for the units purchased will be
retroactively increased to reflect an appropriate price for the number of units
purchased. Based on the actual number of units purchased through December 31,
1999 and planned purchases for 2000, the Company does not expect any change to
the price per unit.
<PAGE>
Note 16: Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Three month periods ended
----------------------------------------------------------------------
March 31, June 30, September 30, December 31
------------ ------------------ ------------------- -----------
Reported Restated Reported Restated
Year ended December 31, 1999
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues and other income $ 64,843 $ 75,167 $ 75,167 $ 93,372 $ 93,272 $ 122,244
Operating income 2,961 4,698 4,698 5,052 4,586 719
Income before income taxes 1,959 3,181 3,181 3,405 2,939 (1,968)
Income taxes (benefit) 1,026 1,579 (1,092) 1,741 1,559 238
Net income 933 1,602 4,273 1,664 1,380 (2,206)
Preferred stock dividends 0 (296) (296) (562) (562) (562)
Amount available to common shareholders 933 1,306 3,977 1,102 818 (2,768)
Basic income (loss) per common share $ 0.04 $ 0.05 $ 0.15 $ 0.04 $ 0.03 $ (0.09)
Diluted income (loss) per common share $ 0.04 $ 0.05 $ 0.15 $ 0.04 $ 0.03 $ (0.09)
Year ended December 31, 1998
- --------------------------------------
Total revenues and other income $ 26,431 $ 35,408 $ 55,925 59,789
Operating income 1,747 2,139 2,887 2,119
Income before income taxes 943 1,272 1,264 1,103
Income taxes (benefit) 101 108 43 (7,366)
Net income 842 1,164 1,221 8,469
Basic income (loss) per common share $ 0.04 $ 0.05 $ 0.05 $ 0.38
Diluted income (loss) per common share $ 0.04 $ 0.05 $ 0.05 $ 0.35
</TABLE>
The second quarter of 1999 has been restated to reflect the utilization of a
$2.7 million net operating loss carryforward discussed in Note 6. In November,
the Emerging Issues Task Force determined that this benefit should be recorded
in the income statement. The Company adopted the accounting principle
retroactively to the beginning of the year and recorded the benefit in the
quarter in which the tax law changed. Upon completion of our 1999 annual audit
we determined that third quarter revenues were overstated by $.1 million and
purchased transportation costs were understated by $.4 million. We have restated
the third quarter of 1999 to correct these errors. The effect was to reduce
earnings per share from $.04 as originally reported to $.03.
Note 17: Subsequent Event
The Company has finalized and is currently executing a plan to consolidate the
"back office functions' of all remaining divisions. In connection with the plan,
the Company will record a charge to income between $.9 million and $1.0 million
during the quarter ending March 31, 2000 to cover severance from the termination
of employees resulting from the plan. Each employee affected will be entitled to
an amount determined based on the number of years of employment with the
company. The Company expects the project to be completed by December 2000 at
which time the severance will be paid. The Company expects the elimination of
these positions will result in annual pretax savings of $1 million.
Exhibit 11.1 Statement regarding computation of earnings per share. The Company
computes earnings per share in accordance with FAS No. 128, Earnings Per Share.
For the year ended December 31, 1997, the Company was required to pay dividends
on its outstanding convertible preferred stock. Such preferred stock was
converted into common stock on June 30, 1997. The preferred dividend
requirements for the period in which the preferred stock was outstanding have
been added to the loss from continuing operations for the period to arrive at
net loss available to common stockholders in calculating basic earnings per
share.The Company has stock options and warrants outstanding which were not
included in the computation of fully diluted earnings per share for December 31,
1997 because to do so would have been anti-dilutive for periods
presented.Computations of basic and diluted earnings per share are set forth
below: Income for EPS Computation <TABLE> <CAPTION>
Years ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 4,380 $ 11,696 $ 262
Preferred stock dividend requirement (1,420) ---- (385)
------------------ -------------------- ------------------
Income (loss) available to common shareholders 2,960 11,696 (123)
Discontinued operations:
Loss from operations ---- ---- (6,114)
Loss on disposal ---- ---- (5,792)
------------------ -------------------- ------------------
Net income (loss) available to common shareholders $ 2,960 $ 11,696 $ (12,029)
================== ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
Weighted-average shares for 1999 calculated as follows:
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
<S> <C> <C> <C> <C> <C>
January 1 - January 3 23,610,190 3/365 194,056
Redemption of stock on January 4 (384,637)
------------------
January 4 - January 18 23,225,553 15/365 954,475
Issuance of stock on January 19 890,000
------------------
January 19 - February 22 24,115,553 35/365 2,312,450
Issuance of stock on February 23 50,130
------------------
February 23 - March 2 24,165,683 8/365 529,659
Issuance of stock on March 3 1,069,518
------------------
March 3 - March 18 25,235,201 16/365 1,106,201
Issuance of stock on March 19 811,500
------------------
March 19 - April 4 26,046,701 17/365 1,213,134
Redemption of stock on April 5 (29,229)
------------------
April 5 - April 22 26,017,472 18/365 1,283,053
Issuance of stock on April 23 20,823
------------------
April 23 - June 8 26,038,295 47/365 3,352,876
Exercise of stock options on June 9 10,081
------------------
June 9 - June 15 26,048,376 7/365 499,558
Exercise of stock options on June 16 10,000
------------------
June 16 - July 1 26,058,376 16/365 1,142,285
Exercise of stock options on July 2 35,307
------------------
July 2 - July 18 26,093,683 17/365 1,215,322
Issuance of stock on July 19 1,215,000
------------------
July 19 - July 29 27,308,683 11/365 823,001
Issuance of stock on July 30 3,992,501
------------------
July 30 - August 3 31,301,184 5/365 428,783
Exercise of stock options on August 4 14,250
------------------
August 4 - September 26 31,315,434 54/365 4,632,968
Issuance of stock on September 27 510,204
------------------
September 27 - October 1 31,825,638 5/365 435,968
Redemption of stock on October 2 (101,887)
------------------
October 2 - November 3 31,723,751 33/365 2,868,175
Issuance of stock on November 4 100,000
------------------
November 4 - December 31 31,823,751 58/365 5,056,925
================== ---------------------
Weighted Average Shares 28,048,889
=====================
Weighted-average shares for 1998 is calculated as follows:
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
January 1 - January 29 20,574,626 29/365 1,634,696
Issuance of common stock on January 30 365,957
------------------
January 30 - April 2 20,940,583 63/365 3,614,402
Retirement of common stock on April 3 (20,833)
------------------
April 3 - May 4 20,919,750 32/365 1,834,060
Issuance of common stock on May 5 1,072,165
------------------
May 5 - June 16 21,991,915 43/365 2,590,828
Issuance of common stock on June 17 878,688
------------------
June 17 - July 5 22,870,603 19/365 1,190,525
Exercise of options on July 6 15,500
------------------
July 6 - July 12 22,886,103 7/365 438,912
Issuance of common stock on July 13 191,491
------------------
July 13 - July 22 23,077,594 10/365 632,263
Exercise of options on July 23 9,900
------------------
July 23 - August 4 23,087,494 13/365 822,294
Issuance of common stock on August 5 178,519
------------------
August 5 - August 10 23,266,013 6/365 382,455
Issuance of common stock on August 11 349,091
------------------
August 11 - September 30 23,615,104 51/365 3,299,645
Retirement of common stock on October 1 (4,914)
------------------
October 1 - December 31 23,610,190 92/365 5,951,062
================== ---------------------
Weighted average shares 22,391,142
=====================
Weighted-average shares for 1997 is calculated as follows:
Dates Shares Fraction Weighted
Outstanding Outstanding of Period Average Shares
January 1 - May 2, 1997 3,758,671 121/365 1,246,025
Issuance of common stock on May 2 3,387,187
--------------------
May 3 - June 29 7,145,858 59/365 1,155,084
Conversion of preferred stock on June 30 4,323,922
--------------------
June 30 - July 9 11,469,780 10/365 314,241
Exercise of stock warrant on July 10 25,000
--------------------
July 10 11,494,780 1/365 31,493
Issuance of common stock on July 11 1,733,000
--------------------
July 11 - August 14 13,227,780 36/365 1,304,658
Issuance of common stock on August 15 1,544,509
--------------------
August 15 - August 28 14,772,289 13/365 526,136
Issuance of common stock on August 29 4,166,666
--------------------
August 29 - September 10 18,938,955 13/365 674,538
Issuance of common stock on September 11 79,856
--------------------
September 11 - December 30 19,018,811 110/365 5,731,696
Issuance of common stock on December 30 679,246
--------------------
December 30 19,698,057 1/365 53,967
Issuance of common stock on December 31 876,569
--------------------
December 31 20,574,626 1/365 56,369
==================== ----------------------
Weighted average shares 11,094,207
======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The basic EPS computation is as follows:
Years ended December 31,
1999 1998 1997
---- ---- ----
Income (loss) per common share - basic:
<S> <C> <C> <C>
Continuing operations $ 0.11 $ 0.52 $ (0.01)
Discontinued operations:
Loss from operations ---- ---- (0.55)
Estimated loss on disposal ---- ---- (0.52)
------------------ --------------- ---------------
Total $ 0.11 $ 0.52 $ (1.08)
================== =============== ===============
Weighted average number of common
Shares outstanding-diluted 28,048,889 22,391,142 11,094,207
================== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
The diluted EPS computation is as follows:
Years ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 4,380 $ 11,696 $ 262
Preferred stock dividend requirement (1,420) ---- (385)
----------------- ----------------- -----------------
Income available to common shareholders 2,960 11,696 (123)
Discontinued operations:
Loss from operations ---- ---- (6,114)
Loss on disposal ---- ---- (5,792)
----------------- ----------------- -----------------
Net income (loss) available
to common shareholders $ 2,960 $ 11,696 $ (12,029)
================= ================= =================
Weighted average shares: 28,048,889 22,391,142 11,094,207
Plus: Incremental shares from assumed
Warrants and Options 855,200 1,254 ----
----------------- ----------------- -----------------
Adjusted weighted average shares 28,904,089 23,646,073 11,094,207
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
---- ---- ----
Income (loss) per common share - diluted:
<S> <C> <C> <C>
Continuing operations $ 0.10 $ 0.49 $ (0.01)
Discontinued operations:
Loss from operations ---- ---- (0.55)
Estimated loss on disposal ---- ---- (0.52)
---------------- --------------- ---------------
Total $ 0.10 $ 0.49 $ (1.08)
================ =============== ===============
Weighted average number of common
shares outstanding-diluted 28,904,089 23,646,073 11,094,207
================ =============== ===============
</TABLE>
The equation for computing (basic and diluted) EPS is:
Income available to common stockholders
---------------------------------------------------
Weighted-average shares
The incremental shares from assumed exercise of options and warrants are not
included in computing the diluted per-share amounts for 1997 because the net
income available to shareholders from continuing operations was a loss, not
income.Exhibit 21 List of Subsidiary Corporations of Transit Group, Inc.
<TABLE>
<CAPTION>
Jurisdiction of % of Voting
Name Incorporation Securities Owned
<S> <C> <C>
Transit Group, Inc. Florida 100
Subsidiaries:
Bestway Trucking, Inc. Kentucky 100
Carroll Fulmer Group, Inc. Florida 100
Connection One Trucking, LLC Indiana 100
DLS Leasing Inc. Indiana 100
J&L Leasing of Farmington, Inc. New York 100
Land Transportation, LLC Delaware 100
Network Transport, Ltd. Canada 100
Transit Group of Canada, Inc. Canada 100
Transit Group Transportation, LLC Delaware 100
Transit Holdings Company, Inc. Delaware 100
Transit Logistics, LLC Delaware 100
</TABLE>
Exhibit 23 .1 Consent of PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Transit Group, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Numbers 333-48939 and 333-6880) of Transit Group,
Inc. of our report dated March 30, 2000 relating to the financial statements,
which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This shedule contains summary financial information extracted from
the consolidated Statements of Operations and Balance Sheets and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,156,000
<SECURITIES> 0
<RECEIVABLES> 74,987,000
<ALLOWANCES> 3,444,000
<INVENTORY> 0
<CURRENT-ASSETS> 97,823,000
<PP&E> 135,142,000
<DEPRECIATION> 20,424,000
<TOTAL-ASSETS> 326,414,000
<CURRENT-LIABILITIES> 54,568,000
<BONDS> 0
0
0
<COMMON> 308,000
<OTHER-SE> 77,789,000
<TOTAL-LIABILITY-AND-EQUITY> 326,414,000
<SALES> 355,526,000
<TOTAL-REVENUES> 355,526,000
<CGS> 0
<TOTAL-COSTS> 342,562,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 6,853,000
<INCOME-PRETAX> 6,111,000
<INCOME-TAX> 1,731,000
<INCOME-CONTINUING> 4,380,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,380,000
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
