UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from _____________ to _______________
Commission file number 0-23210
TRISM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3491658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4174 Jiles Road, Kennesaw, Georgia 30144
(Address of principal executive offices) (Zip Code)
(770) 795-4600
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock, $.01 par value Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price as
quoted on NASDAQ on March 17, 1999 was $7,482,730.
As of March 17, 1999, 5,702,137 shares of TRISM, Inc.'s common stock,
par value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of TRISM, Inc.'s proxy statement, to be filed not later than
120 days after the end of the fiscal year covered by this report, are
incorporated by reference into Part III.
Page 1 of 44 Pages
Exhibit Index located on page 40.
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
PART I. 1. Business 3
2. Properties 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of
Security Holders 7
PART II. 5. Market for the Registrant's Common Equity
And Related Stockholder Matters 8
6. Selected Financial Data and Operating Statistics 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
PART III. 10. Directors and Executive Officers of the Registrant 39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial
Owners and Management 39
13. Certain Relationships and Related Transactions 39
PART IV. 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 39
Exhibit Index 40
2
<PAGE>
PART I.
ITEM 1. Business
Overview
TRISM, Inc. (the "Company"), a Delaware corporation, entered the
transportation business in January 1990 with the acquisition of Tri-
State Motor Transit Co. The Company's operations include a group of
carriers specializing in the transportation of heavy machinery and
equipment and over-dimensional commodities (Heavy Haul), hazardous
waste, explosives and radioactive materials (Secured Materials),
building materials, lumber, steel and metal products (Commercial
Flatbed), and a contract logistics provider (Logistics). The Company
conducts these operations principally through Trism Specialized
Carriers, Inc. ("TSC"), Tri-State Motor Transit Co. ("TSMT"), Diablo
Systems, Inc. ("Diablo"), C.I. Whitten Transfer ("CIW"), Trism
Transport Services, Inc. ("TTSI"), and Trism Logistics, Inc. ("TLI").
The Company completed strategic acquisitions through August 1996 in
order to increase market share, expand the geographic scope of its
operations, and obtain lane density in the heavy machinery,
munitions, and hazardous waste sectors of its operations.
As a result of continued losses in the Commercial Flatbed market
during 1996, the Company elected to exit this market by closing down
component operations of TTSI, and recorded a charge of $4.1 million
against 1996 operating results to reflect the write-off of the net
book value of goodwill associated with this acquisition. The Company
consolidated remaining operations of the Commercial Flatbed market
into Heavy Haul in October 1997.
Heavy Haul
TSC, the Company's largest segment, specializes in the transportation
of over-sized and over-dimensional loads throughout the United States,
Canada, and Mexico. The largest markets for Heavy Haul are
manufacturers of large machinery and equipment, suppliers and
contractors to industrial and public construction, importers of
industrial durable goods and the U.S. Government. Also, the Company
entered the Super Heavy Haul market in 1997 through its strategic
alliance with Econofreight Group Limited, a U.K. subsidiary of
Brambles Corporation, which generated approximately $4.2 million in
operating revenues in 1998. The Super Heavy Haul market allows for
the transportation of freight in excess of 80 tons up to 10,000
tons. The Heavy Haul segment data was restated to include the
operating results of the Commercial Flatbed market, which included
related revenues of $15 million and $34 million for years ended
December 31, 1997 and 1996.
The following table includes Heavy Haul's contribution of revenue,
exclusive of intersegment elimination adjustments, for the three years
ended December 31:
1998 1997 1996
Revenue (in thousands) $203,172 $208,479 $214,715
Percent of Company revenue 67% 64% 67%
Secured Materials
The Secured Materials segment is characterized by the toxic or
explosive nature and special handling requirements of the cargo. The
cargo typically consists of military munitions, commercial explosives,
hazardous waste, and radioactive materials. The largest markets for
Secured Materials are the United States government and various governmental
agencies, waste generators, and environmental clean-up firms.
TSMT, Diablo and CIW service customers in the munitions and explosives
market and are collectively the largest transporters of Department of
Defense munitions in the continental United States. TSMT and CIW
operate throughout the continental United States whereas Diablo's
market focus is primarily in the western regions of the United States.
3
<PAGE>
Item 1. Business, Secured Materials, Continued
Trism Environmental Services ("TES"), a division of TSMT, provides
service to customers in the hazardous waste and radioactive materials
market and is the largest transporter of hazardous waste materials in
the United States. TES operates throughout the United States, but its
primary market focus is east of the Mississippi.
The operating companies within the Secured Materials group have
operating authority in the entire continental United States and
certain provinces of Canada. In addition, the group maintains trailer
interchange agreements with certain Mexican carriers.
The following table includes Secured Material's contribution of
revenue, exclusive of intersegment elimination adjustments, for the
three years ended December 31:
1998 1997 1996
Revenue (in thousands) $ 92,113 $104,893 $ 97,930
Percent of Company revenue 31% 32% 31%
Logistics
In March 1995, the Company acquired Kavanagh & Associates, Inc.,
renamed Trism Logistics, Inc. ("TLI") in 1997, a logistics firm
specializing in the management of freight by truck (particularly in
the hazardous waste market). TLI's client base includes engineering
and construction companies, suppliers to the European Community,
Fortune 500 companies and major utility companies. In September of
1998, TLI began operations to provide logistics services to the rail
industry through its intermodal division.
The following table includes TLI's contribution of revenue, exclusive
of intersegment elimination adjustments, for the three years ended
December 31:
1998 1997 1996
Revenue (in thousands) $ 7,178 $ 11,564 $ 6,090
Percent of Company revenue 2% 4% 2%
Strategy
The Company's business strategy is to offer high quality, specialized
transportation services in specific markets of the trucking industry
to service-sensitive customers. The key components of the Company's
strategy are as follows:
Market Leadership
The Company has sought to enter niche trucking markets in which it can
become the preeminent carrier. These markets generate higher revenues
per mile than general freight carriage. There are substantial service
and productivity advantages to having a large specialized equipment
fleet including high route density and a large, diverse customer base.
Nationwide Coordination of Operations
The Company's coordinated nationwide operations, and careful
compliance by the Company's drivers and field personnel, along with a
synchronized network load plan are key elements in its strategy. In
order to minimize down time and to reduce empty miles, the Company
coordinates its nationwide operations by utilizing systems designed to
match driver and equipment availability to customer and geographic
demand. As part of this process, the Company has equipped
substantially all of its tractors with satellite communications
equipment that enables the Company's drivers and dispatchers to
communicate with each other at any time regardless of where a tractor
is in the continental United States. This system enables the Company
to provide its customers with current information on the location and
status of cargo while in transit.
4
<PAGE>
Item 1. Business, Continued
Strategy, Continued
Specialized Operating Capabilities and Equipment
The generally Company has the capability of handling all of an
individual shipper's freight in the Company's niche markets. The
Company's operating capabilities include a variety of specialized
equipment, regulatory permits and compliance expertise, satellite
communications and technology, specialized terminals including
segregated munitions storage areas, and driver selectivity and
training. The Company owns 29 types of trailers in order to meet the
specialized needs of shippers. Because of the number and variety of
trailers in the Company's fleet, the Company is able to accommodate
large nationwide shippers' needs on a timely basis. The breadth of
these equipment options is an integral part of the Company's position
with its major customers.
Seasonality
The Company's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarters ending in
December and March are significantly lower than the quarters ending in
June and September due to reduced shipments and higher operating costs
as a percentage of revenues in the winter months.
Customers
The Company's largest customer is the United States government
(principally the Department of Defense) which accounted for
approximately 15 percent of consolidated revenues in 1998. The
remainder of the Company's customer base is diversified in terms of
customer concentration, industry and geography, none of which
accounted for more than 5 percent of the Company's consolidated
revenues.
Employees
At December 31, 1998, the Company had 2,504 employees of whom 1,766
were drivers. Like other trucking operations, the Company experiences
a high turnover rate (approximately 99% for 1998) of its Company-
employed drivers and contract operators.
Risk Management and Insurance
The primary risk areas in the Company's businesses are liability for
bodily injury and property damage, workers' compensation, and cargo
loss and damage. The Company maintains insurance against these risks,
and is subject to liability for deductibles with regard to personal
injury and property damage and self-insured retention with regard to
workers' compensation under the insurance policies. The Company
currently maintains liability insurance for bodily injury and property
damage. The current deductible for bodily injury and property damage
is $500,000 per occurrence plus the satisfaction of an additional
$750,000 deductible per year for claims which exceed $500,000. The
Company is a qualified workers' compensation self-insurer in the State
of Missouri where most of its drivers are domiciled, with losses in
excess of $500,000 insured by an excess workers' compensation policy.
In all other states statutory workers' compensation insurance is
maintained with a deductible of $500,000 loss limit per occurrence to
the Company. The Company has issued standby letters of credit in the
amount of $11.2 million and collateralized an additional $0.8 million
in the form of restricted deposits at December 31, 1998, to secure its
self-insured and deductible insurance programs.
The Company also self-insures as to damage or loss to the property and
equipment it owns or leases, subject to insurance coverage maintained
in the event of a catastrophic loss in excess of $50,000 for property
and $100,000 for equipment. Certain of the shipments transported by
the Company are very valuable. The Company currently maintains cargo
loss and damage insurance with a current deductible of $100,000 per
occurrence. In addition to following Department of Transportation
("DOT") regulations requiring random drug testing and post-accident
drug testing, the Company rigorously enforces its accident and
incident reporting and follow-up standards.
5
<PAGE>
Item 1. Business, Continued
Safety
The Company employs safety specialists and maintains safety programs
designed to meet its specific needs. In addition, the Company employs
specialists to perform compliance checks and to conduct safety tests
throughout the Company's operations. The Company conducts a number of
safety programs designed to promote compliance with rules and
regulations and to reduce accidents and cargo claims. These programs
include an ongoing Substance Abuse Prevention Program, driver safety
meetings, distribution of safety bulletins to drivers, and
participation in national safety associations.
Fuel Availability and Cost
The Company's fuel requirements are met by commercial fuel stops. The
Company has entered into agreements with national truckstop chains
that provide for discounts on fuel. The Company may, from time to
time, enter into the forward purchases of fuel for delivery through
its truckstop network for up to 40 percent of its monthly usage. The
Company believes that a portion of any increase in fuel costs or fuel
taxes generally would be recoverable from its customers in the form of
higher rates although a time lag could occur in implementing and
collecting these costs.
Competition and Regulation
The trucking industry is highly competitive. The Company competes
with other truckload carriers, private carriage fleets and, to a
lesser extent, railroads. Although the increased competition
resulting from deregulation has created downward pressure on rates,
the Company has mitigated this decline by setting rates on the basis
of its quality of service and its ability to provide specialized
services.
The trucking industry has been substantially deregulated since the
Motor Carrier Act of 1980. Although the Company is still subject to
the regulatory powers of the DOT (which has assumed the trucking
regulation responsibilities from the Interstate Commerce Commission),
as are all interstate common carriers by motor vehicle, many of the
previous regulatory barriers for entry into the trucking business have
been eased. Further, as a result of deregulation, operating
authorities for handling commodities in individual states are more
easily obtained by new and existing carriers, and certain restrictions
on transportation have been eased.
The DOT sets safety and equipment standards, as well as hours of
service regulations for drivers. Federal, state and local governments
regulate the transportation of hazardous waste and hazardous
materials. Generally, certain procedures must be followed, pre-
notifications given, and permits obtained when transporting these
materials.
Environmental Matters
The Company's operations as well as those of its competitors are
subject to extensive federal, state and local environmental
regulations. In order to comply with such regulations and to be
consistent with the Company's corporate environmental policy, normal
operating procedures include practices to protect the environment.
Amounts expended relating to such practices are part of the normal day-
to-day costs of the Company's business operations.
6
<PAGE>
ITEM 2. Properties
Facilities
The Company owns executive and administrative offices in Kennesaw,
Georgia and Joplin, Missouri, which are the Company's principal
operational headquarters. These facilities provide sufficient space
for the Company to coordinate its nationwide operations.
As of December 31, 1998, the Company owned 14 terminals and leased 45
terminals. These terminals are strategically located in 28 states
throughout the United States. From these terminals, the Company
caters to service-sensitive customers transporting cargo in truckload
quantities to single destinations throughout the continental United
States and Canada. The Company arranges for shipments into Mexico
primarily through agreements it maintains with Mexican trucking
companies.
Revenue Equipment and Maintenance
The Company utilizes a wide range of specialized equipment designed to
meet its customers' varied transportation requirements which
distinguishes the Company from many other large truckload carriers.
To meet its customers' specialized needs, the Company's trailer fleet
consists of 29 types of trailers, including closed vans, flat beds,
drop frames, double drops, extendibles, low-boy and dromedary
trailers.
The Company's policy is to replace tractors on a four to five year
cycle. At December 31, 1998, the average age of the Company's tractor
fleet was 2.7 years. The Company's policy is to replace trailers on a
five to ten year cycle. At December 31, 1998, the average age of the
Company's trailer fleet was 7.9 years.
TRISM operated the following tractors and trailers at December 31:
1998 1997 1996
Tractors:
Owned (1) 925 1,077 1,031
Leased (1) 787 788 982
Independent contractors 244 177 161
----- ----- -----
Total 1,956 2,042 2,174
===== ===== =====
Trailers:
Owned (1) 4,161 4,438 4,504
Leased (1) 216 217 302
----- ----- -----
Total 4,377 4,655 4,806
===== ===== =====
(1) Operated by Company-employed drivers.
ITEM 3. Legal Proceedings
The information required by this item is included in Item 7 and Note 8
of the Notes to the Company's Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, no matters were submitted to a vote
of security holders.
7
<PAGE>
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock, believed to be owned by more than 400
beneficial stockholders as of December 31, 1998, is traded on the
National Association of Securities Dealers Automated Quotation
National Market System (NASDAQ) under the symbol "TRSM."
The following table sets forth the high and low closing sales prices
for the Company's common stock as reported by NASDAQ for 1998 and
1997.
1998 High Low Close
First quarter 3 1/4 1 7/8 2 9/16
Second quarter 2 11/16 1 7/8 2 9/16
Third quarter 3 3/16 1 1 5/8
Fourth quarter 1 7/8 1 1
1997 High Low Close
First quarter 4 3/8 2 3 1/8
Second quarter 4 1/2 2 1/4 4 1/2
Third quarter 5 1/2 3 1/4 3 9/16
Fourth quarter 4 1/4 2 1/4 3 1/4
The Company has never paid a cash dividend on its common stock. It is
the current intention of the Company's Board of Directors to continue
to retain earnings to finance the growth of the Company's business
rather than to pay dividends. Future payment of cash dividends will
depend upon the financial condition, results of operations and capital
commitments of the Company as well as other factors deemed relevant by
the Board of Directors. Furthermore, the Senior Subordinated Notes
have convenants that restrict the payment of dividends. See Note 4 of
the Notes to the Company's Consolidated Financial Statements.
8
<PAGE>
ITEM 6. Selected Financial Data and Operating Statistics
The following table sets forth selected consolidated financial data
for the periods indicated and should be read in conjunction with the
consolidated financial statements and related notes. The selected
financial data for each of the five years for the period ended
December 31, 1998 was derived from the Company's audited consolidated
financial statements.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands, except per share amounts)
Selected financial data
For the year:
<S> <C> <C> <C> <C> <C>
Revenues $ 291,631 309,880 310,033 268,444 225,191
Operating income (a) 6,274 6,915 5,082 19,593 19,401
(Loss) income before extraordinary items (9,008) (5,605) (6,598) 3,874 4,781
Extraordinary gain (loss), net of tax (b) 1,563 - - - (231)
---------- --------- -------- -------- --------
Net (loss) earnings $ (7,445) (5,605) (6,598) 3,874 4,550
========== ========= ======== ======== ========
Basic (loss) earnings per share:
(Loss) earnings before extraordinary
items $ (1.58) (.98) (1.15) .67 .81
Extraordinary gain (loss) .28 - - - (.04)
---------- --------- -------- -------- --------
Basic (loss) earnings per share $ (1.30) (.98) (1.15) .67 .77
========== ========= ======== ======== ========
Number of shares used in computation of
(loss) earnings per share 5,714 5,737 5,735 5,759 5,638
At year end:
Total assets $ 213,952 218,824 232,497 218,771 208,001
Long-term obligations $ 162,290 157,554 163,223 137,647 139,711
Stockholders' equity $ 15,799 23,145 28,750 35,107 32,206
Common shares outstanding 5,714 5,737 5,737 5,733 5,879
Net book value per share $ 2.77 4.03 5.01 6.12 5.48
Selected operating data
For the year:
Operating ratio (a) (c) 97.8% 97.8% 98.4% 92.7% 91.4%
Revenue per loaded mile (d) $ 1.77 1.74 1.69 1.71 1.73
Revenue per total mile (d) $ 1.47 1.47 1.40 1.41 1.45
Load factor (e) 83.1% 84.2% 82.9% 82.4% 84.0%
Daily revenue per tractor (f) $ 534 547 505 527 555
Average length of haul in miles (g) 926 880 819 900 953
Total loads (000's) 163 182 196 160 128
Total tractor miles (000's) 181,702 189,696 198,333 174,583 145,262
</TABLE>
9
<PAGE>
ITEM 6. Selected Financial Data and Operating Statistics, Continued
1998 1997 1996 1995 1994
Weighted average number of:
Employees (h)
Drivers 2,048 2,257 2,173 1,920 1,630
Mechanics 167 131 168 144 148
Other 618 695 758 688 622
Tractors (i) 2,014 2,065 2,220 1,893 1,522
Ratio of average tractors to
non-driver employees 2.6 2.5 2.4 2.3 2.0
- ---------------
(a)Includes restructuring charges of $3.2 million for the year ended
December 31, 1997 and the write-off of the unamortized goodwill of
$4.1 million associated with TTSI for the year ended December 31,
1996.
(b)The Company recorded an extraordinary gain and loss related to the
early extinguishment of debt during the years ended December 31,
1998 and 1994, respectively.
(c)Operating ratio represents operating expenses as a percentage of
revenues.
(d)Freight revenues exclude brokerage and other revenues.
(e)Load factor represents loaded miles as a percentage of total book
miles.
(f)Based on weighted average number of tractors during the period.
(g)Calculated as the average distance from origin to the destination
of the shipments.
(h)Includes part-time employees.
(i)Includes the monthly average of owned, leased and independent
contractor units.
- ---------------
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain statements in Items
1, 3, 6, 7 and 8 of this Form 10-K include information that is forward
looking, such as the Company's opportunities to grow revenues and
increase operational efficiency, its anticipated liquidity and capital
requirements, and the results of legal proceedings. The matters
referred to in forward-looking statements could be affected by the
risks and uncertainties involved in the Company's business.
10
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
These risks and uncertainties include, but are not limited to, the
effect of economic and market conditions, the expenses associated with
and the availability of drivers and fuel, as well as certain other
risks described above in this Item and in Item 1 in "Business".
Subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in
their entirety by the cautionary statements in this paragraph and
elsewhere in this Form 10-K. The following discussion and analysis
should be read in conjunction with the Selected Consolidated Financial
Data and the Company's consolidated financial statements and related
notes.
The following tables set forth certain financial information and
operating data for the three years ended December 31:
<TABLE>
<CAPTION>
1998 1997
Percentage of Revenue Basis: 1998 1997 1996 to 1997 to 1996
Variance Variance
<S> <C> <C> <C> <C> <C>
Operating Revenue: 100.0 100.0 100.0 - -
Operating Expenses:
Salaries, wages and fringe benefits 38.1 36.5 36.8 1.6 (0.3)
Operating supplies and expenses 14.0 15.0 15.0 (1.0) -
Operating taxes and licenses 9.2 8.9 9.3 0.3 (0.4)
Contractor equipment 8.0 5.9 6.0 2.1 (0.1)
Brokerage carrier expense 6.7 8.6 8.3 (1.9) 0.3
Depreciation and amortization 6.6 6.1 6.3 0.5 (0.2)
General supplies and expenses 5.0 5.4 5.8 (0.4) (0.4)
Revenue equipment rents 4.6 4.7 4.4 (0.1) 0.3
Claims and insurance 3.3 3.7 3.2 (0.4) 0.5
Communications and utilities 1.7 1.7 1.9 0.0 (0.2)
Loss on disposition of assets 0.3 0.3 0.1 0.0 0.2
Restructuring and
non-recurring expenses 0.3 1.0 - (0.7) 1.0
Write-down of goodwill - - 1.3 0.0 (1.3)
Total operating expenses 97.8 97.8 98.4 - (0.6)
Income from operations 2.2 2.2 1.6 - 0.6
Interest expense, net 4.8 4.6 4.6 0.2 -
Other expense, net 0.3 0.2 0.2 0.1 -
(Loss) income before income tax (2.9) (2.6) (3.2) (0.3) 0.6
benefit and extraordinary item
Income tax (benefit) expense 0.2 (0.8) (1.1) 1.0 0.3
(Loss) income before extraordinary item (3.1) (1.8) (2.1) (1.3) 0.3
Extraordinary gain on extinguishment
of debt, net of income taxes of
$841 0.5 - - 0.5 -
Net (loss) earnings (2.6) (1.8) (2.1) (0.8) 0.3
</TABLE>
Pertinent financial and operating data is summarized in Selected
Financial Data and Operating Statistics on page 9 of this document.
11
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Overview and Outlook for 1999
Operating revenue was approximately $291.6 million in 1998 compared to
$309.9 million in 1997. Operating income for 1998 was approximately
$6.3 million compared to $6.9 million in 1997. The net loss for 1998
was $7.4 million ($1.30 per share) compared to a net loss of $5.6
million ($.98 per share) in 1997. The results for 1998 include a gain
on the extinguishment of debt of $1.6 million, non-recurring charges
of $0.8 million, and a charge to fully reserve for future net
operating loss carryforward benefits of $3.4 million. The 1997
operating results contain a restructuring charge of $3.2 million.
The Company's performance in 1998 was limited by a more competitive
freight market at Secured Materials, increased costs associated with
attracting and retaining qualified drivers, lower asset productivity,
and a lower percentage of loaded miles to total miles. The Company's
initiatives for 1999 are directed at improving each of these factors
while also focusing on achieving revenue growth in each of its
specialized freight niches.
Operating Revenue
Operating revenue for 1998 decreased $18.2 million, or 5.9%, from 1997
to 1998 and decreased $153,000, or 0.1%, from 1996 to 1997. Revenue
per total mile amounted to $1.47, $1.47 and $1.40 in 1998, 1997 and
1996, respectively. Total miles driven amounted to approximately
181.7 million miles in 1998, 189.7 million miles in 1997, and 198.3
million miles in 1996. Operating revenues between periods includes
the following (in thousands):
Segment 1998 1997 1996
Heavy Haul $ 203,172 208,479 214,715
Secured Materials 92,113 104,893 97,930
Logistics 7,178 11,564 6,090
Intersegment eliminations (10,832) (15,056) (8,702)
------------ -------- --------
$ 291,631 309,880 310,033
============ ======== ========
1998 Compared to 1997
Operating revenues declined by $18.2 million from 1997 to 1998. Heavy
Haul's operating revenues were negatively impacted as a result of the
Company's exit from the Commercial Flatbed market resulting in a
decrease of approximately $15 million from 1997; however, this was
partially offset from Heavy Haul's increased revenue from ongoing
operations of approximately $9.7 million. Additionally, operating
revenues declined at Secured Materials due to increased competitive
market conditions in the military munitions market, a reduced number
of available military munitions shipments, and fragmentation within
the hazardous waste markets from a national market to a regional
market. Consolidated revenues were also negatively impacted by a
lower than expected ratio of active to total tractors caused by a more
competitive driver market. Finally, Logistics revenues declined by
$4.5 million due to a loss of contracts. The Company entered the Super
Heavy Haul market in early 1997 through its strategic alliance with
Econofreight Group Limited, a U.K. subsidiary of Brambles Corporation.
Revenues for 1998 associated with Super Heavy Haul were $4.2 million.
1997 Compared to 1996
Operating revenues were adversely impacted due to a lower than
expected ratio of active tractor capacity to total tractor capacity
caused by a shortage of drivers, which left approximately 10% of the
Company's tractor fleet idle in the third and fourth quarters of 1997.
Operating revenues were also negatively impacted as a result of the
Company's exit from the Commercial Flatbed market resulting in
decreased operating revenues of approximately $19.2 million and
increased reliance on intersegment revenue of approximately $2.6
million in 1997 offset by revenue gains in the Heavy Haul, Secured
Materials and Logistics segments.
12
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Operating Income
Operating income between the periods includes the following (in
thousands):
Segment 1998 1997 1996
Heavy Haul $ 6,254 4,762 6,135
Secured Materials 458 5,027 3,199
Logistics 314 353 (190)
Restructuring charge (752) (3,227) -
Write-down of goodwill - - (4,062)
------- ------ -------
$ 6,274 6,915 5,082
======= ====== =======
Operating income decreased $0.6 million in 1998 as compared to 1997
and increased $1.8 million in 1997 as compared to 1996. The operating
expense ratio was 97.8%, 97.8%, and 98.4% in 1998, 1997, and 1996,
respectively.
1998 Compared to 1997
The decline in operating performance in 1998 was primarily a result of
a more competitive and changing market at Secured Materials, increased
costs of attracting and retaining qualified drivers, lower asset
productivity and a lower percentage of loaded miles to total miles.
These factors were partially offset in 1998 by elimination of
Commercial Flatbed operating losses and a reduction in fuel, insurance
and fixed freight operating costs.
Heavy Haul's operating income decreased by approximately $1.0 million
from 1997 to 1998 primarily resulting from low tractor productivity caused
by tractors without drivers. Additionally, the percentage of loaded
miles to total miles also declined from 1997 to 1998. Furthermore,
operating income in 1997 includes an operating loss of approximately
$2.5 million relating to the Commercial Flatbed market.
Secured Materials operating income declined approximately $5.3 million
from 1997 to 1998. The decline in profitability resulted from lower
revenues in the military munitions and hazardous waste markets,
reduced freight rates due to competitive pressures and lower tractor
productivity.
Logistics operating income remained relatively flat in 1998, despite a
reduction in revenues from 1997.
The Company reduced its fleet size from 2,042 in 1997 to 1,956 in 1998
to combat effects of a more competitive driver labor market.
Accordingly, the Company recorded a provision for loss on sale of non-
productive revenue equipment of $0.45 million in the third quarter of
1998. The Company has also increased its independent contractors from
177 in 1997 to 244 in 1998 to reduce the risk in the driver market.
1997 Compared to 1996
The improved operating results in 1997 for the Company were primarily
driven by improved performance at Secured Materials and Logistics
offset by lower results in Heavy Haul and the $3.2 million
restructuring charge. Heavy Haul results were adversely impacted in
1997 as a result of absorbing the remaining operations of the
Commercial Flatbed market in October 1997 and a general softening of
the Heavy Haul market sector in the later part of the third and entire
fourth quarter of 1997.
The overall improvement in Secured Materials is primarily due to
improved conditions in the munitions market, implementation of a
commercial explosives market initiative, and improved pricing in the
environmental services market as a result of the 1996 acquisition of
the Special Commodities Division of J. B. Hunt Transport, Inc.
Logistics operating income increased approximately $0.5 million from
1996 to 1997 primarily as a result of increased intersegment revenue
related to the Secured Materials segment.
13
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Operating and Other Expenses
Total operating expenses decreased $17.6 million from 1997 to 1998.
Total operating expenses decreased $2.0 million from 1996 to 1997
after restructuring charges of $3.2 million. Operating expenses as a
percentage of revenue were 97.8%, 97.8% and 98.4% in 1998, 1997, and
1996, respectively. The following expense categories increased or
decreased significantly as a percentage of revenue between the periods
indicated below:
1998 Compared to 1997
Salaries, wages and fringe benefits increased 1.6% from 1997 to 1998.
The increase resulted from driver compensation increases implemented
in 1998 to increase the Company's competitive position to attract and
retain qualified drivers.
Operating supplies and expenses decreased $5.8 million or 1.0%,
primarily as result of lower fuel prices that averaged $.99 a gallon
in 1998 as compared to $1.14 in 1997, resulting in cost savings of
approximately $3.8 million in 1998. These savings were partially
offset by increased tractor maintenance expenditures of approximately
$1.2 million due to an increase in the age of the tractor fleet.
Contractor equipment expenses increased by 2.1% from 1997 to 1998,
attributable to an overall increase in the number of independent
contractors, which increased from 177 in 1997 to 244 in 1998.
Brokerage carrier expense decreased to approximately 82.6% of
brokerage revenue in 1998 as compared to 84% of brokerage revenue in
1997. Brokerage revenues declined by $7.6 million from 1997 to 1998.
Restructuring and non-recurring charges of approximately $0.8 million
were recorded in 1998 as compared to $3.2 million in 1997.
Interest expense and other expenses were essentially flat between the
periods.
Income tax expense for 1998 was $1.5 million due to establishing a
valuation allowance relating to tax benefits associated with net
operating loss carryforwards. In 1997 an income tax benefit was
recorded of $2.5 million.
1997 Compared to 1996
Salaries, wages and fringe benefits decreased 0.3% from 1996 to 1997.
The improvement resulted from a reduction in non-driver compensation
as a result of the restructuring effort offset partially by driver
compensation increases implemented in March 1997.
Operating supplies and expenses were relatively flat between 1996 and
1997. However, fuel prices in 1997 averaged $1.13 a gallon compared
to $1.19 in 1996 resulting in a cost savings of approximately $3
million in 1997 offset by increased maintenance expenditures of
approximately $2.3 million due to the increasing age of the tractor
fleet.
General supplies and expenses decreased $1.2 million or 0.4% due to a
reduction in driver motel and travel expenditures of approximately
$0.6 million and reduced charges for building and equipment rental
expenditures of $0.4 million primarily relating to the Company's
restructuring efforts.
Goodwill charges decreased $4.1 million in 1997 as the Company
recorded a provision for the write-down of TTSI goodwill in 1996.
Restructuring charges of approximately $3.2 million were recorded in
1997.
Interest expense and other expenses were essentially flat between the
periods.
Income tax benefit for 1997 was $2.5 million compared to a benefit of
$3.3 million in 1996 resulting in an effective tax rate of 30.3% and
33.3% in 1997 and 1996, respectively.
14
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Liquidity and Capital Resources
Overview of Company's Net Cash Flow Position in 1998 and Outlook for 1999
In 1998, the Company's overall net cash position was positively
impacted by improvement in the accounts receivable cycle and cost
containment strategies. In 1999, the Company anticipates continued
improvement in the accounts receivable cycle over 1998 and the
continued use of capital lease arrangements to finance revenue
equipment replacements.
The Company intends to meet its on-going capital requirements,
scheduled principal payments and working capital needs from cash
flow from operations, availability under its working capital
line and proceeds from the sale of equipment. The Company also has
additional borrowing capacity supported by unencumbered tangible
assets. However, if losses continue, the Company's liquidity could be
negatively impacted, and its ability to attract capital could be
limited.
Operating Activities
Net cash provided by operating activities was $15.6 million in 1998
compared to $27.8 million in 1997. The decrease is primarily due to
lower income from operations, a decrease in accounts payable, and
reduced gross collection amounts on accounts receivable due to lower
sales. The accounts receivable turnover improved to 47 days in 1998
compared to 52 days in 1997.
Investing Activities
Net cash provided by investing activities was $7.7 million in 1998
compared to $8.6 million in 1997. The increase in sale proceeds from
assets of $5.6 million in 1998 was offset by the decrease attributed
to the proceeds of $7.3 million under certain sale-leaseback
arrangements in 1997. The Company financed approximately $34.8
million of capital expenditures with capital leases in 1998.
Financing Activities
Net cash used in financing activities was $27.5 million in 1998
compared to $31.6 million in 1997. The decrease in cash from
financing activities was partially offset by borrowings of $3.8
million under the Company's revolving credit line in 1998 versus net
repayments under the credit line of $18.0 million in 1997.
Furthermore, the Company repaid long-term debt of approximately $32.3
million in 1998 compared to $15.7 million in 1997.
On July 15, 1997, the Company refinanced its revolving credit facility
("Facility") with a $45 million credit line (the "Revolver"). The
proceeds of the Revolver were used to retire the Facility loan and are
available for the Company's working capital needs. The Revolver
matures July 15, 2000, contains provisions for a letter of credit
subline of $15 million, bears interest at the Prime rate plus .25% or
LIBOR plus 2.25%, and is collateralized by accounts receivable. On
February 23, 1999, the Company amended the Facility to include a term
loan in the amount of $2.8 million and utilized certain unencumbered
trailers as collateral.
The Revolver also includes certain covenants applicable once funds
available for borrowing less aggregate principal amount outstanding
("Availability") under the Revolver falls below $8 million for 10
consecutive business days. Availability under the Revolver was
approximately $9.0 million at December 31, 1998, net of a reduction
for outstanding letters of credit of approximately $11.2 million.
15
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Liquidity and Capital Resources, Continued
Capital Requirements
The Company estimates 1999 net capital expenditures of approximately
$20 million primarily related to the replacement of tractors and
trailers. The Company estimates net proceeds from the sale of the
replaced equipment to amount to approximately $1.9 million and
believes it will be able to finance its needs during 1999. However,
if losses continue, the Company's ability to attract capital could be
limited, causing the Company to reduce its capital expenditures. In
addition, residual obligations of approximately $4.0 million,
primarily relating to certain capital lease obligations, will mature
in 1999, and the Company will have the option to either purchase the
revenue equipment for the residual amount, sell the equipment and
repay the residual, or return the equipment to the lessor at the end
of the lease term.
Maturity of the Senior Subordinated Notes
The Company has $86.2 million of Senior Subordinated Notes (the
"Notes") outstanding as of December 31, 1998, which mature December
15, 2000. The Executive Committee of the Board of Directors and key
management (the "Committee") have been mandated to evaluate the
various options available to refinance the Notes and select the
appropriate strategy to successfully execute a recapitalization plan.
Corporate Restructuring and Non-Recurring Expenses
In June 1998, the Company recorded a pre-tax charge of $0.4 million
for a separation and consulting agreement with a former officer of
the Company. Furthermore, in September 1998, the Company
recorded a pre-tax severance provision of $0.35 million pertaining to
the reduction of certain administrative personnel.
In February 1997, the Company announced an organizational
restructuring to consolidate certain sales, operations, and
administrative functions, and reengineer business processes to reduce
overhead and increase operational efficiency. The Company believed
that the primary benefit of the restructuring would be reduced and/or
contained expenditures for non-driver personnel and certain terminal
costs that would improve the Company's future operating results,
liquidity, and capital resources. During 1997, the Company recorded
total charges of $3.2 million associated with the organizational
restructuring.
Major Customers
Operating revenues derived from U.S. Governmental Agencies were
approximately $43.9 million, $49.7 million and $52.5 million for the
years ended December 31, 1998, 1997, and 1996, respectively, which
represents 15 percent, 16 percent and 17 percent of total operating
revenues for 1998, 1997, and 1996, respectively. There was no other
single customer that exceeded 10 percent of operating revenues during
this same period.
Contingencies
Legal Proceedings
Under the Comprehensive Environmental Responses, Compensation and
Liability Act ("CERCLA") and similar state laws, a transporter of
hazardous substances may be liable for the costs of responding to the
release or threatened release of hazardous substances from disposal
sites if such transporter selected the site for disposal. Because it
is the Company's practice not to select the sites where hazardous
substances and wastes will be disposed, the Company does not believe
it will be subject to material liability under CERCLA and similar
laws. Although the Company has been identified as a "potentially
responsible party" (PRP) at two sites, solely because of its
activities as a transporter of hazardous substances, the Company does
not believe it will be subject to material liabilities at such sites.
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Contingencies, continued
The Company is a party to certain legal proceedings incidental to its
business, primarily involving claims for personal injury or property
damage arising from the transportation of freight. The Company does
not believe that these legal proceedings, or any other claims or
threatened claims of which it is aware, are likely to materially and
adversely affect the Company's financial condition. With regard to
personal injury, property damage, workers' compensation claims, and
cargo claims, the Company is and has been covered by insurance. Such
matters may include claims for punitive damages. It is an open question
in some jurisdictions in which the Company does business as to whether
or not punitive damages awards are covered by insurance.
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings;
however, the effect of inflation has been minimal over the past three
years. An extended period of inflation or increase in fuel costs
would adversely affect the Company's results of operations without a
corresponding freight rate increase from customers.
The Company uses forward purchase commitments to reduce its exposure
to fluctuations in fuel prices by entering into short-term fuel price
agreements for the actual delivery of fuel. These agreements, which
settle monthly, fix the price of fuel for approximately 5.6 million
gallons in 1999, including approximately 2.6 million gallons relating
to the first quarter of 1999. The Company recognizes expenses or
benefits on these agreements in the period in which the charge occurs.
Market Risk
The Company is exposed to market risk from changes in interest rates
and fuel prices. The Company manages its exposure to these market
risks through its regular operating and financing activities and fuel
forward purchase commitments.
Interest Rate Risk:
The fair value of the Company's cash and short-term investment
portfolio at December 31, 1998 approximated carrying value due to its
short-term duration. Market risk was estimated as the potential
decrease in fair value resulting from a hypothetical 10% increase in
interest rates for the issues contained in the investment portfolio
and was not materially different from the year-end carrying value.
The Company has no material future earnings or cash flow expenses from
changes in interest rates related to the senior subordinated notes or
the Company's equipment obligations, as these long-term debt
obligations have fixed rates. The fair value of the Company's long-
term debt, including current maturities, was estimated to be $119
million at December 31, 1998, and was below the carrying value by $43
million. A hypothetical 10% increase in the interest rates on the
Company's revolving credit facility long-term debt for a duration of
one year would not have a material impact in 1999.
Commodity Price Risk:
The Company uses forward purchase commitments to reduce its exposure
to fluctuations in fuel prices by entering into short-term fuel price
agreements for the actual delivery of fuel. These forward purchase
commitments have the effect of locking in for specified periods the
price the Company will receive for the fuel volumes to which the
forward purchase commitment relates. As a result, while these forward
purchase commitments are structured to reduce the Company's exposure
to increases in the price of fuel, they also limit the benefit the Company
might otherwise have received from any price decreases associated with
the fuel volumes. A hypothetical incremental decrease in fuel prices
of 10% on the existing forward purchase commitments for the duration
of 1999 would increase fuel expense by $0.6 million.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Year 2000 Position Statement
The Company has evaluated its internal date-sensitive systems and
equipment for Year 2000 compliance. The assessment and testing phase
of the Year 2000 project is complete and included both information
technology equipment and non-information technology equipment. Based
on its assessment and testing, the Company determined that it's
critical software, hardware and information technology equipment was
in compliance with Year 2000 requirements. However, at December
31, 1998, the Company was approximately 95% complete in the
modification or replacement of the non-information technology
equipment requiring remediation. The Company expects such remediation
to be completed by August 1999. The Company does not believe the
effect of the Year 2000 is likely to have a material adverse impact.
The total estimated cost of the Year 2000 project was not material and
is being funded by operating cash flows.
The Company has also communicated with key suppliers and customers to
determine their Year 2000 compliance and the extent to which the
Company is vulnerable to any third-party Year 2000 issues. This
program will be ongoing, and the Company's efforts with respect to
specific problems identified will depend on its assessment of the
risk. Most key suppliers and customers who have replied to the
Company's inquiries indicated they expect to be Year 2000 compliant on
a timely basis. There can be no assurance that there will not be an
adverse effect on the Company if third parties do not make the
necessary modifications to their systems in a timely manner. However,
management believes that ongoing communication with and assessment of
these third parties will minimize these risks.
Where needed, the Company will establish contingency plans based on
actual testing results and assessment of outside risks.
The costs of the Year 2000 issue and completion dates are based on
management's best estimates which are derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources, third-party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans.
The above statement in its entirety is designated a Year 2000
readiness disclosure under the Year 2000 Information and Readiness
Disclosure Act.
Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivatives and hedging. It requires that
all derivatives are recognized as either assets or liabilities at fair
value and establishes specific criteria for the use of hedge
accounting. The Company's required adoption date is January 1, 2000.
SFAS 133 is not to be applied retroactively to financial statements of
prior periods. The Company expects no material adverse effect on
consolidated results of operations, financial position, cash flows or
stockholders' equity upon adoption of SFAS 133.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk" on page 17.
18
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
<TABLE>
TRISM, Inc.
Consolidated Balance Sheets
As of December 31, 1998 and 1997
(In thousands)
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,029 6,271
Restricted cash and insurance deposits 847 1,010
Trade accounts receivable, net of allowance for doubtful
accounts of $1,063 and $2,070 35,837 42,701
Other accounts receivable 1,551 1,375
----------- ----------
Total accounts receivable 37,388 44,076
Materials and supplies 1,389 1,643
Prepaid expenses 18,795 18,418
Deferred income taxes 3,901 3,789
----------- ----------
Total current assets 64,349 75,207
----------- ----------
Property and equipment, at cost 193,953 184,232
Less: Accumulated depreciation and amortization (64,775) (62,428)
----------- ----------
Net property and equipment 129,178 121,804
Intangibles and other, net of accumulated amortization of $7,257
and $5,821 19,624 20,806
Other assets 801 1,007
----------- ----------
Total assets $ 213,952 218,824
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,206 11,859
Bank overdraft 5,642 4,796
Accrued expenses and insurance reserves 12,412 13,733
Current maturities of long-term debt:
Principal payments 13,857 13,025
Residual obligations on equipment debt 4,014 8,696
----------- ----------
Total current liabilities 43,131 52,109
----------- ----------
Long-term debt, less current maturities 144,419 135,833
Insurance reserves 6,702 5,423
Deferred income taxes 3,901 2,314
----------- ----------
Total liabilities 198,153 195,679
----------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock; $.01 par; 10,000 shares authorized; issued
5,903 shares in 1998 and 1997 59 59
Additional paid-in capital 37,229 37,327
Loans to stockholders (83) (368)
Accumulated deficit (19,769) (12,324)
Treasury stock, at cost, 201 and 166 shares (1,637) (1,549)
----------- ----------
Total stockholders' equity 15,799 23,145
----------- ----------
Total liabilities and stockholders' equity $ 213,952 218,824
=========== ==========
The accompanying notes are an integral part of the audited financial statements.
</TABLE>
19
<PAGE>
<TABLE>
TRISM, Inc.
Consolidated Statements of Operations
For the years ended December 31, 1998, 1997, and 1996
(In thousands, except per share amounts)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues $ 291,631 309,880 310,033
------------ ---------- ----------
Operating expenses:
Salaries, wages and fringe benefits 111,223 113,011 113,903
Operating supplies and expenses 40,753 46,522 46,469
Operating taxes and licenses 26,808 27,638 28,785
Contractor equipment 23,223 18,279 18,636
Brokerage carrier expense 19,559 26,614 25,732
Depreciation and amortization 19,516 18,895 19,568
General supplies and expenses 14,511 16,870 18,075
Revenue equipment rents 13,429 14,570 13,665
Claims and insurance 9,582 11,389 9,962
Communications and utilities 5,044 5,154 5,857
Loss on disposition of assets 957 796 237
Restructuring and non-recurring expenses 752 3,227 -
Write-down of goodwill - - 4,062
------------ ---------- ----------
Total operating expenses 285,357 302,965 304,951
Operating income 6,274 6,915 5,082
Interest expense, net 13,944 14,187 14,216
Other expense, net 704 780 764
------------ ---------- ----------
Loss before income tax benefit and (8,374) (8,052) (9,898)
extraordinary item
Income tax expense (benefit) 634 (2,447) (3,300)
------------ ---------- ----------
Loss before extraordinary item (9,008) (5,605) (6,598)
Extraordinary gain on extinguishment of debt,
net of income taxes of $841 1,563 - -
------------ ---------- ----------
Net loss $ (7,445) (5,605) (6,598)
============ ========== ==========
Basic loss per share:
Loss before extraordinary item $ (1.58) (.98) (1.15)
Extraordinary gain .28 - -
------------ ---------- ----------
Net loss $ (1.30) (.98) (1.15)
============ ========== ==========
Diluted loss per share:
Loss before extraordinary item $ (1.58) (.98) (1.15)
Extraordinary gain .28 - -
------------ ---------- ----------
Net loss $ (1.30) (.98) (1.15)
============ ========== ==========
Weighted average number of shares used in
computation of basic and diluted loss per
share 5,714 5,737 5,735
============ ========== ==========
The accompanying notes are an integral part of the audited financial statements.
</TABLE>
20
<PAGE>
<TABLE>
TRISM, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 1998, 1997, and 1996
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,445) (5,605) (6,598)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 20,272 19,595 20,224
Write-down of goodwill - - 4,062
Loss on disposition of assets 957 796 237
Deferred income taxes 1,475 (2,496) (3,914)
Provision for losses on accounts receivable 879 1,388 1,574
Restructuring charge, net 59 266 -
Deferred (loss) gain on sale-leaseback, net (258) 409 -
Extraordinary gain, net (1,563) - -
Changes in assets and liabilities:
Accounts receivable 5,894 12,039 (14,746)
Prepaid expenses (377) 293 (2,429)
Accounts payable (4,653) 1,068 (3,224)
Accrued expenses and insurance reserves 157 (525) 315
Other 202 575 406
----------- -------- --------
Net cash provided by (used in) operating activities 15,599 27,803 (4,093)
----------- -------- --------
Cash flows from investing activities:
Proceeds from sale of assets 11,734 6,174 8,057
Purchases of property and equipment (4,143) (5,622) (15,526)
Proceeds from sale-leaseback - 7,334 -
Acquisitions, net of cash acquired - - (7,053)
Other investing activities 83 724 316
----------- -------- --------
Net cash provided by (used in) investing activities 7,674 8,610 (14,206)
----------- -------- --------
Cash flows from financing activities:
Net (repayment) proceeds under revolving credit agreement 3,800 (18,018) 15,369
Repayment of long-term debt and capital lease obligations (22,759) (13,210) (10,719)
Repurchase of senior subordinated notes (9,500) - -
Repayment of note payable - (2,500) -
Proceeds from issuance of long-term debt - 2,383 15,247
Payment for loan acquisition costs - (494) (60)
Increase (decrease) in bank overdrafts 846 229 (954)
Issuance of common stock, stock options and warrants - - 241
Purchase of treasury stock (88) - -
Repayment of stockholder loan 187 - -
----------- -------- --------
Net cash (used in) provided by financing activities (27,514) (31,610) 19,124
----------- -------- --------
Increase (decrease) in cash and cash equivalents (4,242) 4,803 825
Cash and cash equivalents, beginning of year 6,271 1,468 643
----------- -------- --------
Cash and cash equivalents, end of year $ 2,029 6,271 1,468
=========== ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest ($229 capitalized in 1998) $ 15,307 14,739 14,480
Capital lease equipment purchases and borrowings $ 34,758 25,384 3,225
The accompanying notes are an integral part of the audited financial statements.
</TABLE>
21
<PAGE>
<TABLE>
TRISM, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1998, 1997, and 1996
(In thousands, except warrant and share amounts)
<CAPTION>
Additional
Common Paid-in Loans to Accumulated Treasury Stockholders'
Stock Capital Stockholders Deficit Stock Equity
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 $ 59 37,086 (368) (121) (1,549) 35,107
Exercise of 4,200 warrants - 28 - - - 28
Warrants issued - 213 - - - 213
Net loss - - - (6,598) - (6,598)
------- ------- ------- -------- -------- --------
December 31, 1996 59 37,327 (368) (6,719) (1,549) 28,750
Net loss - - - (5,605) - (5,605)
------- ------- ------- -------- -------- --------
December 31, 1997 59 37,327 (368) (12,324) (1,549) 23,145
Repayment of loan to
stockholders - (98) 285 - - 187
Purchase of 35,000 shares - - - - (88) (88)
Net loss (7,445) (7,445)
------- ------- ------- -------- -------- --------
December 31, 1998 $ 59 37,229 (83) (19,769) (1,637) 15,799
======= ======= ======= ======== ======== ========
The accompanying notes are an integral part of the audited financial statements.
</TABLE>
22
<PAGE>
TRISM, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Trism,
Inc. (the "Company") and its wholly owned subsidiaries. Significant
intercompany transactions and balances have been eliminated. The
Company's operations include a group of carriers specializing in the
transportation of heavy machinery and equipment (Heavy Haul),
hazardous waste, explosives and radioactive materials (Secured
Materials), building materials, lumber, steel and metal products
(Commercial Flatbed), and a contract logistics provider (Logistics).
The Company conducts these operations principally through Trism
Specialized Carriers, Inc. ("TSC"), Tri-State Motor Transit Co.
("TSMT"), Diablo Systems, Inc. ("Diablo"), C.I. Whitten Transfer
("CIW"), Trism Transport Services, Inc. ("TTSI"), and Trism Logistics,
Inc. ("TLI").
As a result of continued losses in the Commercial Flatbed market
during 1996, the Company elected to exit the commercial flatbed market
by closing down component operations of TTSI and record a charge of
$4.1 million against 1996 operating results to reflect the write-off
of the net book value of goodwill associated with this acquisition.
The Company consolidated remaining operations of the Commercial
Flatbed market into Heavy Haul in October 1997.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting
period. Estimates are used when accounting for the allowance for
doubtful accounts, long-lived assets, insurance reserves, income tax
and contingencies. Actual results could differ from those estimates.
Revenue Recognition
Substantially all freight revenue and related costs are recognized
when products are picked-up for shipment. This method approximates
the method deemed preferable by the Financial Accounting Standards
Board Emerging Issues Task Force whereby revenues are allocated
between reporting periods based on the relative transit time in each
reporting period with expenses recognized as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments
that are readily convertible to known amounts of cash and present
minimal risk changes in value because of changes in interest rates to
be cash equivalents.
Prepaid Expenses
Prepaid expenses primarily consist of the cost of new and replacement
tires ("Prepaid Tires") that are amortized into operating results on a
straight-line basis over 24 months. Prepaid expenses also includes
prepaid insurance, taxes, licenses and other expenses ("Other Prepaid
Expenses") that are amortized into operating results on a straight-
line basis over the estimated useful life ranging between 12 and 24
months. Prepaid Tires and Other Prepaid Expenses amounted to
approximately $11.5 million and $7.3 million in 1998 and $11.9 million
and $6.7 million in 1997, respectively.
23
<PAGE>
1. Summary of Significant Accounting Policies, Continued
Property, Equipment and Depreciation
Property and equipment are stated at cost, less accumulated
depreciation and amortization calculated on a straight-line basis over
the estimated useful lives of the respective assets. The cost of
additions, major replacements, improvements, and interest on
construction and certain revenue equipment are capitalized, while
maintenance and repairs are charged to expense when incurred. The
cost of assets sold or retired, net of accumulated depreciation or
amortization, are removed from the accounts at the date of
disposition, and any resulting gain or loss is reflected in
operations.
The Company continually evaluates the carrying value of its assets for
events or changes in circumstances, which indicate that the carrying
value may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
The cost components of property and equipment and related useful lives
are as follows:
(Dollars in thousands) Estimated
1998 1997 Useful
Lives
Land $ 10,644 10,666 -
Structures and improvements 14,119 14,204 18 - 30
Revenue equipment 146,110 139,405 4 - 10
Other equipment 23,078 19,957 3 - 5
--------- -------
Property and equipment, at cost $ 193,953 184,232
========= =======
Depreciation expense amounted to $18.8 million, $18.2 million, and
$18.8 million in 1998, 1997, and 1996, respectively.
Intangibles and Other
Intangible assets include goodwill, which represents cost in excess of
net assets of businesses acquired, and certain non-compete and
customer list expenditures related to acquisitions. Goodwill and
related acquisition expenditures are being amortized on a straight-
line basis over periods ranging from 3 to 40 years and amounted to
approximately $18.4 million and $18.7 million as of December 31, 1998
and 1997. The Company continually reviews goodwill and other
intangibles to assess recoverability from estimated future results of
operations and cash flows at the aggregate business unit level. As a
result of this review and continued losses incurred in the Commercial
Flatbed division, the Company recorded a provision in the amount of
$4.1 million in 1996 to write-off goodwill associated with the TTSI
acquisition.
Intangibles and other also include deferred financing fee costs, which
are being amortized on a straight-line basis over the term of the
loan, and amounted to $1.4 million and $1.4 million as of December 31,
1998 and 1997.
Insurance Reserves
Insurance reserves amounted to approximately $12.4 million and $13.2
million as of December 31, 1998 and 1997, and reflect the estimated
cost of claims for cargo loss and damage, bodily injury and property
damage, workers' compensation and employee and welfare program claims
not covered by insurance. The insurance liability provision is based
on claims incurred and on estimates of both unasserted and unsettled
claims which are assessed based on management's evaluation of the
nature and severity of individual claims and on the Company's past
claims experience.
24
<PAGE>
1. Summary of Significant Accounting Policies, Continued
Earnings (Loss) Per Share
Basic earnings (loss) per share excludes dilution and is computed by
dividing net earnings (loss) by the weighted average number of common
shares outstanding. Common shares outstanding include issued shares
less shares held in treasury. Diluted earnings per share reflect the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock
(common stock equivalents). Diluted earnings per share is calculated
by dividing net income by the sum of the weighted average number of
common shares outstanding and dilutive common stock equivalents at the
end of each reporting period. Common stock equivalents are excluded
from the diluted calculation if a net loss was incurred for the
period, as these transactions are anti-dilutive. Accordingly, the
calculations for basic and diluted earnings (loss) per share are
identical, because none of the Company's potentially dilutive
instruments, i.e. stock options, were dilutive for any period
presented. The computation of basic and diluted earnings (loss) per
share is shown in the table below:
<TABLE>
<CAPTION>
For the years ended December 31,
(Dollars in thousands except per share amounts)
1998 1997 1996
<S> <C> <C> <C>
Loss before extraordinary item $ (9,008) (5,605) (6,598)
Extraordinary gain on extinguishment of debt,
net of tax provision of $841 1,563 - -
------------ ---------- ----------
Net loss $ (7,445) (5,605) (6,598)
============ ========== ==========
Weighted average number of shares
Basic and Diluted:
Average common shares outstanding 5,714,137 5,737,137 5,735,175
------------ ---------- ----------
Basic and Diluted earnings (loss) per share:
Loss before extraordinary item (1.58) (.98) (1.15)
Extraordinary gain .28 - -
------------ ---------- ----------
Net loss $ (1.30) (.98) (1.15)
============ ========== ==========
</TABLE>
25
<PAGE>
1. Summary of Significant Accounting Policies, Continued
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize expense over the
vesting period of the fair value of all stock-based awards on the date
of the grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB No. 25
and provide pro forma disclosure provisions of SFAS No. 123.
Accounting Pronouncements
Effective January 1, 1998, the company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
in the financial statements. The adoption of SFAS No. 130 has no
material impact on the Company's consolidated results of operations,
financial position or cash flows. Comprehensive income equals net
income plus other comprehensive income. Other comprehensive income
refers to revenue, expenses, gains and losses which are reflected in
stockholders' equity but excluded from net income. The Company has no
components of comprehensive income at December 31, 1998, 1997 or 1996.
As of December 31, 1998 the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" and SFAS No.
132, "Employers' Disclosure about Pensions and Other Post Retirement
Benefits." These standards have no material impact on the Company's
consolidated results of operations, financial position or cash flows.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual and
interim financial statements. It also establishes standards for
related disclosures about products, services, and geographic areas.
See Note 10 of the Notes to the Company's Consolidated Financial
Statements.
SFAS No. 132 revises disclosures about pension and other post
retirement benefit plans. As the Company did not have any of these
plans as of December 31, 1998 and 1997, no disclosure is necessary.
Reclassifications
Certain prior year data has been reclassified to conform to 1998
presentation. These reclassifications had no effect on previously
reported net (loss), stockholders' equity or net cash flows.
26
<PAGE>
2. Acquisitions
In August 1996, the Company acquired substantially all of the assets
of the Special Commodities Division of J.B. Hunt Transport, Inc.
("Hunt"). For financial statement purposes the acquisition was
accounted for as a purchase and, accordingly, Hunt's results are
included in the consolidated financial statements since the date of
the acquisition. The aggregate purchase price was approximately $7.4
million, which includes the costs associated with the acquisition.
The purchase price was financed with $4.9 million of equipment debt on
certain unencumbered assets of the Company and a $2.5 million note
payable to Hunt and has been allocated to the assets of the Company
based upon their respective fair market values. The components of
intangible assets included in the allocation of the purchase price
were goodwill of $5.3 million and a non-compete covenant of $0.2
million which are being amortized on a straight-line basis of 40 and 5
years, respectively.
The Company also granted options to Hunt for the purchase of 300,000
shares of the Company's stock at $6.50 per share, with a term of five
years. The options are not transferable by Hunt and are immediately
exercisable.
The following unaudited pro forma consolidated results of operations
have been prepared as if the acquisition of Hunt had occurred as of
the beginning of fiscal year 1996:
Proforma
(Unaudited)
(Dollars in thousands except per share amounts)
Revenues $ 337,733
Net (loss) income $ (7,198)
Basic and diluted (loss) income per share $ (1.26)
The proforma consolidated results do not purport to be indicative of
the results either that would have occurred had the acquisitions been
in effect for the period presented or that will be obtained in the
future.
3. Corporate Restructuring and Non-Recurring Expenses
In June 1998, the Company recorded a pre-tax charge of $0.4 million
for a separation and consulting agreement with a former officer of
the Company. Furthermore, in September 1998, the Company recorded
a pre-tax severance provision of $0.35 million pertaining to the
reduction of certain administrative personnel.
In February 1997, the Company announced an organizational
restructuring to consolidate certain sales, operations, and
administrative functions and reengineer business processes to reduce
overhead and increase operational efficiency. During 1997, the
Company recorded total charges of $3.2 million associated with the
organizational restructuring.
27
<PAGE>
4. Indebtedness and Lease Commitments
Indebtedness
Long-term debt includes the following (in thousands):
1998 1997
Senior subordinated notes maturing in 2000,
with interest at 10.75 %. $ 86,230 95,730
Obligations collateralized by equipment
maturing through 2005 with interest rates
ranging from 7.1% to 8.7%. 9,659 21,275
Capital lease obligations collateralized by
equipment maturing through 2005, with
interest rates ranging from 6.2% to 9.8%. 59,106 37,054
Revolving credit facility maturing in 2000,
with interest at the prime rate plus .25%
or LIBOR plus 2.25 %, collateralized by
accounts receivable. 7,295 3,495
------------ --------
162,290 157,554
Less current maturities 17,871 21,721
------------ --------
$ 144,419 135,833
============ ========
Senior Subordinated Notes
The Senior Subordinated Notes ("Notes") bear interest at 10.75 %
payable on June 15th and December 15th of each year through December
15, 2000. The Notes are redeemable at the option of the Company, in
whole or in part, on or after December 15, 1998, at a redemption price
of 105% through December 1999 and 102.5 % thereafter. Through December
31, 1998, the Company has repurchased $13.8 million of the Notes.
The Notes are subordinated in right of payment to all existing and
future indebtedness of the Company. The indenture contains covenants
that, subject to certain exceptions and qualifications, limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, engage in transactions with stockholders and affiliates,
issue preferred stock of its subsidiaries, create liens, sell assets,
engage in mergers or consolidations; and limit the ability of the
subsidiaries to guarantee indebtedness of the Company. Furthermore,
the indenture contains change of control provisions, which may require
the Company to repurchase the Notes at an amount equal to 101% plus
accrued and unpaid interest to the date of the repurchase.
28
<PAGE>
4. Indebtedness and Lease Commitments, Continued
Revolving Credit Facility
On July 15, 1997, the Company refinanced its revolving credit facility
("Facility") with a $45 million credit line (the "Revolver"). The
proceeds of the Revolver were used to retire the Facility loan and are
available for the Company's working capital needs. The Revolver
matures July 15, 2000 and contains provisions for a letter of credit
subline of $15 million, bears interest at the Prime rate plus .25% or
LIBOR plus 2.25%, and is collateralized by accounts receivable. The
Revolver also includes covenants applicable once Availability under
the Revolver falls below $8 million for 10 consecutive business days.
Availability under the Revolver was approximately $ 9.0 million at
December 31, 1998, net of a reduction for outstanding letters of
credit of approximately $11.2 million.
The scheduled maturities of long-term debt outstanding at December 31,
1998, are summarized as follows:
<TABLE>
<CAPTION>
Residual
Obligations On Senior
(Dollars in Principal Equipment Subordinated
thousands) Payments Debt Revolver Debt Total
<S> <C> <C> <C> <C> <C>
1999 $ 13,857 4,014 - - 17,871
2000 11,853 3,994 7,295 86,230 109,372
2001 9,285 4,946 - - 14,231
2002 4,100 10,866 - - 14,966
2003 786 2,531 - - 3,317
Thereafter 719 1,814 - - 2,533
----------- ------- ------- -------- ---------
$ 40,600 28,165 7,295 86,230 162,290
</TABLE>
Net interest expense and interest payments paid in cash are as follows:
(Dollars in thousands) 1998 1997 1996
Net interest on debt and capital leases $ 15,316 14,810 14,948
Capitalized interest (229) (165) (444)
Net interest expense 15,087 14,645 14,504
---------- ------- -------
Interest paid in cash $ 15,307 14,739 14,480
29
<PAGE>
4. Indebtedness and Lease Commitments, Continued
Leases
The Company leases certain revenue and equipment through long-term
noncancellable leases. Commitments for minimum rentals under the
lease agreements at the end of 1998 are as follows:
Capital Operating
(Dollars in thousands) Leases Leases
1999 $ 17,224 7,226
2000 15,501 1,776
2001 14,668
2002 15,887
2003 3,567
Thereafter 2,628
--------- -------
Total minimum lease payments $ 69,475 9,002
Less amount representing interest 10,369
--------- -------
Present value of net minimum lease
payments, including current
maturities of $13,319 $ 59,106
Property and equipment in 1998 and 1997 include the following amounts
for capitalized leases:
(Dollars in thousands) 1998 1997
Revenue equipment $ 71,114 57,881
Other equipment 1,336 2,040
--------- --------
72,450 59,921
Less accumulated depreciation 20,113 19,402
--------- --------
$ 52,337 40,519
The Company acquired equipment by incurring capital lease obligations
of $34.8 million in 1998 and $25.4 million in 1997. Rent expense for
all operating leases were approximately $13.4 million, $15.6 million,
and $15.2 million in 1998, 1997 and 1996, respectively.
30
<PAGE>
5. Income Taxes
The Company has provided for income tax (benefit) expense as follows:
(Dollars in thousands) 1998 1997 1996
Current:
Federal $ - - 514
State 92 49 99
92 49 613
Deferred:
Federal 1,306 (2,303) (3,524)
State 77 (193) (389)
1,383 (2,496) (3,913)
Income tax (benefit) expense $ 1,475 (2,447) (3,300)
The Company has available net operating loss carryforwards totaling
approximately $43 million that expire if not used in the years 2005 to
2010. As a result of the public offering, an ownership change for
federal tax purposes occurred that limits approximately $2.7 million
of the net operating loss carryforwards available to offset future
taxable income. The Company also has available general business tax
credit carryforwards of approximately $0.5 million which will expire
through 2001.
Components of the net deferred income tax asset (liability) at
December 31, 1998 and 1997, are as follows:
(Dollars in thousands) 1998 1997
Current deferred income taxes:
Accrued expenses, reserves and other $ 4,051 3,932
Prepaid expenses (150) (143)
3,901 3,789
Noncurrent deferred income taxes:
Net operating loss and tax credit carryforwards 16,501 13,348
Insurance reserves, long term 2,473 3,678
Depreciation and capital leases (18,371) (18,271)
Valuation allowance (4,504) (1,069)
(3,901) (2,314)
Net deferred tax asset (liability) $ - 1,475
SFAS 109, "Accounting for Income Taxes", requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than
not that some portion or all of the deferred tax asset will not be
realized. During the fourth quarter of 1998, the Company determined
that a full valuation allowance against the net deferred tax asset
should be recorded. The valuation allowance for deferred tax assets
as of December 31, 1998 and 1997 was $4,504,000 and $1,069,000. The
net change in the total valuation allowance in 1998 was an increase of
$3,435,000.
31
<PAGE>
5. Income Taxes, Continued
The provision for income taxes is different than the amount computed
using the applicable statutory federal income tax rate with the
differences summarized below:
(Dollars in thousands) 1998 1997 1996
Federal statutory income tax rate of 34% $(2,847) (2,737) (3,365)
Valuation allowance adjustments 3,926 - -
Nondeductible travel and entertainment 77 86 138
Fines and penalties 65 59 50
Amortization and other 111 224 134
Prior year state income tax deficiencies 92 49 -
State income taxes, net of federal tax benefit 51 (128) (257)
Income tax (benefit) expense $ 1,475 (2,447) (3,300)
Income taxes paid in cash amounted to approximately $92,000, $49,000,
and $101,000 in 1998, 1997 and 1996, respectively.
6. Stock Option Plan and Warrants
The Company has a stock option plan under which the Company's
officers, directors and key employees may be granted options to
purchase up to 725,000 shares of Company common stock at not less than
100% of the market price on the day the option is granted. The term
of the options granted to either officers or key employees or
directors may not exceed 10 years and 5 years, respectively.
In 1996, the Company obtained Board approval to change the exercise
price of all outstanding options granted before 1996 to $6.50 per
share.
Stock option activity during the periods indicated are as follows:
Weighted
Average
Exercise Number of
Number of Price Per Shares
Shares Share Exercisable
Balance at December 31, 1995 592,400 $ 6.50 274,289
Forfeited / Expired (97,500) 6.50
Granted 65,000 6.27
Balance at December 31, 1996 559,900 6.47 334,219
Forfeited / Expired (252,900) 6.50
Granted 12,500 6.50
Balance at December 31, 1997 319,500 6.45 258,694
Forfeited / Expired (163,000) 6.50
Granted - -
Balance at December 31, 1998 156,500 6.40 154,278
At December 31, 1998, the weighted-average price and remaining
contractual life of total outstanding options were $6.40 and 2.3
years, respectively. Outstanding options vest ratably over a period
of 3 years and totaled 154,278, 258,694, and 334,219 at December 31,
1998, 1997, and 1996, respectively. The weighted average exercise
price of the vested options at December 31, 1998 was $6.42.
32
<PAGE>
6. Stock Option Plan and Warrants, Continued
The Company applied APB Opinion No. 25 in accounting for its stock
options, and accordingly no compensation cost has been recognized for
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net (loss) earnings
would have been adjusted to the proforma amounts indicated below:
(In thousands, except per share amounts) 1998 1997 1996
Net (loss) earnings
As reported $(7,445) (5,605) (6,598)
Proforma (7,445) (5,801) (6,793)
Basic and diluted (loss) earnings per share
As reported (1.30) (.98) (1.15)
Proforma $ (1.30) (1.01) (1.19)
The above proforma schedule reflects options only granted from 1996
through 1998. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
proforma net (loss) earnings accounts presented above because
compensation cost is reflected over the options' vesting period of 3
years, and compensation cost for options granted prior to January 1,
1995 is not considered.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1998 - expected volatility of 67%; risk
free interest rate of 5.0%; expected life of 5 years; and, a no
dividend yield assumption; 1997 and 1996 - expected volatility of
67%; risk free interest rate of 6.5%; expected life of 5 years; and, a
no dividend yield assumption. The per share weighted-average fair
value of stock options granted during 1997 and 1996 was $2.32 and
$2.86, respectively. There were no options granted in 1998.
In August 1996, in connection with the acquisition of Hunt, the
Company granted options to Hunt for the purchase of 300,000 shares of
stock at $6.50 per share with a term of five years.
As of December 31, 1998, the Company has 146,398 warrants outstanding
for the purchase of common stock at an exercise price of $6.50 per
share that expire in September 2001.
7. Employee Benefit Plan
The Company sponsors a tax-qualified defined contribution plan under
Section 401(a) of the Internal Revenue Code covering all full-time
employees who have completed one year of service as of a quarterly
enrollment date. This Profit Sharing Plan includes a "401(k)"
arrangement pursuant to which participants may contribute, subject to
certain Code limitations, a percentage of their salary on a "pre-tax"
basis. The Company contributes a matching contribution with respect
to the contributions made by participants at a rate determined by the
Board of Directors of the Company each year. The Company may also
make an additional contribution to the Profit Sharing Plan each year
at the discretion of the Board of Directors. The Company's 401(k)
matching contributions were approximately $259,000, $256,000 and
$201,000 in 1998, 1997, and 1996 respectively.
8. Commitments and Contingent Liabilities
Legal Proceedings
Under the Comprehensive Environmental Responses, Compensation and
Liability Act ("CERCLA") and similar state laws, a transporter of
hazardous substances may be liable for the costs of responding to the
release or threatened release of hazardous substances from disposal
sites if such transporter selected the site for disposal. Because it
is the Company's practice not to select the sites where hazardous
substances and wastes will be disposed, the Company does not believe
it will be subject to material liability under CERCLA and similar
laws.
33
<PAGE>
8. Commitments and Contingent Liabilities, Continued
Legal Proceedings, Continued
Although the Company has been identified as a "potentially responsible
party" (PRP) at two sites, solely because of its activities as a
transporter of hazardous substances, the Company does not believe it
will be subject to material liabilities at such sites.
The Company is a party to certain legal proceedings incidental to its
business, primarily involving claims for bodily injury or property
damage arising from the transportation of freight. The Company does
not believe that these legal proceedings, or any other claims or
threatened claims of which it is aware, are likely to materially and
adversely affect the Company's financial condition. With regard to
personal injury, property damage, workers' compensation claims, and
cargo claims, the Company is and has been covered by insurance. Such
matters may include claims for punitive damages. It is an open
question in some jurisdictions in which the Company does business as
to whether or not punitive damages awards are covered by insurance.
In addition to matters referred to above, the Company is a party to
certain additional lawsuits, none of which is believed to involve a
significant risk of materially and adversely affecting the Company's
financial condition.
Insurance
The Company is subject to liability for the deductible portion as to
policies of insurance, both past and present with regard to bodily
injury and property damage. The current per occurrence deductible is
$500,000, subject to satisfaction of an additional aggregate annual
deductible of $750,000. The Company is a qualified workers' compensation
self-insurer in the State of Missouri where most ofits drivers are
domiciled, with losses in excess of $500,000 insured by an excess
workers' compensation policy. In all other states statutory workers'
compensation insurance is maintained with a deductible of $500,000
loss limit per occurrence to the Company.
The estimated liability for insured claims was based on past loss
experience, current trends, and an adjustment for abnormal claims
experience related to the recent acquisitions and other factors.
Standby letters of credit in the amount of $11.2 million and deposits
totaling $0.8 million and $1.0 million have been furnished to
insurance carriers as security for the estimated cost of self-insured
claims and for premium payments as of December 31, 1998 and 1997.
Financial Instruments
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash equivalents
and receivables. The Company limits the amount of credit exposure to
any one customer and places its temporary cash into investments of
high credit quality. Concentrations of credit risk with respect to
receivables are limited due to their dispersion across various
customers and geographies.
The estimated fair values of cash and cash equivalents, notes
receivable, and accrued interest approximate their carrying amounts.
The estimated fair values and carrying amounts of long-term debt
borrowings were as follows (dollars in thousands):
1998 1997
Fair Value $ 119,175 149,885
Carrying amount $ 162,290 157,544
The fair value of the foregoing financial instruments were primarily
determined from quoted market prices and discounted cash flows using
an estimated fair market value interest/discount rate.
34
<PAGE>
8. Commitments and Contingent Liabilities, Continued
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings;
however, the effect of inflation has been minimal over the past three
years. An extended period of inflation or increase in fuel costs
would adversely affect the Company's results of operations without a
corresponding freight rate increase from customers.
The Company uses forward purchase commitments to reduce its exposure
to fluctuations in fuel prices by entering into short-term fuel price
agreements for the actual delivery of fuel. These agreements, which
settle monthly, fix the price of fuel for approximately 5.6 million
gallons in 1999, including approximately 2.6 million gallons relating
to the first quarter of 1999. The Company recognizes an expense or
benefit on these agreements in the period in which the fuel is used.
Major Customers
Operating revenues derived from U.S. Governmental Agencies were
approximately $43.9 million, $49.7 million and $52.5 million for the
years ended December 31, 1998, 1997, and 1996, respectively, which
represents 15 percent, 16 percent and 17 percent of total operating
revenues for 1998, 1997, and 1996, respectively. There was no other
single customer that exceeded 10 percent of operating revenues during
this same period.
9. Extraordinary items
During 1998 the Company retired, at a discount, $9.5 million of the
10.75% senior subordinated debentures due in 2000. The transactions
resulted in an extraordinary gain of $1.6 million ($.28 per share),
net of income tax of $0.8 million.
10. Segment and Related Information
The Company identifies operating segments based on management
responsibility and marketing strategies. The Company has three
reportable segments: Heavy Haul, Secured Materials and Logistics.
Heavy Haul
This segment consists of TSC, the Company's largest operating segment,
specializing in the transportation of over-sized and over-dimensional
loads throughout the United States, Canada, and Mexico. The largest
markets for Heavy Haul are manufacturers of large machinery and
equipment, suppliers and contractors to industrial and public
construction, importers of industrial durable goods and the U.S.
Government. Also, the Company entered the Super Heavy Haul market in
1997 through its strategic alliance with Econofreight Group Limited, a
U.K. subsidiary of Brambles Corporation. The Super Heavy Haul market
allows for the transportation of freight in excess of 160,000 pounds
up to 10,000 tons.
Secured Materials
The Secured Materials segment is characterized by the toxic or
explosive nature and special handling requirements of the cargo. The
cargo typically consists of military munitions, commercial explosives,
hazardous waste, and radioactive materials. The largest markets for
Secured Materials are the United States government and various governmental
agencies, waste generators, and environmental clean-up firms.
TSMT, Diablo and CIW service customers in the munitions and explosives
market and are collectively the largest transporters of Department of
Defense munitions in the continental United States. TSMT and CIW
operate throughout the continental United States with Diablo's market
focus primarily in the western regions of the United States.
Trism Environmental Services ("TES"), a division of TSMT, provides
service to customers in the hazardous waste and radioactive materials
market and is the largest transporter of hazardous waste materials in
the United States. TES operates throughout the United States, but its
primary market focus is east of the Mississippi.
The operating companies within the Secured Materials group have
operating authority in the entire continental United States and
certain provinces of Canada. In addition, the group maintains trailer
interchange agreements with certain Mexican carriers.
35
<PAGE>
10. Segment and Related Information, Continued
Logistics
The Logistics segment specializes in the management of freight by
truck (particularly in the hazardous waste market). TLI's client base
includes engineering and construction companies, suppliers to the
European Community, Fortune 500 companies and major utility companies.
In September of 1998, TLI began operations to provide logistics
services to the rail industry through its intermodal division.
The accounting policies of the operating segments are the same as
those described in Note 1 of the Notes to the Company's Consolidated
Financial Statements. Intersegment revenues primarily consist of
loads brokered from the Heavy Haul segment to the Secured Materials
segment. Such services are priced at approximately the same basis as
services to external customers. Certain administrative and other
costs are allocated among the segments utilizing various allocation
factors that include revenues, number of loads and tractors, and other
estimates. The Company evaluates the performance of its operating
segments based on income before income taxes, non-operating items and
interest income and expense. A summary of segment information is
presented below (in thousands):
Operating Revenue
1998 1997 1996
Heavy Haul $ 203,172 208,479 214,715
Secured Materials 92,113 104,893 97,930
Logistics 7,178 11,564 6,090
------------ --------- ---------
Sub-total: 302,463 324,936 318,735
Intersegment eliminations (10,832) (15,056) (8,702)
------------ --------- ---------
Consolidated $ 291,631 309,880 310,033
============ ========= =========
Operating Income
1998 1997 1996
Heavy Haul $ 6,254 4,762 6,135
Secured Materials 458 5,027 3,199
Logistics 314 353 (190)
------------ --------- ---------
Sub-total: 7,026 10,142 9,144
Restructuring charge (752) (3,227) -
Write-down of goodwill - - (4,062)
------------ --------- ---------
Consolidated $ 6,274 6,915 5,082
============ ========= =========
Interest expense, net (13,944) (14,187) (14,216)
Other expense, net (704) (780) (764)
------------ --------- ---------
Loss before income taxes
and extraordinary item $ (8,374) (8,052) (9,898)
============ ========= =========
Total Long-term Assets
1998 1997 1996
Heavy Haul $ 88,209 74,618 73,299
Secured Materials 48,666 55,208 60,476
Logistics 371 387 374
------------ --------- ---------
Sub-total: 137,246 130,213 134,149
Other (includes corporate) 12,357 13,404 11,889
------------ --------- ---------
Consolidated $ 149,603 143,617 146,038
============ ========= =========
Depreciation and Amortization
1998 1997 1996
Heavy Haul $ 11,449 11,155 11,935
Secured Materials 6,055 6,149 6,025
Logistics 16 11 10
------------ --------- ---------
Sub-total: 17,520 17,315 17,970
Other (includes corporate) 1,996 1,580 1,598
------------ --------- ---------
Consolidated $ 19,516 18,895 19,568
============ ========= =========
36
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
TRISM, Inc.
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14 (a) (1) present fairly, in all
material respects, the financial position of TRISM, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules listed in
the index appearing under Item 14 (a) (2) present fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the
responsibility of the Company's management: our responsibility is to
express an opinion on these financial statements and financial
statement schedules based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards 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.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 5, 1999
37
<PAGE>
Supplementary Data - Quarterly financial data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1998:
Revenues $ 72,129 77,193 75,170 67,139
Operating income (loss) 736 4,066 1,619 (147)
Income (loss) before extraordinary item (1,947) 205 (1,330) (5,936)
Net income (loss) (1,947) 205 233 (5,936)
Earnings (loss) per share
before extraordinary item (.34) .04 (.24) (1.04)
Earnings (loss) per share (.34) .04 .04 (1.04)
Number of shares used in
computation of earnings (loss)
per common share 5,737 5,714 5,702 5,702
1997:
Revenues $ 77,733 81,340 78,472 72,335
Operating income (loss) (1,052) 5,118 3,672 (823)
Net income (loss) (3,406) 897 146 (3,242)
Earnings (loss) per share (.59) .16 .03 (.58)
Number of shares used in
computation of earnings (loss)
per common share 5,737 5,737 5,737 5,737
1996:
Revenues $ 73,040 79,228 80,166 77,599
Operating income 250 3,573 4,857 (3,598)
Net income (loss) (2,198) 507 614 (5,521)
Earnings (loss) per share (.38) .09 .11 (.97)
Number of shares used in
computation of earnings
(loss) per common share 5,734 5,734 5,734 5,738
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
NONE
38
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
A definitive proxy statement of TRISM, Inc. will be filed not
later than 120 days after the end of the fiscal year with the
Securities and Exchange Commission. The information regarding
directors will be included in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders and is incorporated herein by
reference. The information with respect to the executive officers of
the Company required by this item will be included in the Company's
Proxy Statement for the 1999 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this item will be included in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be included in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item will be included in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
and is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The consolidated balance sheets as of December 31, 1998 and 1997
and the related consolidated statements of operations, changes in
stockholders' equity, cash flows and financial statement schedule for
each of the three years in the period ended December 31, 1998 are
filed as part of this report:
(1) Financial Statements ***
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
***The financial statements of each of the Company's
subsidiaries are omitted because all of the Company's
subsidiaries guarantee the Company's outstanding 10 3/4%
Senior Subordinated Notes due 2000 on a full, unconditional,
and joint and several basis.
(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules for the Company are omitted because they are
not required or not applicable. The required information is included
in the financial statements or notes thereto.
39
<PAGE>
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K, Continued
Exhibit Index
The following exhibits are filed as part of this report.
Exhibit
Number Description
* 3.1 Certificate of Incorporation, as amended through January 21,
1993, of TRISM, Inc.
* 3.2 By-laws of TRISM, Inc.
* 4.1 Form of Indenture
* 4.2 Specimen Certificate for the Common Stock, par value $.01 per
share, of TRISM, Inc.
10.4 Amendment to the revolving line of credit facility with CIT.
21.1 Subsidiaries
27 Financial Data Schedule
* Exhibit is incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No. 33-
71222, initially filed with the Securities and Exchange
Commission on November 4, 1993, as amended.
Reports on Form 8-K
During the fourth quarter of 1998, there were no reports filed on Form
8-K.
40
<PAGE>
S I G N A T U R E S
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.
TRISM, INC.
s/Edward L. McCormick
Edward L. McCormick
Director, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 13, 1999 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
s/ Edward L. McCormick Director, President and Chief
Edward L. McCormick Executive Officer
s/E. Virgil Conway Director, Chairman of the Board
E. Virgil Conway
s/Julian H. Gingold Director
Julian H. Gingold
s/James F. Higgins Director
James F. Higgins
s/William M. Legg Director
William M. Legg
s/James G. Overley Senior Vice President of Finance
and Treasurer
James G. Overley (Chief Financial Officer)
s/John L. Ray Director
John L. Ray
41
<PAGE>
<TABLE>
SCHEDULE II
TRISM, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
--------------------------
(1) (2)
CHARGED
BALANCE AT CHARGED TO TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C> <C>
1998:
Allowance for doubtful
accounts $ 2,069,718 879,055 - 1,885,315 (A) 1,063,458
1997:
Allowance for doubtful
accounts $ 2,396,621 1,387,975 - 1,714,878 (A) 2,069,718
1996:
Allowance for doubtful
accounts $ 1,584,386 1,573,500 - 761,265 (A) 2,396,621
(A) Represents net write-offs of uncollectible accounts.
</TABLE>
42
Exhibit 21.1
TRISM, INC.
Subsidiaries of TRISM, Inc.
Trism Secured Transportation, Inc. Delaware
Tri-State Motor Transit Co. Delaware
Aero Body and Truck Equipment Company, Inc., Delaware
Tri-State Transportation Service, Inc. Missouri
Diablo Systems Incorporated
d/b/a/ Diablo Transportation, Inc. California
Emerald Leasing, Inc. Nevada
McGil Special Services, Inc. Delaware
Trism Eastern, Inc.
d/b/a/ C.I. Whitten Transfer Delaware
Trism Heavy Haul, Inc. Delaware
Trism Specialized Carriers, Inc. Georgia
Trism Special Services, Inc. Georgia
E.L. Powell & Sons Trucking Co., Inc. Oklahoma
Trism Transport, Inc. Delaware
Trism Transport Services, Inc. Utah
EFB, Inc. Delaware
TRISM Logistics, Inc. New Jersey
Trism Equipment, Inc. Delaware
TRISM Maintenance Services, Inc. Delaware
Transportation Recovery Systems, Inc. Delaware
43
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the
"Amendment") is made and entered into as of February 23, 1999, by and
among TRISM, INC. and certain of its subsidiaries (collectively
referred to herein as the "Borrowers"), the lenders a party to the
agreement from time to time (collectively referred to herein as the
"Lenders"), and THE CIT GROUP/BUSINESS CREDIT, INC., in both its
capacity as the Agent and a Lender ("CIT").
For the purpose of conforming the same to the intention of the
parties and for other value received, it is hereby agreed that certain
Loan and Security Agreement, dated July 14, 1997 (the "Agreement"),
between Borrowers, Lenders and CIT, as the same has been amended from
time to time, shall be amended and modified in the following
particulars:
1. Capitalized terms, as used herein, shall have the meaning set
forth in the Agreement, unless the context otherwise requires.
2. Section 1.1 of the Agreement is hereby amended as follows:
1. The following new definition of "Amendment No. 3" is hereby
added in the correct alphabetical order thereto:
"Amendment No. 3" shall mean and refer to that
certain Third to Loan and Security Agreement, dated
February 23, 1999, among Lenders, Agent and Borrowers.
2. The definition of "Collateral" is hereby amended to include
the new subsection and paranthetical "(d1) the Vehicles," after
subsection (d) thereof and before subsection (e) thereof.
3. The definition of "Collateral" is hereby further amended by
deleting from the parenthetical contained in subsection (e) thereof
the word "trailers".
4. The definition of "Loans" is hereby deleted in its entirety
and the following is inserted in lieu thereof:
"Loan(s)" means any Revolving Credit Loan or the
Term Loan, as well as such loans collectively, as the
context requires.
5. The definition of "Note" is hereby deleted in its entirety
and the following is inserted in lieu thereof:
<PAGE>
"Note" means either of a Revolving Credit Note or
a Term Note, individually, and "Notes" mean all such
Notes, collectively.
6. The definition of "Security Documents" is hereby amended by
adding the following new subsection (g) to the end thereof:
"and (g) the certificates of titles for the
Vehicles, with the first-priority lien of Agent
properly noted thereon."
7. The following new definitions of "Term Loan", "Term Loan
Facility", and "Term Note(s)" are hereby added in the correct
alphabetical order thereto:
"Term Loan" means the term loan made to Borrowers
by Lenders pursuant to Article 2A hereof in an amount
not to exceed the Term Loan Facility.
"Term Loan Facility" means an amount equal to
$2,750,000.00.
"Term Note(s)" means the Term Notes made by
Borrowers to the order of each Lender evidencing the
Borrowers' joint and several obligation to pay the
aggregate unpaid principal amount, together with any
accrued but unpaid interest and charges thereon, of the
Term Loan made to them by Lenders.
8. The definition of "Total Facilities" is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"Total Facilities" means the aggregate of the
Revolving Credit Facility and the Term Loan Facility.
9. The following new definition of "Treasury Rate" is added in
the correct alphabetical order thereto:
"Treasury Rate" means a fixed rate of interest
determined as of the date of the Term Loan equal to the
yield on a United States Treasury obligation of a
constant maturity rate maturing closest in time but
prior to the date which is three (3) years following
the date of the Term Loan.
10. The following new definition of "Vehicles" is added in the
correct alphabetical order thereto:
2
<PAGE>
"Vehicles" mean the trailers and other vehicles
listed on Exhibit B to Amendment No. 3.
3. The Agreement is hereby amended by adding the following new
Article 2A thereto following the end of Article 2 thereof:
Article 2A
Term Loan Facility
Section 2A.1 Term Loan. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties
made under, this Agreement, each Lender agrees, severally, but not
jointly, to make a Term Loan to the Borrowers, in an amount equal to
such Lender's Commitment Percentage of the Term Loan Facility.
Section 2A.2 Manner of Borrower and Disbursing Term Loan. Upon
satisfaction of the applicable conditions set forth in Amendment No.
3, each Lender shall make such Lender's Commitment Percentage of the
Term Loan Facility available to the Borrowers on the day of Amendment
No. 3 in same day funds in accordance with the instructions set forth
in the letter from the Borrowers to the Agent referred to in Amendment
No. 3. Borrowers shall use the proceeds of the Term Loan as working
capital in the ordinary course of their business.
Section 2A.3 Repayment of Term Loan. The outstanding principal
balance of the Term Loan shall be due and payable in (i) fifty-nine
(59) consecutive monthly installments, each in an amount equal to
$45,833.33, commencing on the first (1st) day of the first (1st) month
following the date of the Term Notes and continuing on the first (1st)
day of each and every Fiscal Month thereafter through and including
January 1, 2004, and (ii) one (1) final installment in an amount equal
to the total remaining outstanding principal balance of the Term Loan,
together with all accrued but unpaid interest and charges thereon,
which installment shall be due and payable on February 1, 2004. Any
portion of the Term Loan repaid may not be reborrowed. Prior to an
Event of Default, interest shall accrue on the Term Loan at a fixed
rate equal to the Treasury Rate plus three and one-quarter percent
(3.25%) per annum. Following an Event of Default, interest shall
accrue on the Term Loan at a rate equal to then applicable rate under
this Section 2A.3 plus the Default Margin.
Section 2A.4 Term Note. The Term Loan and the joint and several
obligation of the Borrowers to repay such Loan shall be evidenced by
Term Notes payable to the order of each Lender. Such Notes shall be
3
<PAGE>
dated the date of Amendment No. 3 and shall be duly and validly
executed and delivered by the Borrowers.
Section 2A.5 Prepayment. In the event this Agreement is
terminated by Agent or any Borrower either (i) pursuant to the terms
hereof or (ii) upon the occurrence of an Event of Default hereunder,
the Term Loan shall become due and payable in full on the effective
date of such termination, notwithstanding any provision to the
contrary in the Term Note or this Agreement.
Section 2A.6. Mandatory Prepayment. In the event (i) the amount
of the aggregate orderly liquidation value of the Vehicles (as
determined by an appraisal received by Agent pursuant to the terms of
Section 8.15 hereof) is at any time less than fifty-five percent (55%)
of the outstanding principal balance of the Term Loan and (ii) Agent
makes demand therefor, Borrowers hereby agree to make a mandatory
prepayment to Lenders in an amount equal to the difference between
fifty-five percent (55%) of the outstanding principal balance of the
Term Loan and such aggregate orderly liquidation value of the
Vehicles.
4. Section 8.11 of the Agreement is hereby amended by adding the
following new subsection (e) thereto following the end of subsection
(d) thereof:
(e) Vehicles. Borrowers shall deliver to Agent not
later than five (5) Business Days after the last Business
Day of each Fiscal Month, a report indicating the exact
location of each and every Vehicle located outside of the
continental United States as of the last day of such Fiscal
Month. Such reports shall be provided more frequently by
Borrowers to Agent upon the request of Agent.
5. Article 8 of the Agreement is hereby amended by adding the
following new Section 8.14 thereto:
Section 8.14. Covenants Regarding Vehicles. Borrowers
shall maintain the Vehicles in good order and repair, except
for ordinary wear and tear in the ordinary course of
business. In addition, Borrowers shall maintain insurance
on the Vehicles, in such amounts and with such companies as
may be acceptable to Agent, and shall maintain Agent, on
behalf of the Lenders, as loss-payee on all such insurance.
In the event a loss related to a Vehicle or Vehicles occurs,
all proceeds of insurance shall promptly be paid to Agent,
for the ratable benefit of Lenders and such sums shall be
applied to reduce the principal balance of the Term Loan.
4
<PAGE>
Borrowers agree not to sell, lease or otherwise dispose of
any Vehicle or Vehicles without the prior written consent of
Agent.
6. Article 8 of the Agreement is hereby further amended by adding
the following new Section 8.15 thereto:
SECTION 8.15. Appraisals of Vehicles. Borrowers
hereby agree that Agent may, at Borrowers' cost and expense,
undertake or have undertaken (whether in-house or through an
appraiser satisfactory to Agent in its sole discretion) an
appraisal of the Vehicles, which appraisal shall be in form
and substance satisfactory to Agent in its sole discretion.
Such appraisals shall be conducted at least once every six
(6) calendar months and more frequently if Agent so
requests.
7. As the contract requires and in all Loan Documents, the terms
"Revolving Credit Loans" and "Revolving Credit Facility" shall be
deemed to mean and include the Term Loan and Term Loan Facility.
8. Conditions Precedent. The effectiveness of this Amendment is
subject to the following conditions precedent:
(a) Delivery of Documents. Borrowers shall have
delivered to Agent, on behalf of Lenders, (i) executed
counterpart originals of this Amendment, (ii) executed
originals of the Term Notes, substantially in the form
attached hereto as Exhibit A, (iii) an Acknowledgment and
Consent of each Guarantor, in form and substance
satisfactory to Agent, in its sole discretion, (iv) the
certificate of title for each Vehicle with the first
priority lien of Agent properly noted thereon, and (v) such
other documentation as Agent may reasonably require in
connection herewith, including without limitation, (A)
Officer's and Secretary's Certificates for each Borrower, in
form and substance satisfactory to Agent in its sole
discretion, (B) an opinion of Borrower's counsel related to
the perfection of Agent's lien in and to each Vehicle, (C)
Certificates of Insurance listing Agent as loss-payee on
insurance (which insurance shall be in amounts and issued by
companies acceptable to Agent) covering the Vehicles, and
(D) good standing certificates for Borrower in each
jurisdiction requested by Agent.
(b) Accuracy of Representations and Warranties. All
of the representations and warranties made or deemed to be
made in this Amendment and under the Loan Documents shall be
true and correct as of the date of this Amendment.
5
<PAGE>
9. From and after the date hereof, the Agreement shall be deemed to
mean the Agreement, as amended hereby.
10. Each Borrower hereby reaffirms each of the agreements, covenants,
and undertakings set forth in the Agreement and each and every other
agreement, instrument and document executed in connection therewith or
pursuant thereto as if such Borrower were making said agreements,
covenants and undertakings on the date hereof.
11. This Amendment represents a modification only and is not, and
should not be construed as, a novation.
12. Except as hereinabove set forth, the Agreement shall remain
otherwise unmodified and in full force and effect, and all other
documents, instruments and agreements executed in connection therewith
or pursuant thereto shall remain in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment under hand and seal as of the date first above written.
BORROWERS:
TRISM, INC.
By:______________________________________
Title:__________________________________
TRISM SECURED TRANSPORTATION, INC.
By:_____________________________________
Title:__________________________________
TRI-STATE MOTOR TRANSIT CO.
By:_____________________________________
Title:__________________________________
AERO BODY AND TRUCK EQUIPMENT, INC.
By:_____________________________________
Title:__________________________________
7
<PAGE>
TRI-STATE TRANSPORTATION SERVICES, INC.
By:_____________________________________
Title:__________________________________
DIABLO SYSTEMS INCORPORATED d/b/a
DIABLO TRANSPORTATION, INC.
By:_____________________________________
Title:__________________________________
EMERALD LEASING, INC.
By:_____________________________________
Title:__________________________________
McGIL SPECIAL SERVICES, INC.
By:_____________________________________
Title:__________________________________
TRISM EASTERN, INC. d/b/a C.I.
WHITTEN TRANSFER
By:_____________________________________
Title:__________________________________
8
<PAGE>
TRISM HEAVY HAUL, INC.
By:_____________________________________
Title:__________________________________
TRISM SPECIALIZED CARRIERS, INC.
By:_____________________________________
Title:__________________________________
TRISM SPECIAL SERVICES, INC.
By:_____________________________________
Title:__________________________________
E.L. POWELL & SONS TRUCKING CO., INC.
By:_____________________________________
Title:__________________________________
TRISM TRANSPORT, INC.
By:_____________________________________
Title:__________________________________
9
<PAGE>
TRISM TRANSPORT SERVICES, INC.
By:_____________________________________
Title:__________________________________
TRISM LOGISTICS, INC.
By:_____________________________________
Title:__________________________________
10
<PAGE>
LENDERS:
Commitment Percentage: 44.44% THE CIT GROUP/BUSINESS CREDIT, INC.
By:_____________________________________
Title:__________________________________
Commitment Percentage: 33.33% FLEET CAPITAL CORPORATION
By:_____________________________________
Title:__________________________________
Commitment Percentage: 22.22% FINOVA CAPITAL CORPORATION
By:_____________________________________
Title:__________________________________
AGENT:
THE CIT GROUP/BUSINESS CREDIT, INC.
By:_____________________________________
Title:__________________________________
11
<PAGE>
EXHIBIT A
FORM OF TERM NOTE
$_______________ [totalling $2,750,000.00] February 23, 1999
FOR VALUE RECEIVED, the undersigned, TRISM, INC., a Delaware
corporation, TRISM SECURED TRANSPORTATION, INC., a Delaware
corporation, TRI-STATE MOTOR TRANSIT CO., a Delaware corporation, AERO
BODY AND TRUCK EQUIPMENT COMPANY, INC., a Delaware corporation, TRI-
STATE TRANSPORTATION SERVICES, INC., a Missouri corporation, DIABLO
SYSTEMS INCORPORATED, INC., a California corporation, EMERALD LEASING,
INC., a Nevada corporation, McGIL SPECIAL SERVICES, INC., a Delaware
corporation, TRISM EASTERN, INC. d/b/a C.I. WHITTEN TRANSFER, a
Delaware corporation, TRISM HEAVY HAUL, INC., a Delaware corporation,
TRISM SPECIALIZED CARRIERS, INC., a Georgia corporation, TRISM SPECIAL
SERVICES, INC., a Georgia corporation, E.L. POWELL & SONS TRUCKING
CO., INC., an Oklahoma corporation, TRISM TRANSPORT, INC., a Delaware
corporation, TRISM TRANSPORT SERVICES, INC., a Utah corporation, and
TRISM LOGISTICS, INC., a New Jersey corporation (each of the foregoing
herein a "Borrower" and collectively the "Borrowers"), HEREBY JOINTLY
AND SEVERALLY PROMISE TO PAY to the order of _____________________, a
________________________ corporation ("Lender"), or its assigns at
Lender's offices in Atlanta, Georgia, or at such other place as the
holder of this Term Note (the "Term Note") may designate from time to
time in writing, in lawful money funds, the amount of
______________________________ ($___________________). All
capitalized terms, unless otherwise define herein, shall have the
respective meanings assigned to such terms in the Loan Agreement (as
defined below).
This Term Note is issued pursuant to that certain Loan and
Security Agreement, dated July 14, 1997, among Borrower, the financial
institutions party thereto from time to time and Lender, as agent and
lender thereunder (as the same has been amended from time to time, the
"Loan Agreement"), and is entitled to the benefit and security of the
Loan Documents provided for therein, to which Loan Agreement reference
is hereby made for a statement of all of the terms and conditions
under which the loan evidenced hereby is made.
Borrowers, jointly and severally, promise to pay the principal
amount of the indebtedness evidenced hereby, together with all accrued
but unpaid interest and charges thereon, on the dates specified in the
Loan Agreement. Borrowers, jointly and severally, promise to pay
interest from the date hereof until such principal amount is paid in
full at such interest rates and at such times as are specified in the
Loan Agreement.
If any payment of this Term Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day and, with respect to payments of
<PAGE>
principal, interest thereon shall be payable at the then applicable
rate during such extension.
Upon and after the occurrence of an Event of Default, this Term
Note may, as provided in the Loan Agreement, and without demand,
notice or legal process of any kind, be declared, and immediately
shall become, due and payable.
Demand, presentment, protest and notice of nonpayment and protest
are hereby waived by Borrowers.
No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder, under the Loan Agreement or any other Loan
Document or at law or in equity, shall operate as a waiver thereof,
and no single or partial exercise by Lender of any right or remedy
hereunder, under the Loan Agreement or any other Loan Document or at
law or in equity shall preclude or estop another or further exercise
thereof or the exercise of any other right or remedy.
Time is of the essence of this Term Note and, in case this Term
Note is collected by law or through an attorney at law, or under
advice therefrom, Borrowers agree to pay all costs of collection,
including reasonable attorneys' fees if collected by or through an
attorney.
THIS TERM NOTE HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT
ATLANTA, GEORGIA AND SHALL BE INTERPRETED, GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF GEORGIA.
BORROWERS:
TRISM, INC.
By:_____________________________________
Title:__________________________________
TRISM SECURED TRANSPORTATION, INC.
By:_____________________________________
Title:__________________________________
2
<PAGE>
TRI-STATE MOTOR TRANSIT CO.
By:_____________________________________
Title:__________________________________
AERO BODY AND TRUCK EQUIPMENT, INC.
By:_____________________________________
Title:__________________________________
TRI-STATE TRANSPORTATION SERVICES, INC.
By:_____________________________________
Title:__________________________________
DIABLO SYSTEMS INCORPORATED d/b/a
DIABLO TRANSPORTATION, INC.
By:_____________________________________
Title:__________________________________
EMERALD LEASING, INC.
By:_____________________________________
Title:__________________________________
McGIL SPECIAL SERVICES, INC.
By:_____________________________________
Title:__________________________________
3
<PAGE>
TRISM EASTERN, INC. d/b/a C.I.
WHITTEN TRANSFER
By:_____________________________________
Title:__________________________________
TRISM HEAVY HAUL, INC.
By:_____________________________________
Title:__________________________________
TRISM SPECIALIZED CARRIERS, INC.
By:_____________________________________
Title:__________________________________
TRISM SPECIAL SERVICES, INC.
By:_____________________________________
Title:__________________________________
E.L. POWELL & SONS TRUCKING CO., INC.
By:_____________________________________
Title:__________________________________
TRISM TRANSPORT, INC.
By:_____________________________________
Title:__________________________________
4
<PAGE>
TRISM TRANSPORT SERVICES, INC.
By:_____________________________________
Title:__________________________________
TRISM LOGISTICS, INC.
By:_____________________________________
Title:__________________________________
5
<PAGE>
EXHIBIT B
LIST OF VEHICLES
See Attached.
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Each of the undersigned hereby acknowledges and consents to the
foregoing Third Amendment to Loan and Security Agreement.
IN WITNESS WHEREOF, each of the undersigned has executed this
Acknowledgment and Consent under seal as of this _____ day of
February, 1999.
GUARANTORS:
TRISM MAINTENANCE SERVICES, INC.
By:______________________________________
Title:___________________________________
EFB, INC.
By:______________________________________
Title:___________________________________
TRANSPORTATION RECOVERY SYSTEMS, INC.
By:_____________________________________
Title:__________________________________
TRISM EQUIPMENT, INC.
By:_____________________________________
Title:__________________________________
TRISM BENEFITS, INC.
By:_____________________________________
Title:__________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,029
<SECURITIES> 0
<RECEIVABLES> 37,388
<ALLOWANCES> 1,063
<INVENTORY> 1,389
<CURRENT-ASSETS> 64,349
<PP&E> 193,953
<DEPRECIATION> 64,775
<TOTAL-ASSETS> 213,952
<CURRENT-LIABILITIES> 43,131
<BONDS> 86,230
0
0
<COMMON> 59
<OTHER-SE> 15,740
<TOTAL-LIABILITY-AND-EQUITY> 213,952
<SALES> 291,631
<TOTAL-REVENUES> 291,631
<CGS> 285,357
<TOTAL-COSTS> 285,357
<OTHER-EXPENSES> 704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,944
<INCOME-PRETAX> (8,374)
<INCOME-TAX> 634
<INCOME-CONTINUING> (9,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,563
<CHANGES> 0
<NET-INCOME> (7,445)
<EPS-PRIMARY> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
