14
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______to_____
Commission File Number: 000-18601
TRANSIT GROUP, INC.
-------------------
(Exact name of registrant as specified in its charter)
State of Florida 59-2576629
---------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry, Suite 1740, Atlanta, Georgia 30339
----------------------------------------------------
(Address of principal executive offices) - (zip code)
(770) 444-0240
--------------
(Registrant's telephone number, including area code)
Check whether issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No___
There were 31,848,244 shares of the Company's common stock outstanding as of
August 11, 2000.
TRANSIT GROUP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page Number
-----------
Item 1
Financial Statements
Consolidated Balance Sheets
as of June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Income (unaudited) for the three
and six month periods ended June 30, 2000 and 1999 4
Consolidated Statement of Changes in Total Non Redeemable
Preferred Stock, Common Stock and Other Shareholders' Equity (unaudited) 5
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3
Quantitative and Qualitative Disclosures About
Market Risk 18
PART II. OTHER INFORMATION
Item 1
Legal Proceedings 19
Item 2
Changes in Securities and Use of Proceeds 19
Item 3
Defaults on Senior Securities 19
Item 4
Submission of Matters to a Vote of Security Holders 20
Item 5
Other Information 20
Item 6
Exhibits and Reports on Form 8-K 20
TRANSIT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
June 30, December 31,
2000 1999
---------------- -----------
(Unaudited)
Current assets:
Cash $ 3,523 $ 2,156
Accounts receivable (net of allowance of $2,838 and $3,441) 80,536 71,543
Other current assets 13,255 10,259
Refundable income taxes 2,902 4,210
Deferred income taxes 2,000 9,655
---------------- ----------------
Total current assets 102,216 97,823
---------------- ----------------
Noncurrent assets:
Property, equipment, and capitalized leases 108,502 114,718
Goodwill 111,791 112,197
Other assets 775 1,676
---------------- ----------------
Total noncurrent assets 221,068 228,591
---------------- ----------------
Total assets $ 323,284 $ 326,414
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital leases $ 124,895 $ 23,990
Accounts payable 12,054 11,014
Bank overdrafts 7,887 2,856
Accrued expenses and other current liabilities 21,038 16,708
---------------- ----------------
Total current liabilities 165,874 54,568
---------------- ----------------
Noncurrent liabilities:
Long-term debt and capital lease obligations 45,613 139,530
Other liabilities 471 267
Deferred income taxes 15,596 25,482
---------------- ----------------
Total noncurrent liabilities 61,680 165,279
---------------- ----------------
Total liabilities 227,554 219,847
---------------- ----------------
Redeemable common stock 3,675 3,675
---------------- ----------------
Redeemable preferred stock 24,818 24,795
---------------- ----------------
Non redeemable preferred stock, common stock,
and other shareholders' equity:
Preferred stock, no par value, 20,000,000 shares authorized,
5,000,000 outstanding ----- -----
Common Stock, $.01 par value, 100,000,000 shares
authorized, 31,848,244 shares issued and outstanding 308 308
Additional paid-in capital 94,641 94,577
Accumulated deficit (27,712) (16,788)
---------------- ----------------
Total non redeemable preferred stock, common stock
and other shareholders' equity 67,237 78,097
---------------- ----------------
Total liabilities and shareholders' equity $ 323,284 $ 326,414
================ ================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ------------------ ---------------- -------------------
Operating revenues $ 132,136 $ 75,167 $ 265,341 $ 140,011
----------------- ------------------ ---------------- -------------------
Operating expenses:
Purchased transportation 58,728 26,916 114,007 52,433
Salaries, wages, and benefits 31,000 19,114 63,536 34,756
Fuel 13,214 6,336 26,969 11,194
Operating supplies and expenses 16,445 7,587 29,247 14,460
Lease expense - revenue equipment 6,429 4,475 13,239 8,611
Insurance 2,833 990 4,669 1,785
Depreciation and amortization expense 5,293 2,850 10,621 5,145
Restucturing charge (225) ----- 854 -----
General and administrative expense 4,510 2,201 8,466 3,968
----------------- ------------------ ---------------- -------------------
Total operating expenses 138,227 70,469 271,608 132,352
----------------- ------------------ ---------------- -------------------
Operating (loss) income (6,091) 4,698 (6,267) 7,659
Interest expense 3,232 1,517 6,477 2,519
----------------- ------------------ ---------------- -------------------
(Loss) income before income taxes (9,323) 3,181 (12,744) 5,140
Income tax (benefit) (1,195) (1,092) (2,945) (66)
----------------- ------------------ ---------------- -------------------
Net (loss) income (8,128) 4,273 (9,799) 5,206
Preferred stock dividends (563) (296) (1,125) (296)
----------------- ------------------ ---------------- -------------------
(Loss) income available to common
shareholders $ (8,691) $ 3,977 $ (10,924) $ 4,910
================= ================== ================ ===================
(Loss) income per common share -- basic $ (0.27) $ 0.15 $ (0.34) $ 0.19
================= ================== ================ ===================
(Loss) income per common share -- diluted $ (0.27) $ 0.15 $ (0.34) $ 0.19
================= ================== ================ ===================
Weighted average number of common shares
outstanding - basic 31,848,244 26,038,631 31,847,840 25,240,163
================= ================== ================ ===================
Weighted average number of common shares
outstanding - diluted 31,848,244 27,083,493 31,847,840 26,150,369
================= ================== ================ ===================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL
NON REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Total
Common Additional Accumulated stockholders'
stock paid-in capital deficit equity
Balance December 31, 1999 $ 308 $ 94,577 $ (16,788) $ 78,097
Dividends on redeemable preferred stock ----- ----- (1,125) (1,125)
Stock issued to employee stock ownership plan ----- 64 ----- 64
Net loss ----- ----- (9,799) (9,799)
---------------- ---------------- --------------- ---------------
Balance June 30, 2000 $ 308 $ 94,641 $ (27,712) $ 67,237
================ ================ =============== ===============
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------------------------
--
2000 1999
-------------------- -------------------
Cash flows from operating activities:
(Loss) income from continuing operations $ (9,799) $ 5,206
-------------------- -------------------
Adjustments to reconcile income to cash
in continuing operations:
Depreciation and amortization 10,621 5,145
Deferred taxes (2,945) (2,671)
Loss (gain) on sale of equipment 2,080 (213)
Changes in assets and liabilities
Increase in accounts receivable (8,993) (4,400)
Increase in other assets (2,095) (531)
Increase (decrease) in accounts payable and accrued expenses 5,370 (2,844)
Other (106) (458)
-------------------- -------------------
Total adjustments 3,932 (5,972)
-------------------- -------------------
Net cash used in continuing operations (5,867) (766)
Net cash used in discontinued operations (24) (13)
-------------------- -------------------
Net cash used in operating activities (5,891) (779)
-------------------- -------------------
Cash flows from investing activities:
Business combinations, net of cash acquired ----- (2,813)
Proceeds from disposal of equipment 2,415 4,164
Purchase of equipment (8,442) (3,818)
-------------------- -------------------
Net cash used in investing activities (6,027) (2,467)
-------------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock ----- 24,912
Repayment of capital lease obligations and long-term debt (15,696) (26,510)
Increase in long-term debt 25,011 6,734
Increase (decrease) in bank overdraft 5,031 (1,418)
Stock redeemed and retired ----- (1,548)
Dividends (1,125) -----
Stock issued to employee stock ownership plan 64 -----
Stock options exercised ----- 76
-------------------- -------------------
Net cash provided by financing activities 13,285 2,246
-------------------- -------------------
Increase (decrease) in cash 1,367 (1,000)
Cash, beginning of period 2,156 2,020
-------------------- -------------------
Cash, end of period $ 3,523 $ 1,020
==================== ===================
Supplemental cash flow data
Cash paid for interest $ 7,301 $ 1,836
==================== ===================
Business combinations
Fair value of assets acquired $ ----- $ 42,139
Fair value of liabilities assumed ----- (30,707)
Common stock issued ----- (8,286)
------------------ -------------------
Net cash payments $ ----- $ 3,146
==================== ===================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
Notes to Consolidated Financial Statements
The information presented herein as of June 30, 2000, and for the three and six
month periods ended June 30, 2000 and 1999 is unaudited. The December 31, 1999
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
1. Basis of Presentation
Our consolidated balance sheet as of June 30, 2000, our consolidated statements
of income for the three and six month periods ended June 30, 2000 and 1999, and
our consolidated statements of cash flows for the six month periods ended June
30, 2000 and 1999 include our nineteen acquired subsidiaries, and the results of
operations and cash flows for the periods since acquisition. We have made the
following acquisitions:
Company Date Acquired
Carolina Pacific Distributors 07/11/97
Service Express 08/16/97
Transit Leasing 08/16/97
Carroll Fulmer Group 08/30/97
Rainbow Trucking 12/30/97
Transportation Resources and Management 01/31/98
Certified Transport 05/05/98
KJ Transportation 06/17/98
Network Transportation 07/13/98
Diversified Trucking 08/05/98
Northstar Transportation 08/11/98
Priority Transportation 01/19/99
Massengill Trucking Service 03/03/99
KAT 03/22/99
R&M Enterprises 07/19/99
MDR Cartage 07/30/99
Bestway Trucking 07/30/99
Fox Midwest 09/27/99
Land Transportation 11/04/99
There have been no acquisitions since Land Transportation.
Certain prior year balances have been reclassified to conform to the current
year financial statement presentation.
2. Summary of Significant Accounting Policies
Management's Representation
The accompanying interim consolidated financial statements have been prepared by
us in accordance and consistent with the accounting policies stated in our 1999
Annual Report on Form 10-K and should be read in conjunction with the
consolidated financial statements appearing therein. In the opinion of
management, all adjustments necessary for a fair presentation of such
consolidated financial statements are reflected in the interim periods
presented. Additionally, all adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the annual
consolidated financial statements.
3. Business Combinations
Since July 1997, we have acquired 19 transportation companies. The business
combinations of the acquired companies are accounted for under the purchase
method of accounting. Accordingly, the operating results of the acquired
companies have been included in our consolidated financial statements since
their respective dates of acquisition. Assets acquired and liabilities assumed
were recorded at fair market value.
The unaudited pro forma financial information reflects our operations as if all
of the acquisitions took place on January 1, 1999. The following adjustments
were made to the historical financial statements of the acquired companies prior
to their acquisition by us:
o Depreciation expense was reduced due to changes in depreciation policies and
estimated lives; o Amortization of goodwill incurred in connection with the
acquisitions has been recorded; o Lease expense incurred in connection with
certain sale-leaseback transactions has been recorded; o Interest costs for the
cash portion of the acquisition costs has been recorded; o Interest costs of the
acquired companies have been adjusted to reflect our financing costs and; o The
provision for income taxes has been calculated using our estimated annual tax
rate.
No provision for cost reductions (such as insurance, overhead, purchasing, and
fuel) have been reflected in the historical financial statements of the acquired
companies from January 1, 1999 through the date of acquisition.
Unaudited Pro Forma Combined Results of Operations
(In thousands except share data)
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues $ 132,136 $ 120,370 $ 265,341 $ 241,373
============== ============== =============== ===============
Net (loss) income $ (8,128) $ 1,736 $ 9,799) $ 3,830
Preferred stock dividend
requirement
(563) (296) (1,125) (296)
-------------- -------------- --------------- ---------------
(Loss) income available to common
shareholders $ (8,691) $ 1,440 $ (10,924) $ 3,534
============== ============== =============== ===============
(Loss) income per basic common share $ (.27) $ .05 $ (.34) $ .11
============== ============== =============== ===============
(Loss) income per diluted common
share $ (.27) $ .04 $ (.34) $ .11
============== ============== =============== ===============
Weighted average number of basic
common shares outstanding 31,848,244 31,855,927 31,847,840 31,852,116
============== ============== =============== ===============
Weighted average number of diluted
common shares outstanding 31,848,244 32,900,789 31,847,840 32,762,323
============== ============== =============== ===============
4. Income Taxes
At December 31, 1999, we had $31.0 million of federal net operating loss
carryforwards potentially available to offset taxable income which expire during
the years 2009 to 2018. We will be limited in the amount of net operating losses
which can be offset against taxable income in any given year because of
significant changes in ownership. Certain pre-acquisition losses of acquired
companies will be unusable because of the change of ownership provisions and a
valuation allowance remains for those losses. To the extent these losses are
utilized, any benefit will be used to reduce goodwill as the losses were
incurred by acquired subsidiaries. At June 30, 2000, the net operating loss
carryforwards are approximately $41.2 million.
The Company determines its provisions for income taxes using its best estimate
of the effective tax rate expected to be applicable for the full fiscal year.
The difference between the provision for income taxes and the amount that would
be expected using the Federal statutory income tax rate of 34% is related to
nondeductible goodwill, changes in valuation allowances for deferred taxes,
amortization expense, the meal component of per diem expenses paid to drivers,
and certain other non-deductible expenses.
On June 25, 1999, new consolidated return regulations were issued that changed
the rules for using our operating loss carryovers by eliminating the requirement
to apply the separate return limitation loss years limitation to situations in
which a change of ownership, as defined in Section 382 of the Internal Revenue
Code, occurred within six months of an acquired company becoming a member of a
consolidated group. Prior to this change in the consolidated return regulations,
we limited the income tax benefit recognized in the financial statements for
certain net operating losses of acquired companies by establishing a valuation
allowance for deferred tax assets.
5. Credit Facility
In 1999, we entered into a $150 million credit facility, which replaced our $35
million revolving credit and term facility. The facility contains customary
financial covenants that include limitations on dividends, indebtedness,
mergers, sale of assets, and the repurchase of common stock. Requirements exist
to maintain minimum levels of coverage for a Fixed Charge Coverage Ratio, Asset
Coverage Ratio, and a Minimum Consolidated Net Worth (all defined). We have not
been in compliance with certain of the covenants since December 31, 1999.
We have received a series of waivers through September 15, 2000 to allow the
participant banks time to consider an amendment to the facility at the
expiration of the waiver period. In consideration of these waivers, the unused
commitment under the acquisition facility has been cancelled ($10.3 currently
outstanding), the maximum borrowings under the revolving credit facility are
capped at the lesser of the borrowing base or $95.9 million ($95.3 million
currently outstanding), and we incurred fees of $.6 million. The waiver contains
various conditions including that we cure certain collateral deficiencies during
the current 30 day waiver period. We are continuing negotiations with the bank
group to amend the revolving credit facility. However, there is no assurance,
that we can amend the facility, refinance the facility or that we can fulfil the
collateral requirements under the current waiver. In accordance with the
technical requirements of Generally Accepted Accounting Principles this debt has
been classified as a current liability.
6. Redeemable Preferred Stock
In May 1999, we issued five million shares of 9% Redeemable Preferred Stock for
$5.00 per share. Each Redeemable Preferred Share may be converted at any time,
at the option of the preferred shareholder, for one share of our common stock.
The Redeemable Preferred Stock agreement contains certain anti-dilutive
provisions which would require the issuance of additional Redeemable Preferred
Shares if we issue any of our common stock at less than $5.00 per share.
Beginning three years from the date of issuance of the Redeemable Preferred
Shares (and for the succeeding two years), the preferred shareholders can cause
us to purchase up to 33% per year of the outstanding Redeemable Preferred Stock
for $5.00 per share. In addition, certain conditions such as a change in
ownership can accelerate the redemption requirement.
We are required to provide financial information and maintain certain financial
conditions. The conditions involve limitations on mergers, acquisitions, asset
sales, and additional indebtedness. Due to restrictions under our revolving
credit facility we did not make the June 30, 2000 preferred stock dividend
payment in the amount of $563,000. Should this event of default remain, the
holders of the Preferred Stock will have the right to elect two members to our
Board of Directors.
7. Restructuring Charges
Early in 1999, we began formulating a plan to consolidate most back office
operations at our service center in Groveland, Florida. The plan was finalized
during the fourth quarter of 1999 with the completion of the last acquisition.
The first phase of the plan involves consolidating the back office functions of
the companies acquired during 1999 with a resulting increase to the purchase
price of $0.5 million which was recorded as part of the acquisition cost of the
companies acquired and charged to goodwill. The charge was intended to cover
severance for approximately 100 employees affected and the relocation of three
employees to the Groveland service center. The amount of severance each employee
is entitled to is based on their respective years of employment.
In the six month period ended June 30, 2000, 16 persons resigned prior to their
termination and seven persons were separated in accordance with our
consolidation plan. The total amount of severance paid was $40,000. The plan is
expected to be completed by September 2000 at which time the remaining severance
will be paid. Beginning in 2001, we expect the elimination of these positions
will result in annual pretax savings of $1.0-$2.0 million.
During the first quarter of 2000, we finalized a plan to consolidate the back
office operations of all remaining divisions. In connection with the plan, we
recorded a charge to income of $1.1 million to cover severance from the
termination of 55 employees and costs associated with phasing out our Atlanta
headquarters. Each employee affected will be entitled to an amount based on the
number of years of employment and his position.
In the six month period ended June 30, 2000, 14 employees resigned prior to
their termination ($200,000) and nine employees were re-assigned ($25,000). As a
result, we have taken a credit to the restructuring charge in the amount of
$225,000 in the three month period ended June 30, 2000. Two employees were
separated under the terms of our consolidation plan and paid $30,000. We expect
the project to be completed by December 2000 at which time the severance will be
paid and we expect that the elimination of these positions will result in annual
pretax savings of $1.0-$2.0 million.
8. Impairment of Fixed Assets
In order to optimize our fleet we will sell 209 tractors located at six
divisions in our company. The tractors have a net book value of $6.4 million,
the sale of this equipment will take place in the third quarter and will
generate proceeds of $4.2 million. A loss of $2.2 million is included in
Operating Supplies and Expenses in the three and six month periods ended June
30, 2000.
TRANSIT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report contains certain forward-looking statements, including or
related to our future results including certain projections and business trends.
These and other statements, which are not historical facts, are based largely on
current expectations and assumptions of management and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. Assumptions and
risks related to forward-looking statements include that we have a history of
operating losses and pursued a growth strategy that relied in part on the
completion of acquisitions of companies in the trucking industry; that we will
continue to price and market our services competitively; that competitive
conditions within our markets will not change materially or adversely; that the
demand for our services will remain strong; and that we will retain key
managers, drivers and other personnel.
Assumptions relating to forward-looking statements involve judgements with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many which are beyond our control. When
used in this Quarterly Report, the words "estimate", "project", "intend", and
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in the
forward-looking information will be realized.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy,
which may in turn, affect our results of operations. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as our representation that
any strategy, objectives, or other plans will be achieved. The forward-looking
statements contained in this Quarterly Report speak only as of the date of this
Quarterly Report, and we do not have any obligation to publicly update or revise
any of these forward-looking statements.
Liquidity and Capital Resources
For the six months ended June 30, 2000 and 1999, cash flow from operating
activities was $(5.9) million, and $(.8) million, respectively, and capital
expenditures were $8.4 million, and $3.8 million, respectively, for new trucks
and trailers. Beginning in the fourth quarter of 1999, and continuing into
fiscal 2000, higher fuel costs and the poor performance by certain of our 1999
acquisitions resulted in losses for the quarters ended December 31, 1999, March
31, 2000, and June 30, 2000. Annual fees for tags, plates, and permits require
significant cash payments during the first quarter of 2000. In addition, our
internal growth has required us to finance a significant increase in accounts
receivable. These factors have combined to negatively impact our cash flow. We
expect that the seasonal increase in business and the continued concentration on
collection of accounts receivable will alleviate these cash constraints. Capital
expenditures for the remainder of 2000 are expected to range from $8.0-$10.0
million and will be financed by commercial lenders. There can be no assurance
that we can continue to finance our business strategy through operations or
commercial lenders or that our lenders will grant further waivers for defaults
under our credit facility.
In 1999, we entered into a $150 million credit facility, which replaced our $35
million revolving credit and term facility. The facility contains customary
financial covenants that include limitations on dividends, indebtedness,
mergers, sale of assets, and the repurchase of common stock. Requirements exist
to maintain minimum levels of coverage for a Fixed Charge Coverage Ratio, Asset
Coverage Ratio, and a Minimum Consolidated Net Worth (all defined). We have not
been in compliance with certain of the covenants since December 31, 1999.
We have received a series of waivers to allow the participant banks time to
consider an amendment to the facility at the expiration of the waiver period,
currently September 15, 2000. In consideration of these waivers, the unused
commitment under the acquisition facility has been cancelled, the maximum
borrowings under the revolving credit facility are capped at the lesser of the
borrowing base or $95.9 million, and we incurred fees of $.6 million. The waver
contains various conditions including that we cure certain collateral
deficiencies during the current 30 day waiver period. We are continuing
negotiations with the bank group to amend the revolving credit facility.
However, there is no assurance, that we can amend the facility, refinance the
facility or that we can fulfil the collateral requirements under the current
waiver. In accordance with the technical requirements of Generally Accepted
Accounting Principles this debt has been classified as a current liability.
In May 1999, we issued five million shares of 9% Redeemable Preferred Stock for
$5.00 per share. Each Redeemable Preferred Share may be converted at any time,
at the option of the preferred shareholder, for one share of our common stock.
The Redeemable Preferred Stock agreement contains certain anti-dilutive
provisions which would require the issuance of additional Redeemable Preferred
Shares if we issue any of our common stock at less than $5.00 per share.
Beginning three years from the date of issuance of the Redeemable Preferred
Shares (and for the succeeding two years), the preferred shareholders can cause
us to purchase up to 33% per year of the outstanding Redeemable Preferred Stock
for $5.00 per share. In addition, certain conditions such as a change in
ownership can accelerate the redemption requirement.
We are required to provide financial information and maintain certain financial
conditions. The conditions involve limitations on mergers, acquisitions, asset
sales, and additional indebtedness. Due to restrictions under our revolving
credit facility we did not make the June 30, 2000 preferred stock dividend
payment in the amount of $563,000. Should this event of default remain, the
holders of the Preferred Stock will have the right to elect two members to our
Board of Directors.
Redemption Rights for Selling Shareholders in Acquisitions
In connection with certain 1997 acquisitions, we granted the selling
shareholders the right to require us to redeem a portion of the shares which
they received in exchange for selling their businesses to us. The dollar amount
of stock subject to mandatory redemption by us aggregated approximately $8.1
million upon acquisition of those companies.
On May 24, 2000, the holders of redemption rights for $3.7 million or 1,020,831
shares of our common stock (the "Holders") exercised their redemption rights.
The Holders' redemption rights obligates us and our Chairman, jointly, to
purchase 1,020,831 shares of our common stock from the Holders at a price of
$3.60 per share. The Holders have agreed to rescind this exercise until August
26, 2000. We are in negotiations with the Holders to determine an acceptable
manner of satisfying our obligations to them.
Results of Operations - Three and six month periods ended June 30, 2000 compared
with the three and six month periods ended June 30, 1999
The following table sets forth items in the Consolidated Statement of Income for
the three and six month periods ended June 30, 2000 and 1999 as a percentage of
operating revenues.
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
------------ ------------ ------------ -------------
Operating revenues 100.0% 100.0% 100.0% 100.0%
------------ ------------ ------------ -------------
Purchased transportation 44.4 35.8 43.0 37.4
Salaries, wages and benefits 23.5 25.4 23.9 24.8
Fuel 10.0 8.5 10.2 8.0
Operating supplies and expenses 12.5 10.1 11.0 10.3
Lease expense - revenue equipment 4.9 6.0 5.0 6.2
Insurance 2.1 1.3 1.8 1.3
Depreciation and amortization expense 4.0 3.8 4.0 3.7
Restructuring charge (.2) - .3 -
General and administrative expense 3.4 2.9 3.2 2.8
------------ ------------ ------------ -------------
Total expenses 104.6 93.8 102.4 94.5
------------ ------------ ------------ -------------
Operating (loss) income (4.6) 6.2 (2.4) 5.5
Interest expense 2.5 2.0 2.4 1.8
------------ ------------ ------------ -------------
(Loss) income before income taxes (7.1) 4.2 (4.8) 3.7
Income tax (benefit) (.9) (1.5) (1.1) -
------------ ------------ ------------ -------------
Net (loss) income (6.2)% 5.7% (3.7)% 3.7%
============ ============ ============ =============
Results of Operations - Three months ended June 30, 2000 vs. three months ended
- --------------------------------------------------------------------------------
June 30, 1999
- -------------
Operating revenues increased from $75.2 million in 1999 to $132.1 million, or
75.8%, for 2000. The increase is due primarily to the acquisition of five
companies since March 1999. Comparable revenues for the 12 companies acquired
prior to April 1999 (excluding Rainbow Trucking whose operations were absorbed
by Bestway) increased by 11.6% for the three month period ended June 30, 2000
compared to this same period in the prior year. We continue to concentrate our
growth efforts on non-asset based revenue - i.e. owner-operators, brokerage,
agency, and logistics revenue.
Purchased transportation as a percentage of operating revenues increased from
35.8% in 1999 to 44.4% in 2000 due to changes in the fleet mix from company
owned trucks to brokerage and owner-operators.
Salaries, wages, and benefits as a percentage of operating revenues decreased
from 25.4% in 1999 to 23.5% in 2000. The decrease as a percentage of operating
revenues is attributed to the change in revenue mix discussed in the preceding
paragraphs. With the change in fleet mix discussed above we would have
anticipated even lower salaries and wages in the current period compared to the
same period a year ago. However, demand for drivers remains strong resulting in
higher wages paid to drivers. Should these costs continue to increase, there can
be no assurance that they can be passed along to our customers through higher
freight rates.
Fuel as a percentage of operating revenues increased from 8.5% in 1999 to 10.0%
in 2000 due to higher cost per gallon. Should fuel costs continue to increase,
there can be no assurance that these costs can be passed along to our customers.
In the current quarter we recorded an impairment loss of $2.2 million for
equipment segregated from service. This loss is reflected in operating supplies
and expenses. We expect to dispose of this equipment in the third quarter.
Lease expense - revenue equipment, expressed as a percent of operating revenues,
decreased from 6.0% in 1999 to 4.9% in 2000. This decrease is related to higher
revenue levels and the change in fleet mix discussed above.
Insurance expense, expressed as a percent of operating revenues increased from
1.3% in the three months ended June 30, 1999 to 2.1% in 2000 due to higher
premium levels and a slight increase in claims experience.
During the first quarter of 2000, we finalized a plan to consolidate the back
office operations of our operating divisions. In connection with the plan, we
recorded a charge to income of $1.1 million to cover severance from the
termination of 55 employees. In the second quarter several employees eligible
for severance resigned or transferred to other positions in the company. As a
result, this accrual was reduced by $.2 million. We expect the project to be
completed by December 2000 at which time the remaining severance will be paid.
General and administrative expense as a percentage of operating revenues
increased from 2.9% in 1999 to 3.4% in 2000 as a result of incremental costs
incurred in connection with the ongoing consolidation of the back office at the
Groveland Service Center. This increase is expected to last through the
remainder of fiscal 2000 until all duplicative back office functions are
eliminated from field operations.
Interest expense increased from 2.0% of revenues in 1999 to 2.5% in 2000 due to
higher interest rates incurred during our waiver periods and higher borrowing
levels related to our 1999 acquisitions.
We determine our provision for income taxes using our best estimate of the
effective tax rate expected to be applicable for the full fiscal year. In the
quarter ended June 30, 2000, we modified our fiscal 2000 projection which
resulted in a lower effective tax benefit rate. The difference between the
provision for income taxes and the amount that would be expected using the
Federal statutory income tax rate of 34% is related to nondeductible goodwill,
changes in valuation allowances for deferred taxes, amortization expense, the
meal component of per diem expenses paid to drivers, and certain other
non-deductible expenses.
Despite higher revenues, continued cost pressures (fuel, driver wages, general
and administrative expenses, and interest) have severely impacted our operating
results. Additionally, in the current quarter we realized a loss of $2.2 million
on the anticipated disposal of excess equipment. Finally, we have continued to
experience significant negative operating results at certain of the companies
acquired in 1999. As a result, we have realized a pre-tax loss of $9.3 million
in the current three month period compared to income of $3.2 million in the same
period a year ago.
We anticipate that fuel, driver wages and general and administrative expenses
will remain at these relative levels for the remainder of the fiscal year. With
regards to unprofitable divisions acquired in 1999, we have consolidated their
back office operations to the Groveland Service Center, we have identified
excess equipment to be sold in the third quarter and we are modifying their
route structure to enhance profitability.
Results of Operations -Six months ended June 30, 2000 vs. six months ended June
- --------------------------------------------------------------------------------
30, 1999
- --------
Operating revenues increased from $140.0 million in 1999 to $265.3 million, or
89.5%, for 2000. The increase is due primarily to the acquisition of eight
companies from January 1999 through November 1999. Comparable revenues for the
11 companies acquired prior to January 1999 (excluding Rainbow Trucking whose
operations were absorbed by Bestway) increased 9.2% for the six month period
ended June 30, 2000 compared to the same period a year ago. We continue to
concentrate our growth efforts on non-asset based revenue - i.e. owner-operators
brokerage, agency, and logistics revenue. To that extent, revenue from company
equipment has declined from approximately 50% of revenue in the six month period
ended June 30, 1999 to approximately 44% in the current six month period.
Purchased transportation as a percentage of operating revenues increased from
37.4% in 1999 to 43.0% in 2000 due to changes in the fleet mix to brokerage and
owner-operators from company owned trucks.
Salaries, wages, and benefits as a percentage of operating revenues decreased
from 24.8% in 1999 to 23.9% in 2000. The decrease as a percentage of operating
revenues is attributed to the change in revenue mix discussed in the preceding
paragraph. With this change in fleet mix we would have anticipated even lower
salaries and wages in the current period compared to the same period a year ago.
However, demand for drivers remains strong causing higher wages paid to drivers.
Should these costs continue to increase there can be no assurance that they can
be passed along to our customers through higher freight rates.
Fuel as a percentage of operating revenues increased from 8.0% in 1999 to 10.2%
in 2000. Should fuel costs continue to increase, there can be no assurance that
these costs can be passed along to our customers.
In the current quarter we recorded an impairment loss of $2.2 million for
equipment segregated from service. This loss is reflected in operating supplies
and expenses. We expect to dispose of this equipment in the third quarter.
Lease expense - revenue equipment, expressed as a percent of operating revenues,
decreased from 6.2% in 1999 to 5.0% in 2000 due to higher revenue levels and the
change in fleet mix discussed above.
Insurance expense, expressed as a percent of operating revenues increased from
1.3% in the three months ended June 30, 1999 to 1.8% in 2000 due to higher
premium levels and a slight increase in claims experience.
During the first quarter of 2000, we finalized a plan to consolidate the back
office operations of our operating divisions. In connection with the plan, we
recorded a charge to income of $1.1 million to cover severance from the
termination of 55 employees. In the second quarter, several employees eligible
for severance resigned or transferred to other positions in the company. As a
result, this accrual was reduced by $.2 million. We expect the project to be
completed by December 2000 at which time the remaining severance will be paid.
General and administrative expense as a percentage of operating revenues
increased from 2.8% in 1999 to 3.2% in 2000 as a result of incremental costs
incurred in connection with the back office functions at the Groveland Service
Center. This increase is expected to continue through the remainder of fiscal
2000 until all duplicative back office functions in the field are eliminated.
Interest expense increased from $2.5 million in 1999 to $6.5 million, in 2000 as
a result of increased borrowings to fund our 1999 acquisitions and higher
interest costs incurred during our waiver period.
We determine our provision for income taxes using our best estimate of the
effective tax rate expected to be applicable for the full fiscal year. In the
period ended June 30, 2000, we modified our fiscal 2000 projection which
resulted in a lower effective tax benefit rate for the six month period. The
difference between the provision for income taxes and the amount that would be
expected using the Federal statutory income tax rate of 34% is related to
nondeductible goodwill, changes in valuation allowances for deferred taxes,
amortization expense, the meal component of per diem expenses paid to drivers,
and certain other non-deductible expenses.
Despite higher revenues, continued cost pressures (fuel, driver wages, general
and administrative expenses, and interest) have severely impacted our operating
results. Additionally, in the current quarter we realized a loss of $2.2 million
on the anticipated disposal of excess equipment. Finally, we have continued to
experience significant negative operating results at certain of the companies
acquired in 1999. As a result, we have realized a pre-tax loss of $12.7 million
in the current six month period compared to income of $5.1 million in the same
period a year ago.
We anticipate that fuel, driver wages and general and administrative expenses
will remain at these relative levels for the remainder of the fiscal year. With
regards to unprofitable divisions acquired in 1999, we have consolidated their
back office operations to the Groveland Service Center, we have identified
excess equipment to be sold in the third quarter and we are modifying their
route structure to enhance profitability.
Results of Operations - Unaudited Pro Forma results three and six months ended
June 30, 2000 compared with the three and six months ended June 30, 1999
Since July 1997, the Company has acquired 19 truckload carriers. The Company's
strategy is to allow the acquired companies to focus on marketing, customer
service, and operations while administrative and financial functions are
centralized in the Groveland Service Center.
The unaudited pro forma financial information reflects the operations of the 19
acquired companies as if they all had been acquired on January 1, 1999. The
following adjustments were made to the historical financial statements of
acquired companies prior to their acquisition by the Company:
o Reduced depreciation expense due to changes in depreciation policies and
estimated lives; o Reflected amortization of goodwill incurred in connection
with the acquisitions; o Recognized lease expense incurred in connection with
certain sale-lease back transactions; o Reflected interest costs for the cash
portion of the acquisition costs; o Interest costs of the acquired companies
have been adjusted to reflect our financing costs and; o The provision for
income taxes has been calculated using our estimated annual rates.
No projected provision for cost reductions (such as insurance, overhead,
purchasing, and fuel) have been reflected in the historical financial statements
of the subsidiaries from January 1, 1999 through the date of acquisition.
Unaudited Results of Operations - Three months ended June 30, 2000 vs. three months ended June 30, 1999
- -------------------------------------------------------------------------------------------------------
Unaudited Pro Forma Combined Results of Operations
(In thousands except share data)
Three months ended
---------------------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------------------- --------------------------------
$ % $ %
---------------- ------------- ---------------- ------------
Operating revenues $ 132,136 100.0% $ 120,370 100.0%
---------------- ------------- ---------------- ------------
Operating expenses 115,435 87.4 93,877 78.0
Fuel 13,214 10.0 10,327 8.6
Depreciation and amortization 5,293 4.0 6,331 5.2
Restructuring charge (225) (.2) ---- ----
General and administrative expenses 4,510 3.4 2,652 2.2
---------------- ------------- ---------------- ------------
Total operating expenses 138,227 104.6 113,187 94.0
---------------- ------------- ---------------- ------------
Operating (loss) income (6,091) (4.6) 7,183 6.0
Interest expense 3,232 2.5 2,997 2.5
---------------- ------------- ---------------- ------------
(Loss) income before income taxes (9,323) (7.1) 4,186 3.5
Income tax (benefit) (1,195) (.9) 2,450 2.0
---------------- ------------- ---------------- ------------
Net (loss) income (8,128) (6.2)% 1,736 1.5%
============= ============
Preferred stock dividend requirement (563) (296)
---------------- ----------------
(Loss) income available to
common shareholders $ (8,691) $ 1,440
================ ================
(Loss) income per basic common share $ (.27) $ .05
================ ================
(Loss) income per diluted common share $ (.27) $ .04
$ ================ ================
Weighted average number of basic common shares
outstanding 31,848,244 31,855,927
================ ================
Weighted average number of diluted common
shares outstanding 31,848,244 32,900,789
================ ================
Comparable revenues increased by 9.8% in the three month period ended June 30,
2000 compared to the same period in the prior year. Our acquisitions, strength
of the U.S. economy and improvements in load sharing arrangements among the
acquired companies contributed to this improvement.
In the current quarter we recorded an impairment loss of $2.2 million for
equipment segregated from service. This loss is reflected in operating expenses.
We expect to dispose of this equipment in the third quarter.
Fuel costs have increased approximately 28% over prior year levels offsetting
the ongoing revenue shift to non-asset based sources.
Depreciation expense has declined as a result of the change in fleet mix from
company owned equipment to non asset based revenue (owner-operators and
brokerage).
We are currently incurring higher general and administrative costs due the
consolidation of back office functions at the Groveland Service Center.
Duplicative back office functions in our operating companies will be eliminated
by the end of the fiscal year.
We continue to experience significant negative operating results at certain
companies acquired in 1999. We are in the process of disposing of underutilized
equipment at these divisions, consolidating their back office functions at the
Groveland Service Center, and modifying their respective route structures to
enhance profitability.
As a result of the factors discussed above our pro-forma results for the three
months ended June 30 declined from pretax income of $4.2 million in 1999 to a
loss of $9.3 million in 2000.
Unaudited Results of Operations -Six months ended June 30, 2000 vs. six months ended June 30, 1999
- --------------------------------------------------------------------------------------------------
Unaudited Pro Forma Combined Results of Operations
(In thousands except share data)
Six months ended
---------------------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------------------- --------------------------------
$ % $ %
---------------- ------------- ---------------- ------------
Operating revenues $ 265,341 100.0% $ 241,373 100.0%
--------------- ------------- ---------------- ------------
Operating expenses 224,698 84.7 189,272 78.4
Fuel 26,969 10.2 20,406 8.5
Depreciation and amortization 10,621 4.0 11,675 4.8
Restructuring charge 854 .3 ---- ----
General and administrative expenses 8,466 3.2 5,975 2.5
---------------- ------------- ---------------- ------------
Total operating expenses 271,608 102.4 227,328 94.2
---------------- ------------- ---------------- ------------
Operating (loss) income (6,267) (2.4) 14,045 5.8
Interest expense 6,477 2.4 5,754 2.4
---------------- ------------- ---------------- ------------
(Loss) income before income taxes (12,744) (4.8) 8,291 3.4
Income tax (benefit) (2,945) (1.1) 4,461 1.8
---------------- ------------- ---------------- ------------
Net income (9,799) (3.7)% 3,830 1.6%
============= ============
Preferred stock dividend requirement (1,125) (296)
---------------- ----------------
(Loss) income available to
common requirement $ (10,924) $ 3,534
================ ================
(Loss) income per basic common share $ (.34) $ .11
================ ================
(Loss) income per diluted common share $ (.34) $ .11
================ ================
Weighted average number of basic common
shares outstanding 31,847,840 31,852,116
================ ================
Weighted average number of diluted
common shares outstanding 31,847,840 32,762,323
================ ================
Comparable revenues increased by 9.9% in the six month period ended June 30,
2000 compared to the same period in the prior year. Our acquisitions, strength
of the U.S. economy and improvements in load sharing arrangements among the
acquired companies contributed to this improvement.
In the current quarter we recorded an impairment loss of $2.2 million for
equipment segregated from service. This loss is reflected in operating expenses.
We expect to dispose of this equipment in the third quarter.
Fuel costs have increased approximately 32% over prior year levels offsetting
the ongoing revenue shift to non-asset based sources.
We continue to experience significant negative operating results at certain
companies acquired in 1999. We are in the process of disposing of underutilized
equipment at these divisions, consolidating their back office functions at the
Groveland Service Center, and modifying their respective route structures to
enhance profitability.
As a result of the factors discussed above our pro-forma results for the six
months ended June 30 declined from pretax income of $8.3 in 1999 to a loss of
$12.7 million in 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
TRANSIT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
On April 20, 2000, Land Transportation, LLC, one of our subsidiaries, filed an
action in the Superior Court of Cobb County, Georgia (Civil Action File No.
00-1-03130-28) against ROCOR International and R.M. Services, LLC. This case was
removed on May 31, 2000 to the U.S. District Court for the Northern District of
Georgia, Atlanta Division (Case Number 1:00CV1368). Land Transportation filed
this complaint alleging breach of contract, conversion and unjust enrichment for
breach of the terms of two asset purchase agreements between the parties. Land
Transportation is seeking damages in excess of $1 million.
On June 2, 2000, R.M. Services, LLC, one of the defendants in the above action
filed a complaint against Land Transportation, LLC and Transit Group, Inc. in
the District Court of Oklahoma County, State of Oklahoma (Case No.
CJ-2000-4060). The case was removed on June 26, 2000 to the U.S. District Court
for the Western District of Oklahoma (Case No. Civ-00-1126-R). R.M. Services is
seeking damages from Land Transportation and Transit Group for breach of
contract based on Land Transportation's alleged failure to pay two promissory
notes in connection with two asset purchase agreements and Transit Group's
alleged failure as guarantor to pay the obligations under the promissory notes
of approximately $750,000. Land Transportation withheld the payment due under
the note to R.M. Services due to the claims asserted by Land Transportation in
connection with its pending action against R.M. Services and ROCOR
International.
Item 2. Changes in Securities and Use of Proceeds
Due to working capital restrictions under our revolving credit facility we did
not make the June 30, 2000 preferred stock dividend payment in the amount of
$563,000.
Item 3. Defaults on Senior Securities
In 1999, we entered into a $150 million credit facility, which replaced our $35
million revolving credit and term facility. The facility contains customary
financial covenants that include limitations on dividends, indebtedness,
mergers, sale of assets, and the repurchase of common stock. Requirements exist
to maintain minimum levels of coverage for a Fixed Charge Coverage Ratio, Asset
Coverage Ratio, and a Minimum Consolidated Net Worth (all defined). We have not
been in compliance with certain of the covenants since December 31, 1999.
We have received a series of waivers to allow the participant banks time to
consider an amendment to the facility at the expiration of the waiver period,
currently September 15, 2000. In consideration of these waivers, the unused
commitment under the acquisition facility has been cancelled, the maximum
borrowings under the revolving credit facility are capped at the lesser of the
borrowing base or $95.9 million, and we incurred fees of $.6 million. The waiver
contains various conditions including that we cure certain collateral
deficiencies during the current 30 day waiver period. We are continuing
negotiations with the bank group to amend the revolving credit facility.
However, there is no assurance, that we can amend the facility, refinance the
facility or that we can fulfill the collateral requirements under the current
waiver. In accordance with the technical requirements of Generally Accepted
Accounting Principles this debt has been classified as a current liability.
In May 1999, we issued five million shares of 9% Redeemable Preferred Stock for
$5.00 per share. Each Redeemable Preferred Stock may be converted at any time,
at the option of the preferred shareholder, for one share of our common stock.
The Redeemable Preferred Stock agreement contains certain anti-dilutive
provisions which would require the issuance of additional Redeemable Preferred
Shares if we issue any of our common stock at less than $5.00 per share.
Beginning three years from the date of issuance of the Redeemable Preferred
Shares (and for the succeeding two years), the preferred shareholders can cause
us to purchase up to 33% per year of the outstanding Redeemable Preferred Stock
for $5.00 per share. In addition, certain conditions such as a change in
ownership can accelerate the redemption requirement.
We are required to provide financial information and maintain certain financial
conditions. The conditions involve limitations on mergers, acquisitions, asset
sales and additional indebtedness. Due to restrictions under our revolving
credit facility we did not make the June 30, 2000 preferred stock dividend
payment in the amount of $563,000. Should this event of default remain, the
holders of the Preferred Stock will have the right to elect two members to our
Board of Directors.
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals were submitted to our shareholders at our annual
shareholders meeting on May 18, 2000.
1. The proposal to elect T. Wayne Davis, Philip A. Belyew, Derek E. Dewan,
Carroll L. Fulmer, Robert R. Hermann, Jr., and Ford G. Pearson as Directors
to serve until the 2001 annual shareholders' meeting. For T. Wayne Davis,
Derek E. Dewan, Robert R. Hermann, and Ford G. Pearson this proposal was
approved with 33,582,853 shares or 99% voting for the proposal, and 336,849
shares or .01% withholding authority. For Carroll L. Fulmer this proposal
was approved with 31,643,442 shares or 94.4% voting for the proposal, and
1,879,360 shares or 5.6% withholding authority. For Philip A. Belyew this
proposal was approved with 31,582,853 shares or 94.2% voting for the
proposal and 1,939,949 shares or 5.8% withholding authority.
2. The proposal to ratify the selection of PricewaterhouseCoopers LLP as our
independent public accountants for the year ending December 31, 2000. This
proposal was approved with 31,523,894 shares or 94.0% voting for the
proposal, 1,544,666 shares or 4.6% voting against the proposal and 454,297
or 1.4% abstaining from the proposal.
Item 5. Other Information
On July 17, 2000, we received a letter from The Nasdaq Stock Market notifying us
that our common stock had failed to maintain the minimum bid price as required
for continued listing on The Nasdaq Small Cap Market. We have until October 16,
2000 to regain compliance with the Nasdaq minimum bid price rules. If we are
unable to demonstrate compliance with the Nasdaq minimum bid price rules on or
before October 16, 2000, our common stock will be delisted at the opening of
business on October 18, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Credit Facility Waiver
11.1 Statement regarding computation of earnings per share.
27.1 Financial Data Schedule.
(b) The Company filed no Current Reports on Form 8-K during the second quarter
of 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Transit Group, Inc.
Date: August 14, 2000 By: /s/N. Mark DiLuzio
-------------------
N. Mark DiLuzio
Senior Vice President,
and Interim Chief
Financial Officer