U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period ended to
Commission File Number: 000-18601
TRANSIT GROUP, INC.
(Exact name of small business issuer 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)
(770) 444-0240
(Issuer's telephone number)
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 23,615,104 shares of the Company's common
stock outstanding as of November 9, 1998. Transitional Small Business
Disclosure Format (Check One) Yes No X
TRANSIT GROUP, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1
Financial Statements
Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 2
Consolidated Statements of Operations for the three
and nine months ended September 30, 1998 and 1997 3
Consolidated Statement of Changes in Total Non Redeemable
Preferred Stock, Common Stock and other Shareholders' Equity 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2
Management's Discussion and Analysis or Plan of Operation 8
PART II. OTHER INFORMATION
Item 1
Legal Proceedings 11
Item 6
Exhibits and Reports on Form 8-K 11
TRANSIT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
---------------- ----------------
(Unaudited)
Current assets:
Cash $ 1,198,994 $ 789,791
Accounts receivable (net of allowance of $721,240 and $173,000) 26,011,725 11,314,417
Other current assets 3,614,661 1,429,181
---------------- ----------------
Total current assets 30,825,380 13,533,389
---------------- ----------------
Noncurrent assets:
Equipment, at net book value 52,917,616 30,045,866
Goodwill 45,189,752 30,706,028
Other assets 2,418,227 769,522
---------------- ----------------
Total noncurrent assets 100,525,595 61,521,416
---------------- ----------------
Total assets $ 131,350,975 $ 75,054,805
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 16,146,017 $ 8,176,975
Accounts payable and accrued expenses 17,331,014 9,551,527
Current portion of deferred taxes 466,462 582,548
Net current liabilities of discontinued operations 365,207 565,886
---------------- ----------------
Total current liabilities 34,308,700 18,876,936
---------------- ----------------
Noncurrent liabilities:
Long-term debt and capital lease obligations 42,233,410 23,651,763
Note payable to affiliate of Chairman 3,000,000 4,000,000
Other noncurrent liabilities 3,855,821 -----
Deferred taxes 3,909,746 2,357,425
---------------- ----------------
Total noncurrent liabilities 52,998,977 30,009,188
---------------- ----------------
Total liabilities 87,307,677 48,886,124
---------------- ----------------
Commitments and contingencies
Redeemable common stock 5,675,400 7,452,007
---------------- ----------------
Non redeemable preferred stock, common stock
and other shareholders' equity:
Preferred stock, $.01 par value, 800,000 shares authorized ----- -----
Common Stock, $.01 par value, 30,000,000 shares
authorized, 23,615,104 and 20,574,626 shares issued and outstanding 221,110 185,770
Additional paid-in capital 67,493,765 50,650,534
Notes receivable secured by stock (1,129,383) (675,000)
Accumulated deficit (28,217,594) (31,444,630)
---------------- ----------------
Total non redeemable preferred stock, common stock
and other shareholders' equity 38,367,898 18,716,674
---------------- ----------------
Total liabilities and shareholders' equity $ 131,350,975 $ 75,054,805
================ ================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
------------------------------------- -------------------------------------
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
Revenues and other income:
Freight and transportation revenue $ 54,788,081 $ 10,859,233 $ 115,028,425 $ 10,859,233
Other income 1,137,077 ----- 2,735,424 -----
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Total revenues and other income 55,925,158 10,859,233 117,763,849 10,859,233
----------------- ----------------- ----------------- -----------------
Operating expenses:
Purchased transportation 22,757,085 4,142,025 51,416,753 4,142,025
Salaries, wages and benefits 13,129,315 2,547,342 26,709,115 2,547,342
Fuel 4,206,896 1,062,043 8,798,319 1,062,043
Operating supplies and expenses 7,617,796 1,137,956 12,811,587 1,137,956
Insurance 1,124,969 261,500 2,295,497 261,500
Depreciation and amortization expense 2,369,259 816,188 5,361,344 816,188
General and administrative expense 1,832,973 422,922 3,598,348 690,988
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Total operating expenses 53,038,293 10,389,976 110,990,963 10,658,042
----------------- ----------------- ----------------- -----------------
Operating income 2,886,865 469,257 6,772,886 201,191
Interest expense 1,622,763 414,269 3,293,897 414,269
----------------- ----------------- ----------------- -----------------
Continuing operations:
Income (loss) from continuing operations
before income taxes 1,264,102 54,988 3,478,989 (213,078)
Income taxes attributable to continuing
operations 42,944 42,830 251,953 42,830
----------------- ----------------- ----------------- -----------------
Income (loss) from continuing operations 1,221,158 12,158 3,227,036 (255,908)
Discontinued operations:
Loss from discontinued operations ----- ----- ----- (6,114,408)
Loss on disposal including provision for
operating losses through disposal date ----- ----- ----- (7,455,966)
----------------- ----------------- ----------------- -----------------
Net income (loss) 1,221,158 12,158 3,227,036 (13,826,282)
Preferred stock dividend requirement ----- ----- ----- (385,000)
----------------- ----------------- ----------------- -----------------
Income (loss) to common shareholders $ 1,221,158 $ 12,158 $ 3,227,036 $ (14,211,282)
================= ================= ================= =================
Income (loss) per basic common share
Continuing operations $ 0.05 $ 0.00 $ 0.15 $ (0.08)
Loss from discontinued operations 0.00 0.00 0.00 (1.61)
----------------- ----------------- ----------------- -----------------
Net income (loss) per basic
common share $ 0.05 $ 0.00 $ 0.15 $ (1.69)
================= ================= ================= =================
Income (loss) per diluted common share
Continuing operations $ 0.05 $ 0.00 $ 0.14 $ (0.08)
Loss from discontinued operations 0.00 0.00 0.00 (1.61)
----------------- ----------------- ----------------- -----------------
Net income (loss) per diluted
common share $ 0.05 $ 0.00 $ 0.14 $ (1.69)
================= ================= ================= =================
Weighted average number of common shares
outstanding - basic 23,363,430 15,337,933 21,980,326 8,421,113
================= ================= ================= =================
Weighted average number of common shares
outstanding - diluted 24,545,902 17,037,417 23,300,019 8,421,113
================= ================= ================= =================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN TOTAL
NON REDEEMABLE PREFERRED STOCK, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY
Total
Common Additional Note receivable Accumulated shareholders'
stock paid-in capital secured by stock deficit equity
--------------- --------------- --------------- -------------- ---------------
Balance at December 31, 1997 $ 185,770 $ 50,650,534 $ (675,000) $ (31,444,630) $ 18,716,674
Stock issued for acquisitions 30,359 14,990,724 ----- ----- 15,021,083
Stock no longer subject
to redemption 4,935 1,771,665 ----- ----- 1,776,600
Exercise of stock options 254 155,634 ----- ----- 155,888
Accrued interest ----- ----- (54,383) ----- (54,383)
Note secured by stock ----- ----- (400,000) ----- (400,000)
Retirement of stock (208) (74,792) ----- ----- (75,000)
Net income ----- ----- ----- 3,227,036 3,227,036
=============== =============== =============== =============== ===============
Balance at September 30, 1998 $ 221,110 $ 67,493,765 $ (1,129,383) $ (28,217,594) $ 38,367,898
=============== =============== =============== =============== ===============
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
---------------------------------------
1998 1997
---------------- ----------------
Cash flows from operating activities:
Income (loss) from continuing operations $ 3,227,036 $ (255,908)
---------------- ----------------
Adjustments to reconcile income (loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 5,361,344 816,188
Gain on sale of equipment (264,655) -----
Changes in assets and liabilities
Decrease (increase) in accounts receivable 214,340 633,883
Decrease (increase) in other assets (108,940) (316,069)
Decrease in accounts payable and accrued expenses (2,638,935) (263,329)
Other 550,751 142,184
---------------- ----------------
Total adjustments 3,113,905 1,012,857
---------------- ----------------
Net cash provided by continuing operations 6,340,941 756,949
Net cash used by discontinued operations (200,679) (3,020,194)
---------------- ----------------
Net cash provided by (used by) operating activities 6,140,262 (2,263,245)
---------------- ----------------
Cash flows from investing activities:
Business combinations, net of cash acquired (4,470,212) (3,897,691)
Proceeds from disposal of equipment 3,725,434 220,043
Purchase of equipment (4,826,828) (232,337)
---------------- ----------------
Net cash used by investing activities (5,571,606) (3,909,985)
---------------- ----------------
Cash flows from financing activities:
Repayment of capital lease obligations and long-term debt (15,083,926) (2,727,101)
Increase in borrowings 14,963,585 4,999,356
Exercise of stock options 35,888 -----
Retirement of stock (75,000) -----
Proceeds from issuance of common stock ----- 6,075,014
Dividends paid on preferred stock ----- (666,750)
Decrease in bank overdraft ----- (679,383)
---------------- ----------------
Net cash (used by) provided by financing activities (159,453) 7,001,136
---------------- ----------------
Increase in cash 409,203 827,906
Cash, beginning of period 789,791 6,455
---------------- ----------------
Cash, end of period $ 1,198,994 $ 834,361
================ ================
Supplemental cash flow data:
Cash paid for interest $ 3,642,613 $ 861,183
================ ================
Business combinations:
Fair value of assets acquired $ 56,638,333 $ 74,168,000
Fair value of liabilities assumed (36,097,250) (49,838,000)
Common stock issued (15,021,083) (20,630,000)
---------------- ----------------
Net cash payments $ 5,520,000 $ 3,700,000
================ ================
See accompanying notes to consolidated financial statements.
TRANSIT GROUP, INC.
Notes to Consolidated Financial Statements
The information presented herein as of September 30, 1998, and for the three
and nine month periods ended September 30, 1998 and 1997 is unaudited. The
December 31, 1997 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
1. Basis of Presentation
The consolidated balance sheet of Transit Group, Inc. ("Transit Group" or the
"Company") as of September 30, 1998, its consolidated statements of operations,
for the three and nine month periods ended September 30, 1998 and 1997 and its
consolidated statements of cash flows for the nine month period ended September
30, 1997 reflect the disposal of the parcel delivery and courier operations and
the acquisition of eleven truckload carriers.
These financial statements include the consolidated balance sheets of the
Company and it's eleven acquired subsidiaries, Carolina Pacific Distributors,
Inc. ("Carolina Pacific"), Capitol Warehouse, Inc. ("Capitol Warehouse"),
Service Express, Inc. ("Service Express"), Carroll Fulmer Group, Inc. ("Carroll
Fulmer"), Rainbow Trucking, Inc. ("Rainbow"), Transportation Resource
Management, Inc. ("TRM"), Certified Transport, Inc. ("Certified"), KJ
Transportation, Inc. ("KJ"), Network Transport, Inc. ("Network"), Diversified
Trucking Corporation ("Diversified"), and Northstar Transportation, Inc.
("Northstar") at September 30, 1998 and the results of operations and cash flows
for the periods since acquisition. The companies were acquired on the following
dates:
Company Date Acquired
--------------------- --------------------
Carolina Pacific July 12, 1997
Capitol Warehouse August 16, 1997
Service Express August 16, 1997
Carroll Fulmer August 30, 1997
Rainbow December 30, 1997
TRM January 31, 1998
Certified May 5, 1998
KJ June 17, 1998
Network July 13, 1998
Diversified August 5, 1998
Northstar August 11, 1998
The Company's consolidated statement of operations for the three and nine month
periods ended September 30, 1997 and it's consolidated statement of cash flows
for the nine month period ended September 30, 1997 have been restated to
reflect the disposal of the Company's parcel delivery and courier operations.
2. Summary of Significant Accounting Policies
Management's Representation
The accompanying interim consolidated financial statements have been prepared
by the Company in accordance and consistent with the accounting policies stated
in the Company's 1997 Annual Report on Form 10-KSB and should be read in
conjunction with the consolidated financial statements appearing therein. In
the opinion of management, all adjustments necessary for a fair presentation of
such consolidated financial statements are reflected in the interim periods
presented. The consolidated financial statements for the three and nine month
periods ended September 30, 1997 have been restated in accordance with APB No.
30 to reflect the Company's decision to dispose of the courier and package
delivery operations. 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-QSB and do not contain certain information included in the annual
consolidated financial statements and notes of Transit Group.
3. Business Combinations
The Company acquired five truckload carriers in 1997, one company in the first
quarter of 1998, two companies in the second quarter of 1998 and three companies
in the third quarter of 1998. On January 30, 1998 the Company acquired Fort
Wayne, Indiana based TRM in exchange for $200,000 in cash and 365,957 shares of
Transit Group common stock. On May 5, 1998 the Company acquired all of the
outstanding shares of Certified, a dry van carrier and its logistics affiliate
Venture Logistics, Inc., based in Indianapolis, Indiana. In connection with this
acquisition the Company paid $800,000 in cash and issued 1,072,165 of its common
shares. On June 16, 1998 the Company acquired all of the outstanding shares of
KJ (a truckload carrier based in Rochester, New York) in exchange for $3.5
million in cash and 878,688 shares of the Company's common stock. On July 13,
1998 the Company acquired Network of Toronto, Canada for $250,000 in cash and
191,491 shares of Transit Group common stock. On August 5, 1998 the Company
acquired all of the outstanding shares of Diversified (based in Opelika,
Alabama) in exchange for 178,519 of its common shares and a cash payment of
$70,000. On August 11, 1998 the Company acquired Dothan, Alabama based Northstar
in exchange for 349,091 of its common shares. In October 1998 the Company
announced that it had signed a letter of intent to acquire a privately held
truckload carrier in Mississippi.
The Company accounts for its acquisitions under the purchase method of
accounting. Accordingly, the operating results of the acquired companies are
included in the Company's consolidated financial statements from their
respective dates of acquisition. The purchase price is preliminarily allocated
to the assets acquired and liabilities assumed based on their estimated fair
market value at the date of acquisition. The purchase price of the respective
companies exceeds the fair value of net assets by approximately $46.1 million,
which is being amortized on a straight-line basis over 40 years. In connection
with these acquisitions, the company also accrued $4.2 million for the
consolidation and elimination of redundant administrative functions. The accrual
is intended to cover severance costs of employees terminated in conjunction with
the plan. The amount charged to the accrual through September 30, 1998 is not
considered significant. The following unaudited pro forma consolidated results
of operations of the Company for the three and nine month periods ended
September 30, 1998 and 1997 account for the Company's five 1997 acquisitions,
the six acquisitions in 1998, the acquisition which is to take place in the
fourth quarter, and the disposal of the Company's parcel delivery and courier
operations as if they had occurred on January 1, 1998 and 1997, respectively.
The pro forma results give effect to the amortization of goodwill, the effects
of additional interest expense and certain other adjustments.
Unaudited Pro Forma Combined Results of Operations
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 63,277,000 $ 62,639,000 $ 197,097,000 $ 194,173,000
=============== ============== =============== ===============
Income from continuing
operations available to $ 1,588,000 $ 817,000 $ 6,175,000 $ 3,224,000
common shareholders
=============== ============== =============== ===============
Income per basic common share $ .06 $ .03 $ .25 $ .17
=============== ============== =============== ===============
Income per diluted common share $ .06 $ .03 $ .24 $ .15
=============== ============== =============== ===============
Weighted average number of basic
common shares outstanding 24,748,473 23,605,288 24,570,745 19,189,305
=============== ============== =============== ===============
Weighted average number of diluted
common shares outstanding 25,930,945 25,304,722 25,890,438 20,888,739
=============== ============== =============== ===============
The above pro forma statements do not necessarily purport to be indicative of
the results of operations which would have occurred had the acquisitions been
made on January 1, 1998 or 1997, nor are they indicative of future results.
4. Income Taxes
At September 30, 1998, the Company has approximately $26.6 million of net
operating loss carryforwards potentially available to offset taxable income
which expire during the years 2000 to 2012. The Company has not given
recognition to tax benefits of net operating loss carryforwards in the
financial statements, except for those net operating loss carryforwards which
can be offset against current income, because management believes the Company's
history of operating losses diminishes the Company's immediate ability to
demonstrate that more likely than not, the future benefits will be realized.
Accordingly, the Company has provided a valuation allowance of $12.2 million
against those net operating loss carryforwards. Additionally, these net
operating loss carryforwards are subject to limitation in any given year in the
event of significant changes in ownership as set forth in the Internal Revenue
Code and related Treasury Regulations.
The difference between the provision for income taxes attributable to
continuing operations and the amount that would be expected using the Federal
statutory income tax of 34% is related to the reduction in the valuation
allowance due to the generation of taxable income in the current period as well
as certain nondeductible expenses.
5. Commitments and Contingencies
On February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse. The lawsuit against Capitol Warehouse is pending in
the U.S. District Court of the Western District of Pennsylvania (C.A. No.
97-45J) and is a personal injury action in connection with an accident
involving one of Capitol Warehouse's trucks. The parties have reached and
executed a settlement agreement which resulted in no liability to Transit
Group.
TRANSIT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or
Plan of Operation
The following discussion should be read in conjunction with the consolidated
financial statements, including the footnotes, and is qualified in its entirety
by the foregoing and other more detailed financial information appearing
elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the consolidated statements of
operations, and any trends which may appear to be inferable therefrom, should
not be taken as being necessarily indicative of trends in operations or results
of operations for any future periods.
Comments in this Management's Discussion and Analysis or Plan of Operation
regarding the Company's business which are not historical facts are forward
looking statements that involve risks and uncertainties. Among these risks are
the Company is in a highly competitive business, has a history of operating
losses, and is pursuing a growth strategy that relies in part on the completion
of acquisitions of companies in the trucking industry. There can be no
assurance that in its highly competitive business environment, the Company will
successfully improve its operating profitability or consummate such
acquisitions.
In July 1997 the Company was reorganized into an Atlanta, Georgia based
"holding company". This new corporate structure is intended to increase the
Company's flexibility to pursue the acquisition and operation of profitable
truckload motor carriers. The Company's intent is to continue to identify and
acquire mid-size trucking companies, primarily with annual revenues between $5
million and $100 million, and that possess strong market positions, sound
management and a commitment to a high level of service and quality. The Company
has completed the acquisition of 11 companies as of September 30, 1998.
The following discussion and analysis reflect the Company's financial position,
results of operations and cash flows as restated to reflect the disposal of the
parcel delivery and courier operations in accordance with APB No. 30.
Liquidity and Capital Resources
- -------------------------------
The Company has incurred substantial operating losses and cash flow deficits
since inception. From September 1985 through September 30, 1998, the Company
had accumulated a deficit from operating losses of $26.9 million and has paid
dividends on its preferred stock of approximately $1.3 million. As of September
30, 1998, the Company had raised $72.3 million, net of notes receivable secured
by stock in the amount of $1.1 million, from (i) private placements of
preferred stock (which has been converted to common stock), (ii) its initial
public offering of November 2, 1989, (iii) the sale of restricted and
unrestricted common shares and (iv) stock issued in connection with the
acquisition of the 11 truckload carriers. As a result of equity placements,
dividends on preferred stock and cumulative losses, shareholders' equity as of
September 30, 1998, was $38.4 million, and common stock issued subject to put
arrangements was $5.7 million.
In July 1997, an affiliate of the Company's Chairman loaned the Company $4
million to consummate the acquisition of Carolina Pacific Distributors, Inc.
During August, September and October of 1997, the affiliate loaned the Company
an additional $2.6 million to fund the continuing operations of the parcel
delivery and courier operations and fund certain expenses associated with the
acquisition of the truckload companies. Of the $6.6 million borrowed, $2.6
million was assumed by the purchaser of the parcel delivery and courier
operations, leaving a balance of $4 million at September 30, 1998. The loan
amortizes at a rate of $1.0 million per year commencing April 1999.
Accordingly, $1.0 million of this loan is included in the balance sheet under
the heading current portion of long-term debt and capital leases.
In November 1998 the Company increased the capacity of its revolving line of
credit from $20 million to $30 million. The facility bears interest at a rate of
2.25% over LIBOR and is secured by accounts receivable. The loan matures on
April 1, 2000 at which time it may be converted to a term facility with final
maturity on April 1, 2001. The revolving credit facility contains covenants
which require, among other things, net worth, leverage, and interest coverage
ratios within specified levels and contain other provisions and covenants
customary in lending transactions of these types. At September 30, 1998
$4,400,000 was available under the credit facility.
Concurrent with expanding its credit facility, the Company converted $5 million
of debt, which was due in 1999, to a term facility which amortizes over seven
years and has a final maturity in January 2002. The loan bears interest at the
rate of 2.50% over LIBOR and is cross-collateralized with the $30 million
facility discussed above.
Also in November 1998, the Company entered into a $50 million equipment lease
facility with a commercial lender. The Company plans to use $20-$25 million of
the facility to restructure the financing of certain existing equipment and use
the remainder to support future equipment purchases. The terms of the leases
will vary from 30-48 months, for used equipment, and up to 60 months for new
equipment. Initial fundings under the facility will bear interest at rates
between 5.50% and 6.00%. Interest rates on future fundings will be subject to
changes to the 3-year U.S. Treasury interest rates. At the expiration of the
lease, the Company may renew the lease, return the equipment subject to the
payment of a Terminal Rate Adjustment Clause or purchase the equipment.
The Company believes that the amounts available from operating cash flows,
funds available under its new credit facility with AmSouth and planned
borrowings will be sufficient to meet the Company's expected operating needs
and planned capital expenditures for the foreseeable future.
Redemption Rights for Selling Shareholders in Acquisitions
- ----------------------------------------------------------
In connection with the acquisitions of Capitol Warehouse, Service Express, and
Carroll Fulmer, the Company granted the selling shareholders the right to
require the Company to redeem a portion of the shares which they received in
exchange for selling their businesses to the Company. The dollar amount of
stock subject to mandatory redemption by the Company aggregated approximately
$8.1 million upon acquisition of those companies.
At September 30, 1998, holders of redemption rights with respect to $3.7
million of stock may require either the Company to redeem the stock or a major
shareholder of the Company to acquire the stock at a price of $3.60 per share.
Holders of redemption rights with respect to $1.7 million of stock at $3.875
per share and $0.3 million at $6.75 per share have the right to require the
Company to redeem their shares and are guaranteed by a major shareholder. Of
this amount $0.3 million was purchased by third parties in the third quarter.
To the extent such redemption rights are exercised, the Company will be
required to fund the cash required to meet its obligations under the redemption
rights by drawing on bank lines which may be available to its subsidiaries, or
to call upon a major shareholder to purchase the stock under such shareholder's
obligations and guarantees associated with the acquisition contracts.
Demand Notice
- -------------
In connection with its acquisitions, the Company routinely requests waivers
and/or approvals from commercial lenders in regards to change of control
covenants included in subsidiary loan documents. Subsequent to the acquisition
of KJ Transportation, Transamerica Business Credit Corporation notified the
Company that it did not consent to the sale of KJ Transportation to the Company
and further, demanded payment in full on approximately eleven Notes aggregating
$6.6 million. The Company refinanced these loans under its new credit facility
discussed above and is not in default under its new credit facility.
Financial Condition
- -------------------
As of June 30, 1997, the Company treated its parcel delivery and courier
business as discontinued operations. The Company's outstanding vehicle and
equipment indebtedness, $2.6 million of indebtedness to an affiliate of the
Company's Chairman, and certain operating leases were assumed by the companies
purchasing the operations. The Company remains contingently liable on certain
leases.
Results of Operations - Three and nine months ended September 30, 1998
- ---------------------------------------------------------------------
The following table sets forth items in the Consolidated Statement of
Operations for the three and nine months ended September 30, 1998 and 1997 as a
percentage of operating revenue.
Percentage of Operating Revenues
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues and other income 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- -----------
Operating expenses:
Purchased transportation 40.7 38.1 43.7 38.1
Salaries, wages and benefits 23.5 23.5 22.7 23.4
Fuel 7.5 9.8 7.5 9.8
Operating supplies and expenses 13.6 10.5 10.9 10.5
Insurance 2.0 2.4 1.9 2.4
Depreciation and amortization expense 4.2 7.5 4.6 7.5
General and administrative expense 3.3 3.9 3.0 6.4
----------- ----------- ----------- -----------
Total operating expenses 94.8 95.7 94.3 98.1
----------- ----------- ----------- -----------
Operating income 5.1 4.3 5.7 1.9
Interest expense 2.9 3.8 2.8 (3.8)
----------- ----------- ----------- -----------
Income from continuing
operations
before income taxes 2.3 0.5 2.9 (1.9)
Income taxes attributable to continuing
Operations 0.1 0.4 0.2 (0.4)
----------- ------------ ----------- -----------
Income from continuing operations 2.2% 0.1% 2.7% (2.3)%
=========== ============ =========== ===========
The Company discontinued its parcel delivery and courier business effective
June 30, 1997. Accordingly, the Company had no revenues from continuing
operations until July 11, 1997 with the purchase of Carolina Pacific.
Because substantially all of the acquisitions took place subsequent to
September 30, 1997 the above tables are not comparative. (Certain items have
been reclassified to conform to the current format)
The Company is continuing the process of implementing its centralization policy
on a regional basis, which will result in two to three primary operating
regions - the Southeast Region, the Northeast Region, and the Midwest Region.
This organization will facilitate the growth and management of the Company and
is expected to continue to identify operating efficiencies and opportunities
including:
Increased backhaul revenue
Purchasing efficiencies in the areas of equipment, tires and maintenance costs
Reduction of deadhead miles
Revenues attributable to the discontinued businesses were $14.7 million for the
nine months ended September 30, 1997.
Year 2000
- ---------
The Company operates two primary software applications: its accounting and
financial reporting systems and its integrated dispatch and billing systems.
The accounting and financial reporting systems were acquired from a third party
vendor and were represented to be compliant with Year 2000 issues at
acquisition in 1996. The vendors of the Company's integrated dispatch and
billing systems have advised the Company that all Year 2000 software
modifications will be completed by the first quarter of 1999. The cost of these
modifications will be covered by the Company's existing software maintenance
agreements.
Although the Company does not believe that it will incur any material costs or
experience material disruptions in its business associated with preparing its
internal systems for the Year 2000, there can be no assurances that the Company
will not experience unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
systems. The Company is currently unable to estimate the most reasonably likely
worst-case effects of the Year 2000 and does not currently have a contingency
plan in place for any such unanticipated negative effects. The Company intends
to analyze the worst-case scenarios and the need for such contingency planning
once the measures described above have been completed and testing of the
Company's systems for Year 2000 compliance has begun.
The Company is currently unable to estimate whether it is exposed to
significant risk of being adversely affected by Year 2000 noncompliance by
third parties. During the third quarter of 1998, the Company began contacting
third parties with which it has material relationships, including its material
customers, to determine their preparedness with respect to Year 2000 issues and
to analyze the risks to the Company in the event any such third parties
experience significant business interruptions as result of Year 2000
noncompliance. The Company expects to complete this review and analysis and to
determine the need for contingency planning in this regard by March 31, 1999.
TRANSIT GROUP, INC.
Part II - Other Information
Item 1 - Legal Proceedings
The Company acquired Capitol Warehouse, Inc. in August, 1997 and Capitol
Warehouse, Inc. is currently a wholly-owned subsidiary of the Company. On
February 20, 1997, Mark Iannello, an individual plaintiff, filed a Complaint
against Capitol Warehouse, Inc. The lawsuit against Capitol Warehouse, Inc. is
pending in the U.S. District Court of the Western District of Pennsylvania (C.A.
No. 97-45J) and is a personal injury action in connection with an accident
involving one of Capitol Warehouse, Inc.'s trucks. The parties have reached and
executed a settlement agreement which resulted in no liability to Transit Group.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
11.1 Statement Regarding Computation of Earnings per Share.
27.1 Financial Data Schedules
(b) The Company filed the following Current Reports on Form 8-K during
the third quarter of 1998:
(i) A Current Report on Form 8-K/A dated August 27, 1998, filed
on August 31, 1998 reporting the financial information
regarding the acquisition of KJ Transportation Inc. and J&L
Leasing Inc.
(ii) A Current Report on Form 8-K dated July 10, 1998, filed on
July 31, 1998 reporting the Company's sale of its common
stock pursuant to Regualtion S contained under the Securities
Act of 1933.
(iii) A Current Report on Form 8-K/A dated July 17, 1998, filed on
July 20, 1998 reporting the financial information regarding
the acquisition of certified Transport, Inc. and Venture
Logistics, Inc.
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: November 13, 1998
By: /s/Wayne N. Nellums
Wayne N. Nellums
Vice President,
Chief Financial Officer
and Secretary