UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934 Fee Required)
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ___________to_____________
Commission file number 0-23210
TRISM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3491658
(State or other jurisdiction of incorporation ororganization)
(I.R.S. Employer Identification No.)
4174 Jiles Road, Kennesaw, Georgia 30144
(Address of principal executive offices) (Zip Code)
(770) 795-4600
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
________________ _________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non affiliates of
the registrant, computed by reference to the closing sales price as
quoted on NASDAQ on February 28, 1998 was $12,362,770.
As of February 28, 1998, 5,737,337 shares of TRISM, Inc.'s common stock,
par value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of TRISM, Inc.'s proxy statement, to be filed not later than
120 days after the end of the fiscal year covered by this report, are
incorporated by reference into Part III.
Page 1 of 44 Pages
Exhibit Index located on page 40
TABLE OF CONTENTS
ITEM PAGE
PART I. 1. Business 3
2. Properties 8
3. Legal Proceedings 9
4. Submission of matters to a Vote of Security
Holders 9
PART II. 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
6. Selected Financial Data and Operating Statistics 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 38
PART III. 10. Directors and Executive Officers of the Registrant 39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners
and Management 39
13. Certain Relationships and Related Transactions 39
PART IV. 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 39
Exhibit Index 40
PART I.
ITEM 1. Business
OVERVIEW
TRISM, Inc. (the "Company"), a Delaware corporation, entered the
transportation business in January 1990 with the acquisition of Tri-State
Motor Transit Co. The Company's operations includes a group of carriers
specializing in the transportation of heavy machinery and equipment (Heavy
Haul), hazardous waste, explosives and radioactive materials (Secured
Materials), building materials, lumber, steel and metal products
(Commercial Flatbed), and a contract logistics provider (Logistics). The
Company conducts these operations principally through Trism Specialized
Carriers, Inc. ("TSC"), Tri-State Motor Transit Co. ("TSMT"), Diablo
Systems, Inc. ("Diablo"), Trism Transport Services, Inc.("TTSI"), and
Trism Logistics, Inc. ("TLI"). The Company completed strategic acquisitions
through August 1996 in order to increase market share, expand the
geographic scope of its operations, and obtain the necessary lane density
to achieve profitability primarily in the heavy machinery, munitions,
and hazardous waste sectors of its operations.
As a result of continued losses in the commercial flatbed market during
1996, the Company elected to exit the commercial flatbed market by closing
down component operations of TTSI and record a charge of $4.1 million
against 1996 operating results to reflect the write-off of the net book
value of goodwill associated with this acquisition. The Company
consolidated remaining operations of the Commercial Flatbed market into
Heavy Haul in October 1997.
In February 1997, the Company announced an organizational restructuring to
consolidate certain sales, operations, and administrative functions and
reengineer business processes to reduce overhead and increase operational
efficiency. During 1997, the Company recorded a total of $3.2 million in
charges associated with the organizational restructuring. Refer to Note
3 to the Company's consolidated financial statements for more information.
The Company does not intend to acquire additional businesses until the
corporate restructuring is complete and the benefits therefrom are realized.
However, the Company believes that the continuing consolidation in the
trucking industry and conversion of private fleets will provide profitable
acquisition opportunities in the future.
Heavy Haul
TSC, the Company's largest operating unit, specializes in the transportation
of over-sized and over-dimensional loads throughout the United States,
Canada, and Mexico. Also, the Company entered the super heavy haul market
in 1997 through its joint venture with Econofreight Group Limited, a U.K.
subsidiary of Brambles Corporation, that generated approximately $3.3
million in operating revenues. The Super Heavy Haul market allows for
the transportation of freight in excess of 160,000 pounds up to 10,000 tons.
The largest markets for Heavy Haul are manufacturers of large machinery and
equipment, suppliers and contractors to industrial and public construction,
importers of industrial durable goods and the U.S. Government. The
following table includes Heavy Haul's contribution of revenue, exclusive of
corporate and intercompany elimination adjustments, for the three years
ended December 31:
1997 1996 1995
Revenue (in thousands) $193,509 $180,325 $174,683
Percent of Company revenue 60% 56% 63%
Secured Materials
The Secured Materials market is characterized by the toxic or explosive
nature and special handling requirements of the cargo. The cargo typically
consists of military and commercial weapons, hazardous waste, and
radioactive materials. The largest markets for Secured Materials are the
United States government and various governmental agencies, waste generators,
and environmental clean-up firms.
TSMT and Diablo service customers in the munitions and explosives markets
and are collectively the largest transporters of Department of Defense
munitions in the continental United States. TSMT operates throughout the
continental United States with Diablo's market focus primarily in the
western regions of the United States.
Trism Environmental Services ("TES"), a division of TSMT, provides service
to customers in the hazardous waste and radioactive materials market and is
the largest transporter of hazardous waste materials in the United States.
TES operates throughout the United States, but its primary market focus is
east of the Mississippi.
The operating companies within the Secured Materials group have operating
authority in the entire continental United States and certain provinces of
Canada. In addition, the group maintains trailer interchange agreements
with certain Mexican carriers.
The following table includes Secured Material's contribution of revenue,
exclusive of corporate and intercompany elimination adjustments, for the
three years ended December 31:
1997 1996 1995
Revenue (in thousands) $104,893 $ 97,930 $ 91,502
Percent of Company revenue 32% 31% 33%
Commercial Flatbed
In October 1995, the Company acquired certain assets of Eastern Flatbed
Systems, Inc. which specialized in flatbed trailer services to the
building materials markets in the Southwest and Southeast regions of the
United States. The Company formed TTSI to continue service to the
commercial flatbed market and to provide lane-balancing freight for the
Company's specialized operating units.
As a result of continued losses in the commercial flatbed market during
1996, the Company elected in 1997 to exit the commercial flatbed market by
closing down component operations of TTSI and consolidating remaining
operations into the Heavy Haul group in October 1997. Accordingly, a
charge of $4.1 million was recorded in the 1996 operating results to
reflect the write-off of unamortized goodwill associated with this
acquisition. The following table includes TTSI's contribution of revenue,
exclusive of corporate and intercompany elimination adjustments, for the
three years ended December 31:
1997 1996 1995
Revenue (in thousands) $ 14,970 $ 34,390 $ 6,786
Percent of Company revenue 5% 11% 2%
Logistics
In March 1995, the Company acquired Kavanagh & Associates, Inc., renamed
Trism Logistics, Inc. ("TLI") in 1997, a logistics firm specializing in
the management of freight by truck (particularly in the hazardous waste
market), rail and water in the domestic and international markets of
Europe, South America and the Far East. TLI's client base includes
engineering and construction companies, suppliers to the European Community,
Fortune 500 companies and major utility companies.
The following table includes TLI's contribution of revenue, exclusive of
corporate and intercompany elimination adjustments, for the three years
ended December 31:
1997 1996 1995
Revenue (in thousands) $ 11,564 $ 6,090 $ 4,254
Percent of Company revenue 3% 2% 2%
Strategy
The Company's business strategy is to offer high quality, specialized
transportation services in specific markets of the trucking industry to
service-sensitive customers. The key components of the Company's
strategy are as follows:
Market Leadership
The Company has sought to enter niche trucking markets in which it can
become the preeminent carrier. These markets generate higher revenues per
mile than general freight carriage. There are substantial service and
productivity advantages to having a large specialized equipment fleet
including high route density and a large, diverse customer base.
Nationwide Coordination of Operations
The Company's coordinated nationwide operations and careful compliance by
the Company's drivers and field personnel with a synchronized network load
plan are key elements in its strategy. In order to minimize down time
and to reduce empty miles, the Company coordinates its nationwide operations
by utilizing systems designed to match driver and equipment availability to
customer and geographic demand. As part of this process, the Company has
equipped substantially all of its tractors with satellite communications
equipment which enables the Company's drivers and dispatchers to
communicate with each other at any time regardless of where a tractor is
in the continental United States. This system enables the Company to
provide its customers with current information on the location and status
of cargo while in transit.
Specialized Operating Capabilities and Equipment
The Company has the capability of handling all of an individual shipper's
freight in the Company's niche markets. The Company's operating
capabilities include a variety of specialized equipment, regulatory
permits and compliance expertise, satellite communications and technology,
specialized terminals including segregated munitions storage areas and
driver selectivity and training. The Company owns 28 types of trailers
to meet the specialized needs of shippers. Because of the number and
variety of trailers in the Company's fleet, the Company is able to
accommodate large nationwide shippers' needs on a timely basis. The
breadth of these equipment options is an integral part of the Company's
position with its major customers.
Seasonality
The Company's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarters ending in
December and March are significantly lower than the quarters ending in
June and September due to reduced shipments and higher operating costs
as a percentage of revenues in the winter months.
Customers
The Company's largest customer is the United States government (principally
the Department of Defense) which accounted for approximately 16 percent of
consolidated revenues in 1997. The remainder of the Company's customer
base is diversified in terms of customer concentration, industry and
geography, none of which accounted for more than 10 percent of the
Company's consolidated revenues.
Employees
At December 31, 1997, the Company had 3,087 employees of whom 2,278 were
drivers. Like other trucking operations, the Company experiences a high
turnover rate (approximately 103% for 1997) of its Company-employed
drivers and contract operators.
Risk Management and Insurance
The primary risk areas in the Company's businesses are liability for bodily
injury and property damage, workers' compensation and cargo loss and damage.
The Company maintains insurance against these risks and is subject to
liability for deductibles with regard to personal injury and property
damage and self-insured retention with regard to workers' compensation
under the insurance policies. The Company currently maintains liability
insurance for bodily injury and property damage. The current deductible
for bodily injury and property damage is $500,000 per occurrence plus the
satisfaction of an additional $750,000 deductible for claims which exceed
$500,000. The Company is a qualified workers' compensation self-insurer in
the States of Missouri and Oklahoma where most of its drivers are domiciled
with losses in excess of $500,000 insured by an excess workers' compensation
policy. In all other states statutory workers' compensation insurance is
maintained with a deductible or retro program with a $500,000 loss limit per
occurrence to the Company. The Company has issued standby letters of credit
in the amount of $11.2 million and collateralized an additional $1.0
million in the form of restricted deposits at December 31, 1997, to secure
its self-insured and deductible insurance programs.
The Company also self-insures as to damage or loss to the property and
equipment it owns or leases, subject to insurance coverage maintained in
the event of a catastrophic loss in excess of $50,000 for property and
$100,000 for equipment. Certain of the shipments transported by the
Company are very valuable. The Company currently maintains cargo loss and
damage insurance with a current deductible of $100,000 per occurrence. In
addition to following DOT regulations requiring random drug testing and
post accident drug testing, the Company rigorously enforces its accident
and incident reporting and follow-up standards.
Safety
The Company employs safety specialists and maintains safety programs
designed to meet its specific needs. In addition, the Company employs
specialists to perform compliance checks and to conduct safety tests
throughout the Company's operations. The Company conducts a number of
safety programs designed to promote compliance with rules and regulations
and to reduce accidents and cargo claims. These programs include an
incentive pay program for accident and claim-free driving, an ongoing
Substance Abuse Prevention Program, driver safety meetings, distribution
of safety bulletins to drivers, and participation in national safety
associations.
Information Technology
In 1997, the Company made additional investments in information technology
to support and improve both operations and administrative services. During
1997, the Company licensed and installed a workflow and document management
system, a fuel optimization system, and a post-dispatch optimizer. The
aforementioned systems have gone through extensive testing, systems
integration and some modification to match the Company's business processes,
and integration with the Company's core dispatch system. All three
applications will be utilized in production starting in 1998, and did not
have a significant impact on the Company's capital or liquidity resources
in 1997. The Company monitors the anticipated improvements from these
systems against those improvements actually attained.
In 1996, the Company made technological advancements in the Company's
continuing efforts to integrate the operations of all TRISM companies by
bringing all Secured Materials companies on line with other operating
divisions. The Company also successfully moved its informational
hardware to its new corporate headquarters located in Kennesaw, Georgia.
The Company completed the final stages of installing satellite
communications in all truck fleets. Not only does this upgrade allow for
real-time communications for customers, it allows the Company to tap into
onboard computers to retrieve specific data on company tractors. This
technology also links the Company to companies in the United States and
around the world.
Additionally in 1996, the Company implemented a software program designed
to optimize truckload decision making. This software, called MICROMAP,
gives load planners the ability to improve service while reducing costs.
The Company has considered the potential impact of the year 2000 to its
computer systems. The year 2000 problem arises as a result of the year
being entered as a two-digit number rather than four to define the
applicable year. In the Company's AIX based operating environment, all
dates are converted to a five digit number, which is a count of the number
of days since December 31, 1969.
Further, the system interprets all dates as a future year rather than a
prior year, thus 2000 will not be interpreted as 1900. The Company believes
that this construct eliminates any serious year 2000 problems and leaves
only some minor clean-up work to be done so that representations of the
date in any report where the 1900 portion of the date might be assumed are
corrected to reflect 2000. The Company plans a full system test during
calendar year 1998, and anticipates that it will not be required to engage
outside consultants to attain compliance, and any costs associated with
attaining compliance will not be material.
The Company plans a full system test during calendar year 1998, and
anticipates that it will not be required to engage outside consultant to
attain compliance, and any costs associated with attaining compliance will
not be material. The Company plans to load a copy of all of its
production applications, its database system software, the current release
of AIX and copies of live data for testing. Key factors to be tested
include: proper recognition of dates in 1999 for date; arithmetic and
proper program logic; proper recognition and use of dates crossing the
century year from 1999 to 2000; and proper recognition and use of dates
for February 29, 2000.
Fuel Availability and Cost
The Company's fuel requirements are met by commercial fuel stops. The
Company has entered into agreements with national truckstop chains which
provide for discounts on fuel. The Company may, from time to time, enter
into the forward purchases of fuel for delivering through its truckstop
network for up to 40 percent of its monthly usage. The Company believes
that a portion of any increase in fuel costs or fuel taxes generally would
be recoverable from its customers in the form of higher rates although a
time lag could occur in implementing and collecting these costs.
Competition and Regulation
The trucking industry is highly competitive. The Company competes with
other truckload carriers, private carriage fleets and, to a lesser extent,
railroads. Although the increased competition resulting from
deregulation has created downward pressure on rates, the Company has
mitigated this decline by setting rates on the basis of its quality of
service and its ability to provide specialized services.
The trucking industry has been substantially deregulated since the Motor
Carrier Act of 1980. Although the Company is still subject to the
regulatory powers of the DOT (which has assumed the trucking regulation
responsibilities from the Interstate Commerce Commission), as are all
interstate common carriers by motor vehicle, many of the previous
regulatory barriers for entry into the trucking business have been eased.
Further, as a result of deregulation, operating authorities for handling
commodities in individual states are more easily obtained by new and
existing carriers and certain restrictions on transportation have been
eased.
The DOT sets safety and equipment standards, as well as hours of service
regulations for drivers. The transportation of hazardous waste and
hazardous materials is regulated by federal, state and local governments.
Generally, certain procedures must be followed, pre-notifications given
and permits obtained when transporting these materials.
Environmental Matters
The Company's operations as well as those of its competitors, are subject
to extensive federal, state and local environmental regulations. In order
to comply with such regulations and to be consistent with the Company's
corporate environmental policy, normal operating procedures include
practices to protect the environment. Amounts expended relating to such
practices are part of the normal day-to-day costs of the Company's business
operations.
ITEM 2. Properties
Facilities
The Company owns executive and administrative offices in Kennesaw, Georgia
and Joplin, Missouri and leases additional executive and administrative
offices in Tulsa, Oklahoma; Rock Island, Illinois; and Byron, California.
The Company's principal operational headquarters are in Kennesaw, Georgia
and Joplin, Missouri. These facilities provide sufficient space for the
Company to coordinate its nationwide operations.
As of December 31, 1997, the Company owned 16 terminals and leased 41
terminals. These terminals are strategically located in 28 states
throughout the United States. From these terminals, the Company caters
to service-sensitive customers transporting cargo in truckload quantities
to single destinations throughout the continental United States and Canada.
Mostly the Company arranges for shipments into Mexico through agreements it
maintains with Mexican trucking companies.
The Company consolidated operations throughout its terminal network as a
result of the 1997 restructuring. See Note 3 of Notes to the Company's
Consolidated Financial Statements.
Revenue Equipment and Maintenance
The Company utilizes a wide range of specialized equipment designed to meet
its customers' varied transportation requirements which distinguishes the
Company from many other large truckload carriers. To meet its customers'
specialized needs, the Company's trailer fleet consists of 28 types of
trailers, including closed vans, flat beds, drop frames, double drops,
extendibles, low-boy and dromedary trailers.
The Company's policy is to replace tractors on a four to five year cycle,
resulting in an average fleet age of two to three years. At December 31,
1997, the average age of the Company's tractor fleet was 2.8 years. The
Company's policy is to replace trailers on a five to ten year cycle
resulting in an average fleet age of four to eight years. At December 31,
1997, the average age of the Company's trailer fleet was 7.0 years.
TRISM operated the following tractors and trailers at December 31:
1997 1996 1995
Tractors:
Owned (1) 1,077 1,031 1,278
Leased (1) 788 982 652
Independent contractors 177 161 282
Total 2,042 2,174 2,212
Trailers:
Owned (1) 4,438 4,504 4,191
Leased (1) 217 302 489
Total 4,655 4,806 4,680
(1) Operated by Company-employed drivers.
ITEM 3. lEGAL PROCEEDINGS
The information required by this item is included in Item 6 and footnote
8 to the Company's consolidated financial statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1997, no matters were submitted to a vote
of security holders.
PART II.
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock, believed to be owned by more than 400 beneficial
stockholders as of record December 31, 1997, is traded on the National
Association of Securities Dealers Automated Quotation National Market
System (NASDAQ) under the symbol "TRSM."
The following table sets forth the high and low closing sales prices for
the Company's common stock as reported by NASDAQ for 1997 and 1996.
1997 High Low Close
First quarter 4 3/8 2 3 1/8
Second quarter 4 1/2 2 1/4 4 1/2
Third quarter 5 1/2 3 1/4 3 9/16
Fourth quarter 4 1/4 2 1/4 3 1/4
1996 High Low Close
First quarter 6 9/16 4 3/4 6
Second quarter 6 1/4 4 3/4 5 5/8
Third quarter 6 3 7/8 4 1/8
Fourth quarter 4 5/8 3 1/2 3 3/4
The Company has never paid a cash dividend on its common stock. It is the
current intention of the Company's Board of Directors to continue to retain
earnings to finance the growth of the Company's business rather than to
pay dividends. Future payment of cash dividends will depend upon the
financial condition, results of operations and capital commitments of the
Company as well as other factors deemed relevant by the Board of Directors.
ITEM 6. Selected Financial Data and Operating Statistics
The following table sets forth selected consolidated financial data for
the periods indicated and should be read in conjunction with the
consolidated financial statements and related notes. The selected
financial data for each of the five years for the period ended December
31, 1997 was derived from the Company's audited consolidated financial
statements.
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
Selected financial data
For the year:
Revenues $309,880 310,033 268,444 225,191 210,590
Operating income (a) 6,915 5,082 19,593 19,401 11,378
(Loss) income before
extraordinary items and
cumulative effect of
change in accounting
method (5,605) (6,598) 3,874 4,781 1,548
Extraordinary loss,
net of tax (b) - - - (231) (385)
Cumulative effect of
change in accounting
for income taxes, net
of tax (c) - - - - 222
Net (loss) earnings $(5,605) (6,598) 3,874 4,550 1,385
Cumulative preferred
stock dividends - - - - 300
Net (loss) earnings available
to common stockholders $(5,605) (6,598) 3,874 4,550 1,085
Basic (loss) earnings
per share: (Loss)
earnings before
extraordinary items
and cumulative effect of
change in accounting
method $ (.98) (1.15) .67 .81 .46
Extraordinary loss - - - (.04) (.11)
Cumulative effect of
change in accounting for
income taxes - - - - .06
Cumulative preferred
stock dividends - - - - (.09)
Basic (loss) earnings
per share $ (.98) (1.15) .67 .77 .32
Number of shares used in
computation of (loss)
earnings per share 5,737 5,735 5,759 5,638 3,391
At year end:
Total assets $218,824 232,497 218,771 208,001 168,649
Long-term debt (including
current portion) $157,554 163,223 137,647 139,711 116,468
Redeemable preferred
stock $ - - - - -
Stockholders' equity $ 23,145 28,750 35,107 32,206 5,552
Common shares
outstanding 5,737 5,737 5,733 5,879 3,978
Net book value per share $ 4.03 5.01 6.12 5.48 1.40
Selected operating data
For the year:
Operating ratio (a)(d) 97.8% 98.4% 92.7% 91.4% 94.4%
Revenue per loaded
mile (e) $ 1.74 1.69 1.71 1.73 1.66
Revenue per total mile
(e) $ 1.47 1.40 1.41 1.45 1.39
Load factor (f) 84.2% 82.9% 82.4% 84.0% 83.7%
Daily revenue per
tractor (g) $ 547 505 527 555 540
Average length of haul
in miles (h) 880 819 900 953 941
Total loads (000's) 182 196 160 128 124
Total tractor miles (000's)189,696 198,333 174,58 145,262 139,003
ITEM 6. Selected Financial Data and Operating Statistics, Continued
1997 1996 1995 1994 1993
Weighted average
number of:
Employees (i)
Drivers 2,257 2,173 1,920 1,630 1,611
Mechanics 131 168 144 148 132
Other 695 758 688 622 564
Tractors (j) 2,065 2,220 1,893 1,522 1,429
Ratio of average tractors
to other employees 3.0 2.9 2.8 2.5 2.5
- ---------------
(a) Includes restructuring charges of $3.2 million for the year ended
December 31, 1997 and the write-off of the unamortized goodwill of
$4.1 million associated with the phase out of TTSI for the year ended
December 31, 1996.
(b) During the years ended December 31, 1994, and 1993, the Company recorded
extraordinary losses related to the early extinguishment of debt.
(c) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The
cumulative effect of the change in accounting method at the time of
adoption increased 1993 net income by $222.
(d) Operating ratio represents operating expenses as a percent of revenues.
(e) Freight revenues exclude brokerage and other revenues.
(f) Load factor represents loaded miles as a percentage of total book miles.
(g) Based on weighted average number of tractors during the period.
(h) Calculated as the average distance from origin to the destination of the
shipments.
(i) Includes part-time employees.
(j) Includes the monthly average of owned, leased and independent contractor
units.
- ---------------
ITEM 7. Management's Discussion & Analysis of Financial Condition
& Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a"safe
harbor" for forward-looking statements. Certain statements in Items 1, 3,
6, 7 and 8 of this Form 10-K include information that is forward looking,
such as the Company's opportunities to reduce overhead costs and increase
operational efficiency, its anticipated liquidity and capital requirements
and the results of legal proceedings. The matters referred to in
forward-looking statements could be affected by the risks and uncertainties
involved in the Company's business.
ITEM 7. Management's Discussion and Analysis of Financial Condition
Condition and Results of Operations, Continued
These risks and uncertainties include, but are not limited to, the effect
of economic and market conditions, the expenses associated with and the
availability of drivers and fuel, as well as certain other risks described
above in this Item and in Item 1 in "Business". Subsequent written and oral
forward looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the cautionary
statements in this paragraph and elsewhere in this Form 10-K. The following
discussion and analysis should be read in conjunction with the Selected
Consolidated Financial Data and the Company's Consolidated Financial
Statements and notes.
The following tables set forth certain financial information and
operating data for the three years ended December 31:
1997 to 1996 1996 to 1995
Percentage of Revenue Basis: 1997 1996 1995 Variance Variance
Operating Revenue: 100.0 100.0 100.0 - -
Operating Expenses:
Salaries, wages and
fringes 36.5 36.8 36.9 (0.3) (0.1)
Operating supplies and
expense 15.0 15.0 13.7 - 1.3
Operating taxes and
licenses 8.9 9.3 9.3 (0.4) -
Brokerage carrier expense 8.6 8.3 6.2 0.3 2.1
Depreciation and
amortization 6.1 6.3 7.0 (0.2) (0.7)
Contractor equipment 5.9 6.0 6.7 (0.1) (0.7)
General supplies and
expense 5.4 5.8 5.5 (0.4) 0.3
Revenue equipment rents 4.7 4.4 2.3 0.3 2.1
Claims and insurance 3.7 3.2 3.3 0.5 (0.1)
Communications and
utilities 1.7 1.9 1.9 (0.2) -
Write-down of net book
value of Goodwill - 1.3 - (1.3) 1.3
Restructuring expense 1.0 - - 1.0 -
Loss (gain) on dispositon
of assets 0.3 0.1 (0.1) 0.2 0.2
Total operating expense 97.8 98.4 92.7 (0.6) 5.7
Income from operations 2.2 1.6 7.3 0.6 (5.7)
Interest and other, net 4.8 4.8 5.2 - (0.4)
(Loss) income before
income taxes (2.6) (3.2) 2.1 0.6 (5.3)
Income tax (benefit)
expense (0.8) (1.1) 0.6 0.3 (1.7)
Net (loss) earnings (1.8) (2.1) 1.5 .03 (3.6)
Pertinent financial and operating data is summarized in Selected
Financial Data and Operating Statistics on page 11 of this document.
ITEM 7. Management's Discussion & Analysis of Financial Condition
& Results of Operations, Continued
Overview and Outlook for 1997
Operating revenue was approximately $309.9 million in 1997 compared to
$310 million in 1996 despite the downsizing of the Commercial Flatbed
market in 1997. Operating income for 1997 was approximately $6.9 million
compared to $5.1 million in 1996. The net loss for 1997 was $5.6 million
($.98 per share) compared to a net loss of $6.6 million ($1.15 per share)
in 1996. The 1997 operating results contain a restructuring charge of
$3.2 million with 1996 results adversely affected by the write-off of $4.1
million associated with the TTSI acquisition. The Company made progress
in its cost reduction efforts by improving the operating ratio by .6% in
1997; the significant fluctuations of operating expenses as a percentage
of revenue are described in the "Operating and Other Expenses" section of
this document.
The Company's performance was hampered by driver retention issues and a
general softening of the Heavy Haul and Secured Materials markets in the
latter part of the third and entire fourth quarter of 1997. The Company
believes that appropriately addressing the driver retention issue will
take several months, as driver turnover was approximately 103% in 1997.
In addition, available economic information indicates that most of the
Company's chosen markets will be favorable through 1999, and that the
benefits of the 1997 restructuring, driver recruiting and retention, sales
and technology initiatives will not be fully realized until 1999.
Operating Revenue
Operating revenue for 1997 decreased $153,000, or .1%, from 1996 to 1997
and increased $41.6 million, or 15.5%, from 1995 to 1996. Revenue per total
mile amounted to $1.47, $1.40 and $1.41 in 1997, 1996 and 1995, respectively.
Total miles driven amounted to approximately 189.7 million miles in 1997,
198.3 million miles in 1996, and 174.6 million miles in 1995. Operating
revenues between periods includes the following (in thousands):
Market 1997 1996 1995
Heavy Haul $ 193,509 180,325 174,683
Secured Materials 104,893 97,930 91,502
Commercial Flatbed 14,970 34,390 6,786
Logistics 11,564 6,090 4,254
Eliminations and other (15,056) (8,702) (8,781)
$ 309,880 310,033 268,444
1997 Compared to 1996
Operating revenues were adversely impacted due to a lower than expected
ratio of active tractor capacity to total tractor capacity caused by a
shortage of drivers which left approximately 10% of the Company's tractor
fleet idle in the third and fourth quarters of 1997. The Company engaged
an outside consultant and created a new Executive Vice President of
Operations position to shore up the recruiting and retention effort. The
Company believes the process of improving to acceptable levels the ratio
of active tractor capacity to total tractor capacity will take several months.
Operating revenues were also negatively impacted as a result of the Company's
exit from the Commercial Flatbed market resulting in decreased operating
revenues of approximately $19.2 million and increased reliance on
intercompany revenue of approximately $2.6 million in 1997 offset by
revenue gains in the Heavy Haul, Secured Materials and Logistics markets.
1996 Compared to 1995
During 1996, acquisitions accounted for approximately $29.4 million, or 70%
of the operating revenue increase in 1996 compared to 1995. In addition,
the acquisition of the Special Commodities Division of J.B. Hunt allowed
Secured Materials to increase revenue per total mile during the fourth
quarter of 1996 and reduce reliance on lower profit margin business.
Operating revenue improvements were also generated in the Heavy Haul and
Logistics markets during 1996.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Operating Income
Operating income between the periods includes the following (in thousands):
Market 1997 1996 1995
Heavy Haul $ 8,751 10,803 14,203
Secured Materials 5,758 4,295 7,233
Commercial Flatbed (2,535) (2,265) 104
Logistics 353 (190) (46)
Restructuring charge (3,227) - -
Write-down of TTSI goodwill - (4,062) -
Unallocated corporate overhead
and other (2,185) (3,499) (1,901)
$ 6,915 5,082 19,593
Operating income increased $1.8 million in 1997 as compared to 1996 and
decreased $14.5 million in 1996 as compared to 1995. The operating expense
ratio was 97.8%, 98.4%, and 92.7% in 1997, 1996, and 1995, respectively.
1997 Compared to 1996
The improved operating results in 1997 for the Company were primarily
driven by improved performance at Secured Materials and Logistics offset
by lower results in Commercial Flatbed and the $3.2 million restructuring
charge. Heavy Haul results were adversely impacted in 1997 as a result of
absorbing the remaining operations of the Commercial Flatbed market in
October 1997 and a general softening of the Heavy Haul market sector in the
later part of the third and entire fourth quarter of 1997. The general
market conditions experienced in the later part of 1997 for Heavy Haul are
expected to continue through the end of the first quarter of 1998.
The overall improvement in Secured Materials is primarily due to improved
conditions in the munitions market, implementation of a commercial
explosives market initiative and improved pricing in the environmental
services market as a result of the 1996 acquisition of the Special
Commodities Division of J. B. Hunt Transport, Inc. However, Secured
Materials experienced a downward market trend in the later part of the
third and entire fourth quarters of 1997 which is also expected to continue
through the first quarter of 1998.
Logistics improved its operating income pattern on a fairly consistent basis
in 1997, and the Company expects this trend to continue in 1998.
1996 Compared to 1995
The 1996 operating income decrease was caused primarily by the decline in
the munitions profitability due to excess equipment and the deteriorating
yield and utilization in the Secured Materials market due to competition
with J.B. Hunt through the date of acquisition of the Special Commodities
Division. In addition, failure to achieve revenue yield and utilization
improvements in the Commercial Flatbed market, the $4.1 million goodwill
write-down related to TTSI, and the increase in fuel prices of approximately
$4.1 million also significantly affected operating results.
ITEM 7. Management's Discussion and Analysis of Finacial Condition and
Results of Operations, Condition
Operating and Other Expenses
Total operating expenses decreased $2.0 million, from 1996 to 1997 after
restructuring charges of $3.2 million. Total operating expense increased
$56.1 million from 1996 to 1995 after a $4.1 million charge relating to the
write-off of the net book value of TTSI goodwill. Operating expenses as a
percentage of revenue were 97.8%, 98.4% and 92.7% in 1997, 1996, and 1995,
respectively. The following expense categories increased or decreased
significantly as a percentage of revenue between the periods indicated below:
1997 Compared to 1996
Salaries, wages and fringe benefits decreased .3% from 1996 to 1997.
The improvement resulted from a reduction in non-driver compensation
as a result of the restructuring effort offset partially by driver
compensation increases implemented in March 1997.
Operating supplies and expenses were relatively flat between 1996 and
1997. However, fuel prices in 1997 averaged $1.13 a gallon compared to
$1.19 in 1996 resulting in a cost savings of approximately $3 million in
1997 offset by increased maintenance expenditures of approximately $2.3
million due to the increasing age of the tractor fleet.
Operating taxes and license costs decreased $1.2 million or .4%
consistent with the decrease in tractor equipment in 1997 as compared
to 1996.
Brokerage carrier expense increases of .3% of revenue are consistent with
increased brokerage revenues.
General supplies and expenses decreased $1.2 million or .4% due to a
reduction in driver motel and travel expenditures of approximately $.6
million and reduced charges for building and equipment rental
expenditures of $.4 million primarily relating to the Company's
restructuring efforts.
Revenue equipment costs increased $.9 million, or .3% due to an increase
in the average number of tractors under operating leases.
Claims and insurance costs increased $1.4 million or .3% due to liability
and cargo claim increases which fell within the Company's deductible
insurance limits in 1997.
Goodwill charges decreased $4.1 million in 1997 as the Company recorded
a provision for the write-down of TTSI goodwill in 1996.
Restructuring charges of approximately $3.2 million were recorded in 1997.
Refer to further discussion of this issue within Management Discussion and
Analysis.
Interest expense and other expenses were essentially flat between the
periods.
Income tax benefit for 1996 was $2.5 million compared to a benefit of
$3.3 million in 1996 resulting in an effective tax rate of 30.3% and
33.3% in 1997 and 1996, respectively.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
1996 Compared to 1995
Operating supplies and expenses primarily increased by $4.1 million due
to higher fuel costs per gallon in 1996 of $1.19 compared to $1.06
in 1995.
Broker carrier expenses increased with corresponding increases in
brokerage revenue.
Revenue equipment rental expenditures increased as a result of financing
new tractors and trailers with operating leases throughout 1996. The
change in mix of owned versus leased tractors and trailers caused a
reduction in depreciation expense as a percentage or revenue.
In 1996, the Company wrote off the unamortized portion of goodwill
associated with the acquisition of TTSI in the amount of $4.1 million
as a result of a shutdown of a portion of the business, lower than
expected operating results and combination with TSC.
Interest expense increased from $14.1 million in 1995 to $14.5 million
in 1996. The increase in interest expense relates to additional
borrowings under the Company's revolving credit facility, debt incurred
with the acquisition of Special Commodities and the financing of new
revenue equipment.
Income tax benefit for 1996 was $3.3 million compared to income tax
expense of $1.6 million in 1995 resulting in an effective tax rate of
33.3% and 29.7% in 1996 and 1995, respectively. The tax rate increase
primarily relates to changes in the valuation allowance and state
income taxes from 1995 to 1996.
Liquidity and Capital Resources
Overview of Company's Net Cash Flow Position in 1997 and Outlook for 1998
In 1997, the Company's overall net cash position was positively impacted by
a significant improvement in the accounts receivable cycle and reduced
capital expenditures. In 1998, the Company anticipates continued
improvement in the accounts receivable cycle over 1997 and the continued
use of capital lease arrangements to finance revenue equipment replacements.
However, if losses continue, the Company's liquidity could be negatively
impacted and its ability to attract capital could be limited. The Company
believes that it will be able to meet its on-going capital requirements,
scheduled principal payments and working capital needs from cash flow
from operations, availability under its working capital line, proceeds from
the sale of equipment and additional borrowing commitments. The Company
also has additional borrowing capacity supported by unencumbered tangible
assets.
Operating Activities
Net cash provided by operating activities was $27.8 million in 1997
compared to $4.1 million used in operating activities in 1996. The
improvement is primarily due to improved income from operations, an
increase in accounts payable, and a decrease in outstanding accounts
receivable created by an improvement in the collection cycle.
Investing Activities
Net cash provided by investing activities was $8.6 million in 1997 compared
to $14.2 million used in investing activities in 1996. In 1997, the Company
received proceeds of $7.3 million under certain sale-leaseback arrangements
used to pay outstanding indebtedness and financed approximately $25.4
million of capital expenditures with capital leases, both of which improved
cash flows from investing activities by approximately $17.2 million. The
balance of the improvement in cash provided by investing activities is
attributed to a reduction in acquisition expenditures of $7.1 million
from 1996.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Financing Activities
Net cash used in financing activities was $31.6 million in 1997 compared to
$19.1 million of cash provided by financing activities in 1997. The
decrease in cash resulting from financing activities related to repayments
of $18.0 million under the Company's revolving credit line in 1997 versus
net borrowings under the credit line of $15.5 million in 1996. Furthermore,
the Company repaid long-term debt, capital lease obligations, and note
payments of approximately $15.7 million in 1997 compared to $10.7 million
in 1996. The foregoing payments were partially offset by a decrease in
conventional long-term borrowings of $12.9 million due to the utilization
of capital lease arrangements to finance revenue equipment replacements
in 1997.
On July 15, 1997, the Company refinanced its revolving credit facility
("Facility") with a $45 million credit line (the "Revolver"). The
proceeds of the revolver were used to retire the Facility loan and are
available for the Company's working capital needs. The Revolver matures
July 15, 2000 and contains provisions for a letter of credit subline of
$15 million, bears interest at the Prime rate plus .25% or LIBOR plus
2.25%, and is secured by accounts receivable.
The revolver also includes covenants applicable once Availability under the
Revolver falls below $8 million for 10 consecutive business days.
Availability under the Revolver was approximately $14.2 million at
December 31, 1997, net of a reduction for outstanding letters of credit
of approximately $11.2 million.
Capital Requirements
The Company estimates1998 net capital expenditures of approximately $45
million primarily related to the replacement of tractors and trailers.
The Company estimates net proceeds from the sale of the replaced equipment
to amount to approximately $2.0 million and believes it will be able to
finance its needs during 1998. In addition, residual obligations of
approximately $8.7 million primarily relating to certain capital lease
obligations will mature in 1998 and the Company will have the option to
either purchase the revenue equipment for the residual amount, sell the
equipment and repay the residual, or return the equipment to the lessor
at the end of the lease term.
Corporate Restructuring
In February 1997, the Company announced an organizational restructuring to
consolidate certain sales, operations, and administrative functions and
reengineer business processes to reduce overhead and increase operational
efficiency. The Company believes that the primary benefit of the
restructuring will be reduced and/or contained expenditures for non-driver
personnel and certain terminal costs that will improve the Company's future
operating results, liquidity, and capital resources. During 1997, the
Company recorded total charges of $3.2 million associated with the
organizational restructuring.
Actual restructuring expenditures incurred through December 31, 1997,
amounted to approximately $1.5 million for outside consulting services,
$.9 million for costs associated with the termination of employees, and
$.5 million in terminal facility closure expenses.
The Company eliminated 97 full-time positions ("FTP") as a result of the
restructuring effort. The foregoing headcount reduction, by market, is
Heavy Haul - 15 FTP; Secured Materials - 26 FTP; Commercial Flatbed - 38
FTP; and Other - 18 FTP.
The Company has slated 19 terminal facilities for closure, of which 11
facilities were closed through December 31, 1997. Expenditures charged
against the provision represent building rent and certain selling and
maintenance expenses incurred from the first quarter through the actual
closure/disposition date.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Major Customers
Operating revenues derived from U.S. Governmental Agencies were approxi-
mately $49.7 million, $52.5 million and $40.7 million for the years ended
December 31, 1997, 1996, and 1995, respectively, which represents 16
percent, 17 percent and 20 percent of total operating revenues for 1997,
1996, and 1995, respectively. There was no other single customer that
exceeded 10 percent of operating revenues during this same period.
CONTINGENCIES
Legal Proceedings
Under the Comprehensive Environmental Responses, Compensation and Liability
Act ("CERCLA") and similar state laws, a transporter of hazardous substances
may be liable for the costs of responding to the release or threatened
release of hazardous substances from disposal sites if such transporter
selected the site for disposal. Because it is the Company's practice not to
select the sites where hazardous substances and wastes will be disposed,
the Company does not believe it will be subject to material liability under
CERCLA and similar laws. Although the Company has been identified as a
"potentially responsible party" (PRP) at two sites, solely because of its
activities as a transporter of hazardous substances, the Company does not
believe it will be subject to material liabilities at such sites.
The Company is a party to certain legal proceedings incidental to its
business, primarily involving claims for personal injury or property damage
arising from the transportation of freight. The Company does not believe
that these legal proceedings, or any other claims or threatened claims of
which it is aware, are likely to materially and adversely affect the
Company's financial condition. With regard to personal injury, property
damage, workers' compensation claims, and cargo claims, the Company is
and has been covered by insurance. Such matters may include claims for
punitive damages. It is an open question in some jurisdictions in which
the Company does business as to whether or not punitive damages awards
are covered by insurance.
The Company is a defendant in one additional litigation in the Circuit
Court of Jefferson County, Alabama. The case is captioned Roy A. Reese v.
Trism Specialized Carriers, Inc. and Tri-State Motor Transit Co. It
arises from a lease, transfer and consulting agreement between the Company
and plaintiff (Mr. Reese and his wholly owned corporation) dated August 24,
1992. Plaintiff alleges breach of contract, promissory fraud, conversion and
conspiracy claims arising from the Company's termination of the contract.
He seeks compensatory and punitive damages. The Company maintains that it
properly terminated the contract because of misrepresentations and non-
performance by plaintiff and his company, and has asserted certain
counterclaims.
The case was tried in August 1996, and plaintiff was awarded $47,000 in
rental fees admitted by the Company to be due for the use of plaintiff's
trailer equipment after cancellation of the original contract. All other
claims for damages were found in favor of the defendant (The Company).
Plaintiff appealed to the Alabama Court of Civil Appeals which reversed
and remanded the case on the legal argument that the jury had found both
defendants liable to plaintiff but only awarded damages ($47,000) as to
one defendant. Both parties appealed the matter to the Alabama Supreme
Court which granted certiorari. Briefs have been filed and we are awaiting
the decision of the Alabama Supreme Court. The Company believes that it
will again prevail should a second trial become necessary. The Company is
represented by Timmothy McAbee, Esq. of Birmingham, Alabama.
In addition to matters referred to above, the Company is a party to certain
additional lawsuits, none of which is believed to involve a significant risk
of materially and adversely affecting the Company's financial condition.
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings;
however, the effect of inflation has been minimal over the past three years.
An extended period of inflation or increase in fuel costs would adversely
affect the Company's results of operations without a corresponding freight
rate increase from customers.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Inflation and Fuel Costs, Continued
The Company uses forward purchase commitments to reduce its exposure to
fluctuations in fuel prices by entering into short term fuel price
agreements for the actual delivery of fuel. These agreements, which settle
monthly, fix the price of fuel for approximately 4.5 million gallons or
approximately 30% of the Company's estimated usage during the fourth quarter
of 1997 and the first quarter of 1998. The Company recognizes expenses or
benefits on these agreements in the period in which the charge occurs.
Year 2000 Position Statement
The Company has considered the potential impact of the year 2000 to its
computer systems. The year 2000 problem arises as a result of the year
being entered as a two-digit number rather than four to define the
applicable year. In the Company's AIX based operating environment, all
dates are converted to a five digit number, which is a count of the number
of days since December 31, 1969.
Further, the system interprets all dates as a future year rather than a
prior year, thus 2000 will not be interpreted as 1900. The Company believes
that this construct eliminates any serious year 2000 problems and leaves
only some minor clean-up work to be done so that representations of the
date in any report where the 1900 portion of the date might be assumed are
corrected to reflect 2000.
The Company plans a full system test during calendar year 1998, and
anticipates that it will not be required to engage outside consultants to
attain compliance, and any costs associated with attaining compliance will
not be material. The Company plans to load a copy of all of its production
applications, its database system software, the current release of AIX and
copies of live data for testing. Key factors to be tested include: proper
recognition of dates in 1999 for date; arithmetic and proper program logic;
proper recognition and use of dates crossing the century year from 1999 to
2000; and proper recognition and use of dates for February 29, 2000.
Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in the financial statements.
SFAS No. 130 is effective for the Company's fiscal year beginning January
1, 1998. Reclassification of financial statements for earlier periods
presented for comparative purposes is required. The adoptions of SFAS
No. 130 will have no material impact on the Company's consolidated results
of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products, services,
and geographic areas. SFAS No. 131 is required beginning with the Company's
1998 annual financial statements and prior period disclosures are required
to be restated. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no material impact
on the Company's consolidated results of operations, financial position
or cash flows.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pensions and Other Post Retirement Benefits. SFAS No. 132 standardized the
disclosure requirements for pensions and other post retirement benefits to
the extent practical. This standard is effective beginning with the
Company's 1998 annual financial statements, and prior period disclosures are
required to be restated. Management is currently reviewing the provisions
of SFAS No. 132 and does not believe that the Company's financial statements
will be materially impacted by the adoption.
ITEM 8. Financial Statements and Supplementary Data
TRISM, Inc.- Consolidated Balance Sheet
For the Years ended December 31, 1997 and 1996 - (In thousands)
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 6,271 $ 1,468
Restricted cash and insurance deposits 1,010 1,188
Accounts receivable, net of allowance
for doubtful accounts of $2,070 & $2,397
for 1997 and 1996, respectively 44,076 57,503
Materials and supplies 1,643 2,450
Prepaid expenses 18,418 18,711
Deferred income taxes 3,789 5,139
Total current assets 75,207 86,459
Property and equipment, at cost 184,232 176,556
Less: Accumulated depreciation and
amortization (62,428) (53,504)
Net Property and Equipment 121,804 123,052
Intangibles and other, net of accumlated
amortization of $5,821 in 1997 and 20,806 21,550
$6,751 in 1996
Other assets 1,007 1,436
Total assets $ 218,824 $232,497
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,859 $ 10,791
Bank overdraft 4,796 4,567
Accrued expenses and insurance reserves 13,733 12,563
Current maturities of long-term debt:
Principal payments and note payable
obligations 13,025 13,977
Residual obligations on equipment debt 8,696 368
Total current liabilities 52,109 42,266
Long-term debt, less current maturities 135,833 148,878
Insurance reserves 5,423 6,443
Deferred income taxes 2,314 6,160
Total liabilities 195,679 203,747
Commitments and contingencies
Stockholders' equity:
Common stock; $.01 par; 10,000 shares
authorized; issued 5,903 shares in 1997
& 1996 59 59
Additional paid-in capital 37,327 37,327
Loans to stockholders (368) (368)
Accumulated deficit (12,324) (6,719)
Treasury stock, at cost, 166 shares in
1997 and 1996 (1,549) (1,549)
Total stockholders' equity 23,145 28,750
Total liabilities and
stockholders' equity $218,824 $232,497
See accompanying notes to consolidated financial statements.
ITEM 8. Financial Statements and Supplementary Data, Continued
TRISM, Inc. - Consolidated Statements of Operations
For the years ended December 31, 1997, 1996, and 1995
(In thousands, except per share amounts)
1997 1996 1995
Revenues $309,880 310,033 268,444
Operating expenses:
Salaries, wages and fringe
benefits 113,011 113,903 98,935
Operating supplies and
expenses 46,522 46,469 36,784
Operating taxes and licenses 27,638 28,785 24,850
Brokerage carrier expense 26,614 25,732 16,735
Depreciation and amortization 18,895 19,568 18,845
Contractor equipment 18,279 18,636 18,019
General supplies and expenses 16,870 18,075 14,653
Revenue equipment rents 14,570 13,665 6,168
Claims and insurance 11,389 9,962 8,937
Communications and utilities 5,154 5,857 5,116
Write-down of net book
value of goodwill - 4,062 -
Restructuring expenses 3,227 - -
Loss (gain) on disposition
of assets 796 237 (191)
Total operating expenses 302,965 304,951 248,851
Operating income 6,915 5,082 19,593
Interest expense and other, net 14,967 14,980 14,080
(Loss) income before income taxes (8,052) (9,898) 5,513
Income tax (benefit) expense (2,447) (3,300) 1,639
Net (loss) earnings $(5,605) (6,598) 3,874
Basic (loss) earnings per share $ (.98) (1.15) .67
Diluted (loss) earnings per share $ (.98) (1.15) .67
Weighted average number of shares
used in computation of basic and
diluted (loss) earnings per share 5,737 5,735 5,759
ITEM 8. Financial Statements and Supplementary Data, Continued
TRISM, Inc. - Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996, and 1995 - (In thousands)
1997 1996 1995
Cash flows from operating activities:
Net (loss) earnings $ (5,605) (6,598) 3,874
Adjustments to reconcile net (loss)
earnings to net cash provided by (used
in) operating activities:
Depreciation and amortization 19,595 20,224 19,452
Write-down of net book value of goodwill - 4,062 -
Loss (Gain) on disposition of assets 796 237 (191)
Deferred income taxes (2,496) (3,914) 2,171
Provision for losses on accounts
receivable 1,388 1,574 307
Restructuring charge, net 266 - -
Deferred gain on sale-leaseback, net 409 - -
Changes in assets and liabilities:
Accounts receivable 12,039 (14,746) (9,157)
Accounts payable 1,068 (3,224) 4,310
Accrued expenses and insurance reserves (525) 315 (1,197)
Other 868 (2,023) (366)
Net cash provided by (used in)
operating activities 27,803 (4,093) 19,203
Cash flows from investing activities:
Proceeds from sale of assets 6,174 8,057 1,551
Proceeds from sale-leaseback 7,334 - -
Purchases of property and equipment (5,622) (15,526) (25,431)
Acquisitions, net of cash acquired - (7,053) (4,705)
Collection (issuance) of notes receivable 546 69 (70)
Refund of restricted deposits 178 247 2,513
Net cash provided by (used in)
investing activities 8,610 (14,206) (26,142)
Cash flows from financing activities:
Net (repayment) proceeds under
revolving credit agreement (18,018) 15,369 6,144
Repayment of long-term debt and
Capital lease obligations (13,210) (10,719) (18,852)
Repayment of note payable (2,500) - -
Proceeds from issuance of long-term debt 2,383 15,247 9,565
Payment for loan acquisition costs (494) (60) -
Increase (decrease) in bank overdrafts 229 (954) 5,521
Issuance of common stock, stock options
and warrants - 241 -
Purchase of treasury stock - - (996)
Sale of treasury stock - - 22
Net cash (used in) provided by
financing activities (31,610) 19,124 1,404
Increase (decrease) in cash and cash
equivalents 4,803 825 (5,535)
Cash and cash equivalents, beginning of year 1,468 643 6,178
Cash and cash equivalents, end of year $6,271 1,468 643
See accompanying notes to the consolidated financial statements.
ITEM 8. Financial Statements and Supplementary Data, Continued
TRISM, Inc. Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1997, 1996, and 1995
(In thousands, except share and warrant amounts)
Additional Loans to Accumu- Stock-
Common Paid-in Stock- lated Treasury Holders'
Stock Capital holders Deficit Stock Equity
December 31, 1994 $ 59 $ 37,086 $ (708 $(3,995) (235) $ 32,207
Company purchase
of 148,500 - - - - (1,337) (1,337)
shares
Repayment of loan
to Stockholders - - 340 - - 340
Company sale
of 2,500 shares - - - - 23 23
Net earnings - - - 3,874 - 3,874
December 31, 1995 59 37,086 (368) (121) (1,549 35,107
Exercise of 4,200
warrants - 28 - - - 28
Warrants issued - 213 - - - 213
Net loss - - - (6,598) - (6,598)
December 31, 1996 59 37,327 (368) (6,719) (1,549) 28,750
Net loss - - - (5,605) - (5,605)
December 31, 1997 $ 59 $37,327 $ (368 $(12,324) $(1,549) $ 23,145)
See accompanying notes to the consolidated financial statements.
TRISM, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations
The consolidated financial statements include the accounts of Trism, Inc.
(the "Company") and its wholly owned subsidiaries. Significant intercompany
transactions and balances have been eliminated. The Company's operations
includes a group of carriers specializing in the transportation of heavy
machinery and equipment (Heavy Haul), hazardous waste, explosives and
radioactive materials (Secured Materials), building materials, lumber,
steel and metal products (Commercial Flatbed), and a contract logistics
provider (Logistics). The Company conducts these operations principally
through Trism Specialized Carriers, Inc. ("TSC"), Tri-State Motor Transit
Co. ("TSMT"), Diablo Systems, Inc. ("Diablo"), Trism Transport Services,
Inc. ("TTSI"), and Trism Logistics, Inc. ("TLI").
As a result of continued losses in the commercial flatbed market during
1996, the Company elected to exit the commercial flatbed market by closing
down component operations of TTSI and record a charge of $4.1 million
against 1996 operating results to reflect the write-off of the net book
value of goodwill associated with this acquisition. The Company
consolidated remaining operations of the Commercial Flatbed market into
Heavy Haul in October 1997.
Estimates and Assumptions
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses. Examples include provision for losses on accounts
receivable and management assessments pertaining to insurance reserves.
Actual results may differ from these estimates.
Revenue Recognition
Substantially all freight revenue and related costs are recognized when
products are picked-up for shipment. This method approximates the method
deemed preferable by the Financial Accounting Standards Board Emerging
Issues Task Force whereby revenues are allocated between reporting periods
based on the relative transit time in each reporting period with expenses
recognized as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90
days or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
Prepaid Expenses
Prepaid expenses primarily consist of the cost of new and replacement tires
("Prepaid Tires") that are capitalized and generally cost less salvage
value is amortized into operating results on a straight-line basis over
24 months. Prepaid expenses also includes the capitalization of prepaid
insurance, taxes, licenses and other expenses ("Other Prepaid Expenses")
that are amortized into operating results on a straight-line basis over
the estimated useful life ranging between 12 and 24 months. Prepaid Tires
and Other Prepaid Expenses amounted to approximately $11.9 million and
$6.7 million in 1997 and $11.1 million and $7.6 million in 1996,
respectively.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (FASB) No. 109,
"Accounting for Income Taxes". Accordingly, certain items of income and
expense are not reported in tax returns and financial statements in the
same year. The tax effect of this difference is reported as deferred
income taxes. Tax credits are accounted for as a reduction of tax expense
in the year in which the credits reduce taxes payable.
Property, Equipment and Depreciation
Property and equipment are stated at cost, less accumulated depreciation
and amortization calculated on a straight-line basis over the estimated
useful lives of the respective assets. The cost of additions, major
replacements, improvements, and interest on construction and certain
revenue equipment are capitalized, while maintenance and repairs are
charged to expense when incurred. The cost of assets sold or retired,
net of accumulated depreciation or amortization are removed from the
accounts at the date of disposition, and any resulting gain or loss is
reflected in operations.
The cost components of property and equipment and related useful lives
are as follows:
(Dollars in thousands) 1997 1996 Years
Land $ 10,666 11,079 -
Structures and improvements 14,204 13,774 18 - 20
Revenue Equipment 139,405 133,027 4 - 10
Other Equipment 19,957 18,676 3 - 10
Property and equipment, at cost $184,232 176,556
Depreciation expense amounted to $18.2 million, $18.8 million, and $18.1
million in 1997, 1996, and 1995, respectively.
Intangibles and Other
Intangible assets include goodwill, which represents cost in excess of net
assets of businesses acquired, and certain non compete and customer list
expenditures related to acquisitions. Goodwill and related acquisition
expenditures are being amortized on a straight-line basis over periods
ranging from 3 to 40 years and amounted to approximately $18.7 million and
$19.2 million in 1997 and 1996, respectively. The Company continually
reviews goodwill and other intangibles to assess recoverability from
estimated future results of operations and cash flows at the aggregate
business unit level. As a result of this review and continued losses
incurred in the Commercial Flatbed division, the Company recorded a
provision in the amount of $4.1 million in 1996 to write-off goodwill
associated with the TTSI acquisition.
Intangibles and other also include deferred financing fee costs which are
being amortized on a straight-line basis over the term of the loan and
amounted to $2.1 million in 1997 and $2.4 million in 1996.
Insurance Reserves
Insurance reserves amounted to approximately $13.2 million in 1997 and
$12.5 million in 1996 and reflect the estimated cost of claims for cargo
loss and damage, bodily injury and property damage, workers' compensation
and employee and welfare program claims not covered by insurance. The
insurance liability provision is based on claims incurred and on estimates
of both unasserted and unsettled claims which are assessed based on
management's evaluation of the nature and severity of individual claims and
on the Company's past claims experience.
Earnings (Loss) Per Share
Basic earnings (loss) per share excludes dilution and is computed by
dividing net earnings (loss) by the weighted average number of common
shares outstanding. Common shares outstanding include issued shares less
shares held in treasury. Diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock (common stock
equivalents). Diluted earnings per share is calculated by dividing net
income by the sum of the weighted average number of common shares
outstanding and dilutive common stock equivalents at the end of each
reporting period. Common stock equivalents are excluded from the diluted
calculation if a net loss was incurred for the period as these
transactions are anti-dilutive.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation," which permits
entities to recognize expense over the vesting period of the fair value of
all stock-based awards on the date of the grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of
APB No. 25 and provide pro forma disclosure provisions of SFAS No. 123.
Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS
No. 130 is effective for the Company's fiscal year beginning January 1,
1998. Reclassification of financial statements for earlier periods
presented for comparative purposes is required. The adoptions of SFAS No.
130 will have no material impact on the Company's consolidated results of
operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products, services,
and geographic areas. SFAS No. 131 is required beginning with the
Company's 1998 annual financial statements and prior period disclosures
are required to be restated. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no
material impact on the Company's consolidated results of operations,
financial position or cash flows.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pensions and Other Post Retirement Benefits. SFAS No. 132 standardized the
disclosure requirements for pensions and other post retirement benefits to
the extent practical. This standard is effective beginning with the
Company's 1998 annual financial statements, and prior period disclosures
are required to be restated. Management is currently reviewing the
provisions of SFAS No. 132 and does not believe that the Company's
financial statements will be materially impacted by the adoption.
Reclassifications
Certain prior year data has been reclassified to conform to 1997
presentation. These reclassifications had no effect on previously reported
net income, stockholders' equity or net cash flows.
2. Acquisitions
In August 1996, the Company acquired substantially all of the assets of
the Special Commodities Division of J.B. Hunt Transport, Inc. ("Hunt").
For financial statement purposes the acquisition was accounted for as a
purchase and, accordingly, Hunt's results are included in the consolidated
financial statements since the date of the acquisition. The aggregate
purchase price was approximately $7.4 million, which includes the costs
associated with the acquisition.
The purchase price was financed with $4.9 million of equipment debt on
certain unencumbered assets of the Company and a $2.5 million note payable
to Hunt and has been allocated to the assets of the Company based upon
their respective fair market values. The components of intangible assets
included in the allocation of the purchase price were goodwill of $5.3
million including a non compete covenant of $.2 million which are being
amortized on a straight-line basis of 40 and 5 years, respectively.
The Company also granted options to Hunt for the purchase of 300,000 shares
of the Company's stock at $6.50 per share, with a term of five years. The
options are not transferable by Hunt and are immediately exercisable.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Hunt had occurred as of the
beginning of fiscal year 1996:
Pro Forma
(Unaudited)
(Dollars in thousands except per share amounts)
Revenues $ 337,733
Net (loss) income (7,198)
Basic and diluted (loss) income per share $ (1.26)
The proforma consolidated results do not purport to be indicative
of the results either that would have occurred had the
acquisitions been in effect for the period presented or that will
be obtained in the future.
3. Corporate Restructuring
In February 1997, the Company announced an organizational restructuring to
consolidate certain sales, operations, and administrative functions and
reengineer business processes to reduce overhead and increase operational
efficiency. During 1997, the Company recorded total charges of $3.2
million associated with the organizational restructuring.
Actual restructuring expenditures incurred through December 31, 1997,
amounted to approximately $1.5 million for outside consulting services,
$.9 million for costs associated with the termination of employees, and
$.5 million in terminal facility closure expenses.
The Company eliminated 97 full-time positions ("FTP") as a result of the
restructuring effort. The foregoing headcount reduction, by market, is
Heavy Haul - 15 FTP; Secured Materials - 26 FTP; Commercial Flatbed - 38
FTP; and Other - 18 FTP.
The Company slated 19 terminal facilities for closure or consolidation,
of which 11 facilities were closed through December 31, 1997. Expenditures
charged against the provision represent building rent and certain selling
and maintenance expenses incurred from the first quarter through the actual
closure / disposition date.
4. Indebtedness and Lease Commitments
Indebtedness
Long-term debt includes the following (in thousands:
1997 1996
Senior subordinated notes maturing in 2000, with
interest at 10.75% $95,730 95,730
Obligations secured by equipment maturing through
2001 with interest rates ranging from
7.1% to 9.4%. 21,275 22,831
Capital lease obligations secured by equipment
maturing through 2005, with interest rates
ranging from 6.7% to 9.2% 37,054 20,629
Revolving credit facility maturing in 2000, with
interest at the prime rate plus .25% or LIBOR
plus 2.25 %, secured by accounts receivable. 3,495 -
Revolving credit facility refinanced in 1997 with
interest at the lower of prime plus .50% or the
LIBOR rate plus 2.5%, secured by accounts receivable - 21,513
Non-interest bearing note payable to J.B. Hunt
retired in February 1997 (Note 2) - 2,500
157,554 163,223
Less current maturities 21,721 14,345
$135,833 148,878
Senior Subordinated Notes
The Senior Subordinated Notes ("Notes") bear interest at 10.75 % payable on
June 15th and December 15th of each year through December 15, 2000. The
Notes are redeemable at the option of the Company, in whole or in part, on
or after December 15, 1998, at a redemption price of 105% through December
1999 and 102.5% thereafter. Through December 31, 1997, the Company has
repurchased $4.3 million of the Notes at approximately face value.
The Notes are subordinated in right of payment to all existing and future
indebtedness of the Company. The indenture contains covenants that,
subject to certain exceptions and qualifications, limit the ability of the
Company and its subsidiaries to incur indebtedness, pay dividends, engage
in transactions with stockholders and affiliates, issue preferred stock of
its subsidiaries, create liens, sell assets, engage in mergers or
consolidations; and limit the ability of the subsidiaries to guarantee
indebtedness of the Company. Furthermore, the indenture contains change
of control provisions, which may require the Company to repurchase the
Notes at an amount equal to 101% plus accrued and unpaid interest to the
date of the repurchase.
Revolving Credit Facility
On July 15, 1997, the Company refinanced its revolving credit facility
("Facility") with a $45 million credit line (the "Revolver"). The proceeds
of the Revolver were used to retire the Facility loan and are available for
the Company's working capital needs. The Revolver matures July 15, 2000 and
contains provisions for a letter of credit subline of $15 million, bears
interest at the Prime rate plus .25% or LIBOR plus 2.25%, and is secured
by accounts receivable. The Revolver also includes covenants applicable
once Availability under the Revolver falls below $8 million for 10
consecutive business days. Availability under the Revolver was
approximately $14.2 million at December 31, 1997, net of a reduction for
outstanding letters of credit of approximately $11.2 million.
The scheduled maturities of long-term debt outstanding at December 31, 1997,
are summarized as follows:
Residual
Obligations Senior
(Dollars in Principal On Equipemnt Subordinate
thousands) Payments Debt Revolver Debt Total
1998 $ 13,025 8,696 - - 21,721
1999 9,081 2,772 - - 11,853
2000 7,108 3,994 3,495 95,730 110,327
2001 3,968 4,946 - - 8,914
2002 506 2,073 - - 2,579
Thereafter 813 1,347 - - 2,160
$ 34,501 23,828 3,495 95,730 157,554
Net interest expense and interest payments paid in cash are as
follows:
(Dollars in thousands) 1997 1996 1995
Net interest on debt and capital leases $14,810 14,948 14,089
Capitalized interest (165) (444) (25)
Net interest expense 14,645 14,504 14,064
Interest paid in cash $14,739 14,480 14,050
Leases
The Company leases certain revenue and equipment through longterm
noncancellable leases. Commitments for minimum rentals under the lease
agreements at the end of 1997 are as follows:
Capital Operating
(Dollars in thousands) Leases Leases
1998 $ 15,091 11,669
1999 8,616 7,503
2000 8,129 2,089
2001 6,529
2002 2,793
Thereafter 2,223
Total minimum lease payments 43,381 21,261
Less amount representing interest 6,327
Present value of net minimum lease pay-
ments, including current maturities
of $13,098 $ 37,054
Property and equipment in 1997 and 1996 include the following amounts for
capitalized leases:
(Dollars in thousands) 1997 1996
Revenue equipment $57,881 32,485
Other equipment 2,040 2,040
59,921 34,525
Less accumulated depreciation 19,402 13,154
$40,519 21,371
In 1997, the Company sold certain revenue equipment for $7.3 million.
The assets were leased back from the purchaser over a period of 2 years,
and the agreements provide the Company the option, at the end of the
lease terms, to either purchase the assets for $2.9 million, return the
assets to the purchaser, or in certain instances, extend the lease term.
This transaction is being accounted for as financing agreement, and the
resulting gain of approximately $.5 million is being amortized over the
2 year lease period.
The Company acquired equipment by incurring capital lease obligations of
$25.4 million in 1997 and $3.2 million in 1996. Rent expense for all
operating leases were approximately $15.6 million, $15.2 million, and
$6.6 million in 1997, 1996 and 1995, respectively.
5. Income Taxes
The Company has provided for income tax (benefit) expense as follows:
(Dollars in thousands) 1997 1996 1995
Current:
Federal $ (-) 514 (532)
State 49 99 -
49 613 (532)
Deferred:
Federal (2,303) (3,524) 1,923
State (193) (389) 248
(2,496) (3,913) 2,171
Income tax (benefit) expense $(2,447) (3,300) 1,639
The Company has available net operating loss carryforwards totaling
approximately $35.0 million that expire if not used in the years 2005 to
2010. As a result of the public offering, an ownership change for federal
tax purposes occurred that limits approximately $2.7 million of the net
operating loss carryforwards available to offset future taxable income.
The Company also has available general business tax credit carryforwards of
approximately $.5 million which will expire through 2001.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
(Dollars in thousands) 1997 1996
Deferred tax assets:
Net operating loss and tax credit carryforwards $13,348 13,161
Accrued expenses, reserves and other 7,610 7,795
20,958 20,956
Less: Valuation allowance (1,069) (1,069)
Net deferred tax assets 19,889 19,887
Deferred tax liabilities:
Depreciation and capital leases 18,271 20,758
Prepaid expenses 143 150
Net deferred tax liabilities 18,414 20,908
Net deferred tax asset (liability) $ 1,475 (1,021)
The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the differences
summarized below:
(Dollars in thousands) 1997 1996 1995
Federal statutory income tax rate of 34% $(2,737) (3,365) 1,874
Valuation allowance adjustments - - (1,051)
Nondeductible travel and entertainment 86 138 105
Fines and penalties 59 50 46
Amortization and other 224 134 82
Prior year state income tax deficiencies 49 - 419
State income taxes, net of federal tax benefit (128) (257) 164
Income tax (benefit) expense $(2,447) (3,300) 1,639
Income taxes paid in cash amounted to approximately $49,000, $101,000, and
$237,000 in 1997, 1996 and 1995, respectively.
6. Stock Option Plan and Warrants
The Company has a stock option plan under which the Company's officers,
directors and key employees may be granted options to purchase up to
725,000 shares of Company common stock at not less than 100% of the market
price on the day the option is granted. The term of the options granted to
either officers and key employees or directors may not exceed 10 years and
5 years, respectively.
In 1996, the Company obtained Board approval to change the exercise price of
all outstanding options granted before 1996 to $6.50 per share.
Stock option activity during the periods indicated are as follows:
Number of Exercise
Shares Price
Balance at December 31, 1994 185,400 $6.50
Forfeited / Expired (51,000)
Granted 458,000
Balance at December 31, 1995 592,400 $6.50
Forfeited / Expired (97,500)
Granted 65,000 $6.00-$6.50
Balance at December 31, 1996 559,900 $6.00-$6.50
Forfeited / Expired (252,900)
Granted 12,500 $6.50
Balance at December 31, 1997 319,500 $6.00-$6.50
At December 31, 1997, the weighted-average price and remaining contractual
life of total outstanding options were $6.45 and 4.6 years, respectively.
Outstanding options become fully vested after 3 years and totaled 258,694,
334,219, and 274,289 at December 31, 1997, 1996, and 1995, respectively.
The weighted average exercise price of the vested options at December 31,
1997 was $6.47.
The Company applied APB Opinion No. 25 in accounting for its stock options,
and accordingly no compensation cost has been recognized for stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grand date for its stock options under SFAS
No. 123, the Company's net (loss) earnings would have been adjusted to the
proforma amounts indicated below:
(In thousands, except per share amounts) 1997 1996 1995
Net (loss) earnings
As reported $(5,605) (6,598) 3,874
Proforma (5,801) (6,793) 3,449
Basic and diluted (loss) earnings per share
As reported (.98) (1.15) .67
Proforma $ (1.01) (1.19) .60
The above proforma schedule reflects options only granted from 1995 through
1997. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the proforma net (loss)
earnings accounts presented above because compensation cost is reflected
over the options' vesting period of 3 years, and compensation cost for
options granted prior to January 1, 1995 is not considered.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997, 1996, and 1995, respectively;
expected volatility of 67%; risk free interest rate of 6.5%; expected life
of 5 years; and, a no dividend yield assumption.
To enable certain executive officers to exercise 260,400 options, the
Company loaned them $708,000, evidenced by five-year promissory notes.
The notes bear interest at the federal midterm rate, are secured by the
shares acquired, and had an outstanding balance of $367,750 at
December 31, 1997 and 1996.
In August 1996, in connection with the acquisition of Hunt, the Company
granted options to Hunt for the purchase of 300,000 shares of stock at
$6.50 per share with a term of five years.
As of December 31, 1997, the Company has 146,398 warrants outstanding for
the purchase of common stock at an exercise price of $6.50 per share that
expire in September 2001.
7. Employee Benefit Plans
The Company sponsors a tax-qualified defined contribution plan under Section
401(a) of the Internal Revenue Code covering all full-time employees who
have completed one year of service as of a quarterly enrollment date.
This Profit Sharing Plan includes a "401(k)" arrangement pursuant to which
participants may contribute, subject to certain Code limitations, a
percentage of their salary on a "pre-tax" basis. The Company contributes
a matching contribution with respect to the contributions made by
participants at a rate determined by the Board of Directors of the Company
each year. The Company may also make an additional contribution to the
Profit Sharing Plan each year at the discretion of the Board of Directors.
The Company's 401(k) matching contributions were approximately $256,000,
$201,000 and $137,000 in 1997, 1996, and 1995 respectively.
8. Contingencies and Factors that Could Affect Future Results
Legal Proceedings
Under the Comprehensive Environmental Responses, Compensation and Liability
Act ("CERCLA") and similar state laws, a transporter of hazardous
substances may be liable for the costs of responding to the release or
threatened release of hazardous substances from disposal sites if such
transporter selected the site for disposal. Because it is the Company's
practice not to select the sites where hazardous substances and wastes will
be disposed, the Company does not believe it will be subject to material
liability under CERCLA and similar laws.
Although the Company has been identified as a "potentially responsible
party" (PRP) at two sits, soley because of its activiites as a transporter
of hazardous substances, the Company does not believe it will be subject
to material liabilities at such sites.
The Company is a party to certain legal proceedings incidental to its
business, primarily involving claims for personal injury or property damage
arising from the transportation of freight. The Company does not believe
that these legal proceedings, or any other claims or threatened claims of
which it is aware, are likely to materially and adversely affect the
Company's financial condition. With regard to personal injury, property
damage, workers' compensation claims, and cargo claims, the Company is and
has been covered by insurance. Such matters may include claims for
punitive damages. It is an open question in some jurisdictions in which
the Company does business as to whether or not punitive damages awards
are covered by insurance.
The Company is a defendant in one additonal litigation in the Circuit
Court of Jefferson County, Alabama. The case is captioned Roy A. Reese
v. Trism Specialized Carriers, Inc. and Tri-State Motor Transit Co. It
arises from a lease, transfer and consulting agreement between the Company
and plaintiff (Mr. Reese and his wholly owned corporation) dated August
24, 1992. Plaintiff alleges breach of contract, promissory fraud,
conversion and conspiracy claims arising from the Company's termination
of the contract. He seeks compensatory and punitive damages. The
Company maintains that it properly terminated the contact because of
misrepresentations and non-performance by plaintiff and his company, and
has asserted certain counterclaims.
The case was tried in August 1996, and plaintiff was awarded $47,000 in
rental fees admitted by the Company to be due for the use of plaintiff's
trailer equipment after cancellation of the original contract. All other
claims for damages were found in favor of the defendant (The Company).
Plaintiff appealed to the Alabama Court of Civil Appeals which reversed
and remanded the case on the legal argument that the jury had found both
defendants liable to plaintiff but only awarded damages ($47,000) as to
one defendant. Both parties appealed the matter to the Alabama Supreme
Court which granted certiorari. Briefs have been filed and we are
awaiting the decision of the Alabama Supreme Court. The Company believes
that it will again prevail should a second trial become necessary. The
Company is represented by Timothy McAbee, Esq. of Birmingham, Alabama.
In addition to matters referred to above, the Company is a party to certain
additional lawsuits, none of which is believed to involve a significant
risk of materially and adversely affecting the Company's financial condition.
Insurance
The Company is subject to liability for the deductible portion as to
policies of insurance, both past and present with regard to bodily injury
and property damage. The current per occurrence deductible is $500,000,
subject to satisfaction of an additional aggregate annual deductible of
$750,000. The Company's operating subsidiaries act as self-insurers on
workers' compensation in several states in which the deductible is as
high as $500,000.
The estimated liability for insured claims was based on past loss
experience, current trends, and an adjustment for abnormal claims
experience related to the recent acquisitions and other factors.
Standby letters of credit in the amount of $11.2 million and $5.1 million
and deposits totaling $1.0 million and $1.2 million have been furnished
to insurance carriers as security for the estimated cost of self-insured
claims and for premium payments as of December 31, 1997 and
December 31, 1996, respectively.
Financial Instruments
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and receivables.
The Company limits the amount of credit exposure to any one customer and
places its temporary cash into investments of high credit quality.
Concentrations of credit risk with respect to receivables are limited due
to their dispersion across various customers and geographies.
Financial Instruments
The estimated fair values of cash and cash equivalents, notes receivable,
and accrued interest approximate their carrying amounts. The estimated
fair values and carrying amounts of long term debt borrowings were as follows
(dollars in thousands):
1997 1996
Fair Value $149,885 155,028
Carrying amount $157,544 160,723
The fair value of the foregoing financial instruments were primarily
determined from quoted market prices and discounted cash flows using
an estimated fair market value interest/discount rate.
The Company uses forward purchase commitments to reduce its exposure to
fluctuations in fuel prices by entering into short term fuel price
agreements for the actual delivery of fuel. These agreements, which
settle monthly, fix the price of fuel for approximately 4.5 million
gallons or approximately 30% of the Company's estimated usage during the
fourth quarter of 1997 and the first quarter of 1998. The Company
recognizes an expense or benefit on these agreements in the period in
which the fuel is used.
Inflation and Fuel Costs
Inflation can be expected to have an impact on the Company's earnings;
however, the effect of inflation has been minimal over the past three
years. An extended period of inflation or increase in fuel costs would
adversely affect the Company's results of operations without a
corresponding freight rate increase from customers.
Year 2000 Position Statement
The Company has considered the potential impact of the year 2000 to its
computer systems. The year 2000 problem arises as a result of the year
being entered as a two-digit number rather than four to define the
applicable year. In the Company's AIX based operating environment, all
dates are converted to a five digit number, which is a count of the number
of days since December 31, 1969.
Further, the system interprets all dates as a future year rather than a
prior year, thus 2000 will not be interpreted as 1900. The Company
believes that this construct eliminates any serious year 2000 problems
and leaves only some minor clean-up work to be done so that
representations of the date in any report where the 1900 portion of the
date might be assumed are corrected to reflect 2000.
The Company plans a full system test during calendar year 1998, and
anticipates that it will not be required to engage outside consultants to
attain compliance, and any costs associated with attaining compliance will
not be material. The Company plans to load a copy of all of its
production applications, its database system software, the current release
of AIX and copies of live data for testing. Key factors to be tested
include: proper recognition of dates in 1999 for date; arithmetic and
proper program logic; proper recognition and use of dates crossing the
century year from 1999 to 2000; and proper recognition and use of dates
for February 29, 2000.
Major Customers
Operating revenues derived from U.S. Governmental Agencies were
approximately $49.7 million, $52.5 million and $40.7 million for the years
ended December 31, 1997, 1996, and 1995, respectively, which represents
16 percent, 17 percent and 20 percent of total operating revenues for
1997, 1996, and 1995, respectively. There was no other single customer
that exceeded 10 percent of operating revenues during this same period.
Report of Independent Accountants
To the Board of Directors and Stockholders of
TRISM, Inc.
We have audited the accompanying consolidated balance sheets of TRISM,
Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of TRISM, Inc. as of December 31, 1997 and 1996, and the
consolidated results of its operations and cash flows for each of the
three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 6, 1998
Quarterly financial data - unaudited
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share amounts)
1997:
Revenues $ 77,733 $ 81,340 $ 78,472 $ 72,335
Operating income (loss) (1,052) 5,118 3,672 (823)
Net income (loss)available
to common stockholders (3,406) 897 146 (3,242)
Earnings (loss) per share (.59) .16 .03 (.58)
Number of shares used in
Computation of earnings
(loss) per common share 5,737 5,737 5,737 5,737
1996:
Revenues $ 73,040 $ 79,228 $ 80,166 $ 77,599
Operating income 250 3,573 4,857 (3,598)
Net income (loss) available
to common stockholders (2,198) 507 614 (5,521)
Earnings (loss) per share (.38) .09 .11 (.97)
Number of shares used in
computation of earnings
(loss) per common share 5,737 5,734 5,734 5,738
1995:
Revenues $ 62,176 $ 68,030 $ 67,658 $ 70,580
Operating income 4,006 7,001 4,864 3,722
Net income available to
common stockholders 352 2,224 1,205 93
Earnings per share
before extraordinary item .06 .39 .21 .01
Number of shares used in
computation of earnings
per common share 5,891 5,774 5,802 5,735
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
PART III
ITEM 10. Directors and Executive Officers of the Registrant
A definitive proxy statement of TRISM, Inc. will be filed not later
than 120 days after the end of the fiscal year with the Securities and
Exchange Commission. The information regarding directors will be included
in the Company's Proxy Statement for the 1998 Annual Meeting of Stock-
holders and is incorporated herein by reference. The information with
respect to the executive officers of the Company required by this item is
set forth in Item 4 of this Form 10-K.
ITEM 11. Executive Compensation
The information required by this item will be included in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders
and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item will be included in the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item will be included in the
Company's Proxy for the 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements ***
Consolidated Balance Sheets at December 31, 1997 and December 31, 1996
Consolidated Statements of Operations for the three years ended
December 31, 1997
Consolidated Statements of Common Stockholders' Equity for the three
years ended December 31, 1997
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
***The financial statements of each of the Company's subsidiaries
are omitted because all of the Company's subsidiaries guarantee
the Company's outstanding 10 3/4% Senior Subordinated Notes due
2000 on a full, unconditional, and joint and several basis.
Financial Statement Schedule for the three years ended December 31, 1997
Schedule II - Valuation and Qualifying Accounts
All other schedules for the Company are omitted because they are not
required or not applicable. The required information is included in the
financial statements or notes thereto.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K, Continued
Exhibit Index
The following exhibits are filed as part of this report.
Exhibit
Number Description
* 3.1 Certificate of Incorporation, as amended through January 21,
1993, of TRISM, Inc.
* 3.2 By-laws of TRISM, Inc.
* 4.1 Form of Indenture
* 4.2 Specimen Certificate for the Common Stock, par value $.01 per
share, of TRISM, Inc.
10.1 Revolving line of credit facility with CIT.
* Exhibit is incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-71222, initially filed
with the Securities and Exchange Commission on November 4, 1993,
as amended.
Reports on Form 8-K
During the fourth quarter of 1997, there were no reports filed on Form 8-K.
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRISM, INC.
s/James M. Revie
James M. Revie
Director, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 13, 1998 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
s/James M. Revie Director, Chairman of the Board and
James M. Revie Chief Executive Officer
s/E. Virgil Conway Director
E. Virgil Conway
s/Julian H. Gingold Director
Julian H. Gingold
s/James F. Higgins Director
James F. Higgins
s/William M. Legg Director
William M. Legg
s/James G. Overley Senior Vice President of Finance and
James G. Overley Treasurer (Chief Financial Officer)
s/John L. Ray Director
John L. Ray
SCHEDULE II
TRISM, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
(1) (2)
BALANCE CHARGED CHARGED
AT TO TO
BEGINNING COSTS OTHER BALANCE AT
OF AND ACCOUNTS DEDUCITONS END OF
DESCRIPTION PERIOD EXPENSES DESCRIBED DESCRIBE PERIOD
1997:
Allowance for
doubtful
accounts $2,396,621 1,387,975 - 1,714,878(A) 2,069,718
1996:
Allowance for
Doubtful
accounts $1,584,386 1,573,500 - 761,265(A) 2,396,621
1995:
Allowance for
doubtful
accounts $1,709,634 307,123 - 432,371(A) 1,584,386
(A) Represents net write-offs of uncollectible accounts.
Exhibit 11.1
TRISM, INC.
COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) SHARE
(Dollars in thousands except per share amounts)
For the years ended December 31,
1997 1996 1995
Net Income (loss)
Net Income (loss) $ (5,605) (6,598) 3,874
Net income (loss) available
common stockholders $ (5,605) (6,598) 3,874
Weighted average number
of shares 5,737,137 5,735,175 5,760,412
Common share equivalent from
assumed exercise of Stock
Options - - 1,679
5,737,137 5,735,175 5,760,412
Earnings (loss) per share
Basic $ (.98) (1.15) .67
Diluted $ (.98) (1.15) .67
Basic earnings (loss) per share excludes dilution and is computed by
dividing net earnings (loss) by the weighted average number of common
shares outstanding. Common shares outstanding include issued shares
less shares held in treasury. Diluted earnings per share reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock
(common stock equivalents). Diluted earnings per share is calculated
by dividing net income by the sum of the weighted average number of
common shares outstanding and dilutive common stock equivalents at the end
of each reporting period. Common stock equivalents are excluded from the
diluted calculation if a net loss was incurred for the period as these
transactions are anti-dilutive.
Exhibit 21.1
TRISM, INC.
Subsidiaries of TRISM, Inc.
Trism Secured Transportation, Inc. Delaware
Tri-State Motor Transit Co. Delaware
Aero Body and Truck Equipment Company, Inc.,
Tri-State Transportation Service, Inc. Missouri
Diablo Systems Incorporated
d/b/a/ Diablo Transportation, Inc. California
Emerald Leasing, Inc. Nevada
McGil Special Services, Inc. Delaware
Trism Eastern, Inc.
d/b/a/ C.I. Whitten Transfer Delaware
Trism Heavy Haul, Inc. Delaware
Trism Specialized Carriers, Inc. Georgia
Trism Special Services, Inc. Georgia
AAA Truck Lease & Sales, Inc. Georgia
E.L. Powell & Sons Trucking Co., Inc. Oklahoma
Trism Transport Services, Inc. Utah
EFB, Inc. Delaware
TRISM Logistics, Inc. New Jersey
Trism Equipment, Inc. Delaware
TRISM Maintenance Services, Inc. Delaware
Transportation Recovery Systems, Inc. Delaware