EXHIBIT 99.1
R&M ENTERPRISES, INC.
and
WILLIAMS TRUCK
BROKERS, INC.
Combined Financial Statements
For the year ended December 31, 1998
and six months ended June 30, 1998 and
1999 (unaudited)
R&M ENTERPRISES, INC.
Table of Contents
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Pages
Report of Independent Accountants 1
Combined Financial Statements
Combined Balance Sheet
December 31, 1998 and June 30, 1999 (unaudited) 2
Combined Statements of Income
For the year ended December 31, 1998 and six months ended 3
June 30, 1998 and 1999 (unaudited)
Combined Statement of Changes in Stockholders' Equity
For the year ended December 31, 1998 and six months ended
June 30, 1999 (unaudited) 4
Combined Statement of Cash Flows
For the year ended December 31, 1998 and six months ended 5
June 30, 1998 and 1999 (unaudited)
Notes to Combined Financial Statements 6-11
Report of Independent Accountants
To the Stockholders of
R&M Enterprises, Inc. and
Williams Truck Brokers, Inc.
In our opinion, the accompanying combined balance sheet and the related combined
statements of income, of changes in stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of R&M
Enterprises, Inc, and Williams Truck Brokers, Inc. at December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
September 8, 1999
1
R&M ENTERPRISES, INC.
Combined Balance Sheet
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December 31, June 30,
1998 1999
(unaudited)
ASSETS
Current assets
Cash $ 278,456 $ -
Accounts receivable, net of allowance for doubtful accounts
of $10,100 and $12,193 1,965,227 1,873,429
Other current assets 251,668 192,170
--------------- ---------------
Total current assets 2,495,351 2,065,599
--------------- ---------------
Noncurrent assets
Property, equipment, and capitalized leases, net of
accumulated depreciation of $2,165,271 and $2,538,344 9,245,957 10,960,022
Other assets 1,811 -
--------------- ---------------
Total noncurrent assets 9,247,768 10,960,022
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Total assets $ 11,743,119 $ 13,025,621
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current obligations under capital leases $ 51,352 $ 50,851
Current maturities of long-term debt 2,194,650 2,104,608
Accounts payable 797,939 578,117
Bank overdrafts 20,863 195,568
Accrued expenses and other current liabilities 144,085 306,994
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Total current liabilities 3,208,889 3,236,138
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Noncurrent liabilities
Long-term obligations under capital leases 95,256 65,102
Long-term debt 3,738,846 4,807,827
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Total noncurrent liabilities 3,834,102 4,872,929
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Total liabilities 7,042,991 8,109,067
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Commitments and contingencies
Stockholders' Equity
R&M Enterprises, Inc. - $1 par value, 10,000 shares authorized, 1,000
shares issued and outstanding; Williams Truck Brokers, Inc. - $1 par
value, 10,000 shares authorized, 1,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 300,000 300,000
Retained earnings 4,398,128 4,614,554
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Total stockholders' equity 4,700,128 4,916,554
--------------- ---------------
Total liabilities and stockholders' equity $ 11,743,119 $ 13,025,621
--------------- ---------------
See accompanying notes to combined financial statements.
2
R&M ENTERPRISES, INC.
Combined Statements of Income
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Year ended Six months ended
December 31, June 30, June 30,
1998 1998 1999
(unaudited)
Operating revenues $ 19,385,368 $ 8,998,937 $ 10,647,805
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Operating expenses
Purchased transportation 8,580,476 4,130,852 4,982,138
Salaries, wages and benefits 3,596,028 1,554,782 2,023,605
Fuel 1,753,569 807,489 1,011,378
Operating supplies and expenses 1,260,544 602,050 886,472
Insurance 803,679 380,582 463,600
Depreciation and amortization expense 1,071,975 470,987 696,593
General and administrative expense 336,016 152,551 222,822
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Total operating expenses 17,402,287 8,099,293 10,286,608
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Operating income 1,983,081 899,644 361,197
Interest expense 377,267 128,257 115,701
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Net income $ 1,605,814 $ 771,387 $ 245,496
============= ============= =============
See accompanying notes to combined financial statements.
3
R&M ENTERPRISES, INC.
Combined Statement of Changes in Stockholders' Equity
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Total
Common Additional Retained Stockholders'
Stock Paid-in Capital Earnings Equity
Balance at December 31, 1997 2,000 $ 300,000 $ 2,983,060 $ 3,285,060
Distributions to stockholders (190,746) (190,746)
Net income 1,605,814 1,605,814
----------------- ---------------- ---------------- ----------------
Balance, December 31, 1998 2,000 300,000 4,398,128 4,700,128
================= ================ =============== ================
Distributions to stockholders (unaudited) (29,070) (29,070)
Net income (unaudited) 245,496 245,496
----------------- ---------------- --------------- ----------------
Balance, June 30, 1999 (unaudited) 2,000 $ 300,000 $ 4,614,554 $ 4,916,554
================= ================ =============== ================
See accompanying notes to combined financial statements.
4
R&M ENTERPRISES, INC.
Combined Statements of Cash Flows
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Year ended Six months ended
December 31, June 30, June 30,
1998 1998 1999
(unaudited)
Cash flows from operating activities
Net income $ 1,605,814 $ 771,387 $ 245,496
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Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 1,071,975 470,987 696,593
Loss on disposal of equipment 30,508 21,102 80,303
Provision for loss on accounts receivable 10,100 - 2,093
Changes in assets and liabilities
(Increase) decrease in accounts receivable (517,597) (731,951) 89,705
(Increase) decrease in other current assets (72,964) 78,080 59,498
Decrease in other assets 7,962 - 1,811
Increase (decrease) in accounts payable and accrued expenses 417,121 261,739 (56,913)
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Total adjustments 947,105 99,957 873,090
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Net cash provided by operating activities 2,552,919 871,344 1,118,586
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Cash flows from investing activities
Disposal of equipment - - 180,000
Purchase of equipment (4,096,378) (2,444,272) (2,700,031)
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Net cash used in investing activities (4,096,378) (2,444,272) (2,520,031)
------------- ------------- -------------
Cash flows from financing activities
Repayment of capital lease obligation and long-term debt (2,057,079) (2,085,864) (1,362,526)
Increase in long-term debt 4,332,200 2,909,151 2,475,810
Net borrowings (repayments) on line of credit (189,000) 778,146 (165,000)
Distributions to owners (190,746) (109,005) -
Increase (decrease) in bank overdraft (73,460) 80,500 174,705
------------- ------------- -------------
Net cash provided by financing activities 1,821,915 1,572,928 1,122,989
------------- ------------- -------------
(Decrease) increase in cash 278,456 - (278,456)
Cash, beginning of period - - 278,456
------------- ------------- -------------
Cash, end of period $ 278,456 $ - $ -
============= ============= =============
Supplemental cash flow data
Cash paid for interest $ 377,267 $ 128,257 $ 115,701
============= ============= =============
Noncash financing activities
Distribution of equipment to stockholders $ - $ - $ 29,070
============= ============= =============
See accompanying notes to combined financial statements
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R&M ENTERPRISES, INC.
Notes to Combined Financial Statements
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1. Organization and Basis of Presentation
R&M Enterprises, Inc. is a Nebraska corporation engaged in the short and
long haul transportation services business.
Williams Truck Brokers, Inc. is a Nebraska corporation whose business
consists of arranging the shipment of goods for a variety of shippers
utilizing unrelated transportation companies.
2. Summary of Significant Accounting Policies
Interim statements
The combined financial statements for the six months ended June 30, 1998
and 1999 contained in this report are unaudited but reflect all
adjustments, consisting of only normal recurring adjustments, necessary
for the fair presentation of the results for the interim periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year.
Principles of combination
The combined financial statements include the accounts of R&M
Enterprises, Inc. and Williams Truck Brokers, Inc. (collectively the
"Company"). The Companies are affiliated through common ownership. All
material inter-company transactions have been eliminated in combination.
Estimates
The process of preparing financial statements requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
Revenue recognition
Revenues and related expenses are recognized under a method which
approximates when freight is shipped. The Company believes that
alternative methods of revenue recognition would not result in a material
difference in annual revenues or earnings per share.
Cash
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. The
Company's cash management program utilizes zero balance accounts.
Concentrations of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. Two customers represent 26% and 27% of the Company's accounts
receivable and revenue balances, respectively, at December 31, 1998.
Although the company does not currently foresee a credit risk associated
with these receivables, payment is dependent upon the financial stability
of these companies.
6
The Company reviews a customer's credit history before extending credit
and generally does not require collateral. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends, and other information. The
Company's historical experience in collection of accounts receivable
falls within the recorded allowances. Due to these factors, no additional
credit risk beyond amounts provided for collection losses is believed
inherent in the Company's trade accounts receivable.
Fair value of financial instruments
The Company has short-term trade receivables and payables and long-term
debt instruments, including capital leases. The carrying values of trade
receivables and payables equal current fair value. The terms of the
Company's revolving credit agreement include variable interest rates
which approximate current market rates. The Company's long-term debt
instruments include varying interest rates between 6.9% and 10.25%. Based
on the current balance due, the fair value of these instruments does not
differ materially from the carrying value
Equipment
Equipment is stated at historical cost. Except for life extending repair
costs (such as engine overhauls), all equipment maintenance and repair
costs are charged to operating expense as incurred. The Company
periodically reviews the value of its equipment to determine if an
impairment has occurred. The Company measures the potential impairment of
its equipment by the undiscounted value of expected future operating cash
flows in relation to the fair value of the equipment. Based on its review
the Company does not believe an impairment of its equipment has occurred.
Depreciation is provided using the straight-line method over the
estimated useful life of the asset. Leased equipment is amortized over
varying periods not in excess of the estimated useful life of the asset
or lease term depending on the type of capital lease. Gain or loss upon
retirement or disposal of equipment is recorded as income or expense. The
ranges of depreciable lives used for financial reporting purposes are:
Years
-----------
Tractors, trailers and life extending repairs 3 to 7
Office and shop equipment and furniture 3 to 7
Income taxes
The Company is organized as an S-Corporation and is therefore exempt from
federal and Nebraska state income tax. Taxable income of the Company is
allocated to its shareholders for inclusion in the determination of their
individual taxable income. Accordingly, federal and state income taxes
are not provided for in 1998.
Comprehensive income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The
provision of SFAS 130 were adopted during the current period. The Company
has no items of other comprehensive income at December 31, 1998.
7
R & M ENTERPRISES, INC.
Notes to Combined Financial Statements
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Business segments
Segments are determined by the "management approach" as described in SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which the Company adopted in 1998. Management views the
Company as operating in a single segment.
Earnings per share (EPS)
Given the historical organization and capital structure of the Company,
earnings per share information is not considered meaningful or relevant and
has not been presented in the accompanying combined financial statements or
notes thereto.
3. Other Current Assets
Other current assets consist of the following:
December 31, June 30,
1998 1999
(unaudited)
Prepaid licenses $ 129,144 $ 64,572
Other 122,524 127,598
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$ 251,668 $ 192,170
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4. Property, Equipment, and Capitalized Leases
December 31, June 30,
1998 1999
(unaudited)
Tractors $ 5,562,483 $ 6,729,098
Trailers 5,160,603 5,992,754
Equipment 436,547 524,919
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Total 11,159,633 13,246,771
Less accumulated depreciation 2,089,282 2,444,383
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9,070,351 10,802,388
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Capitalized leases 251,595 251,595
Less accumulated amortization 75,989 93,961
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175,606 157,634
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Total property, equipment, and capitalized leases $ 9,245,957 $ 10,960,022
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8
R & M ENTERPRISES, INC.
Notes to Combined Financial Statements
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5. Long-Term Debt
December 31, June 30,
1998 1999
(unaudited)
Notes payable to commercial lenders, collateralized primarily by
revenue equipment; interest rates from 6.9% to 10.25% payable in
monthly installments through 2004 $ 5,768,496 $ 6,912,435
Line of credit; interest rate at 1% over NY Prime, 8.75% at
December 31, 1998 and June 30, 1999, interest paid monthly;
final maturity April 1999 165,000
------------ ------------
5,933,496 6,912,435
Less current portion 2,194,650 2,104,608
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Long-term portion of long-term debt $ 3,738,846 $ 4,807,827
------------ ------------
At December 31, 1998, $635,000 was available under the line of credit. The
borrowing capacity is limited to 80% of accounts receivable less than 90
days old. Borrowings under the line of credit are guaranteed by the
shareholders.
In April 1999, the Company terminated its old revolving line of credit
agreement and entered into a new line of credit agreement with a maximum
credit amount of $800,000. This agreement terminates on April 30, 2000. The
borrowing capacity is limited to 80% of accounts receivable less than 90
days old. Borrowings under the line of credit are guaranteed by the
shareholders.
Long-term debt matures as follows:
Year Ended December 31,
December 31, 1998
1999 $ 2,194,650
2000 1,734,580
2001 1,257,832
2002 574,788
2003 and thereafter 171,646
------------
Total long-term debt $ 5,933,496
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9
R & M ENTERPRISES, INC.
Notes to Combined Financial Statements
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6. Capitalized Leases
The Company has entered into certain lease agreements which have been
accounted for as capitalized leases. The present value of such commitments
for the capitalized leases are as follows:
Year Ended December 31,
December 31, 1998
1999 $ 64,853
2000 55,508
2001 50,882
----------
Total minimum obligations 171,243
Less interest on capital leases (24,635)
----------
Present value of net minimum obligation 146,608
Less current portion (51,352)
----------
Long-term capitalized lease obligations $ 95,256
----------
Interest expense on obligations outstanding under capitalized leases was
approximately $27,000 for the year ended December 31, 1998. Interest
expense on obligations outstanding under capitalized leases was
approximately $16,000 for the six months ended June 30, 1999.
7. Operating Leases
The Company also leases its office facilities under a non-cancelable
operating lease agreement. The lease expires July 19, 2002 and provides
that the Company will pay real estate taxes, maintenance, insurance and
certain other expenses. Future minimum payments under this non-cancelable
operating lease were:
Year Ended December 31,
December 31, 1998
1999 $ 132,000
2000 132,000
2001 132,000
2002 77,000
----------
Total $ 473,000
----------
Total rent expense was $132,000 for the year ended December 31, 1998 and
$66,000 for the six months ended June 30, 1999. The Company believes that
upon expiration of this lease it will be able to negotiate a new lease on
acceptable terms although lease costs may increase.
10
R & M ENTERPRISES, INC.
Notes to Combined Financial Statements
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8. Commitments and Contingencies
The Company had outstanding standby irrevocable letters of credit of
approximately $191,000 at December 31, 1998 and June 30, 1999. These
letters of credit which are payable at sight, collateralize the Company's
obligations to third parties for the purchase of insurance and fuel. The
contract amounts of these letters of credit approximate their fair value.
9. Related Party Transactions
The Company leases its office and shop space, purchases its business forms,
and hauls goods for businesses in which an owner of the Company is an
owner. During 1998, the Company recorded lease expense, supplies expense,
and operating revenues to these entities of approximately $132,000,
$14,000, and $145,000, respectively.
10. Subsequent Events
On July 19, 1999, the Company was purchased by Transit Group, Inc. Williams
Truck Brokers, Inc. was purchased for cash consideration of $1,450,000. R&M
Enterprises, Inc. was purchased for 1,215,000 shares of TGI valued at $6.1
million. As a result of the purchase, the Company was converted to a C-
corporation and recorded a current deferred tax asset and noncurrent
deferred tax liability of approximately $19,000 and $1.8 million.
11