EXHIBIT 99.1
MDR CARTAGE, INC. and
BF TRANSPORTATION, INC.
Combined Financial Statements
For the year ended December 31, 1998
and for the six months ended
June 30, 1998 and June 30, 1999
(unaudited)
Report of Independent Accountants
October 12, 1999
To the Stockholders of MDR Cartage, Inc. and
BF Transportation, 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 combined financial position of MDR
Cartage, Inc. and BF Transportation, Inc. at December 31, 1998, and the combined
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 Companies' 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 opinion provides a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
MDR CARTAGE, INC. and BF TRANSPORTATION, INC.
Combined Balance Sheets
- --------------------------------------------------------------------------------
December 31, June 30,
1998 1999
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash $ 966,485 $ 620,069
Accounts receivable net of allowance for
doubtful accounts $257,997 and $272,997 1,810,889 2,489,045
Other current assets 413,997 722,564
Deferred income taxes 404,186 424,019
----------- -----------
Total current assets 3,595,557 4,255,697
Noncurrent assets:
Property and equipment 15,270,023 14,265,836
Total noncurrent assets
----------- -----------
Total assets $18,865,580 $18,521,533
=========== ===========
LIABILITIES, AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,555,798 $ 3,359,594
Current maturities - notes payable - related parties 1,102,835 1,402,174
Line of Credit 17,364 700,000
Bank overdrafts 471,291 700,000
Accounts payable 106,701 317,384
Accrued expenses and other current liabilities 763,978 668,115
Federal and state income taxes 480,283 -0-
----------- -----------
Total current liabilities 6,498,250 7,147,267
----------- -----------
Noncurrent liabilities
Long-term debt 3,112,354 2,513,829
Notes payable - related parties 1,316,470 1,402,174
Deferred income taxes 2,995,097 3,069,676
----------- -----------
Total noncurrent liabilities 7,423,921 6,985,679
----------- -----------
Total liabilities 13,922,171 14,132,946
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock
MDR Cartage Inc., no par value, 2,000 shares
authorized, 200 shares issued and outstanding 6,281 6,281
BF Transportation, Inc., no par value, 2,000 shares
authorized, 100 shares issued and outstanding 1,000 1,000
Treasury stock (274,323) (274,323)
Returned Earnings 5,210,451 4,655,629
----------- -----------
Total stockholders' equity 4,943,409 4,388,587
----------- -----------
Total liabilities and stockholders' equity $18,865,580 $18,521,533
=========== ===========
See accompanying notes to combined financial statements.
2
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Combined Statements of Operations
- --------------------------------------------------------------------------------
Year Ended (Unaudited)
December 31, Six Months Ended June 30,
------------ --------------------------
1998 1998 1999
Operating revenues $23,021,510 $11,478,444 $12,552,986
----------- ----------- -----------
Operating expenses
Salaries, wages and benefits 8,279,341 4,263,462 4,365,623
Fuel 3,490,558 1,791,656 1,765,844
Operating supplies and expenses 4,429,269 2,219,343 2,689,174
Lease expense - revenue equipment 1,688,878 856,437 1,054,091
Insurance 522,926 308,547 356,838
Depreciation and amortization expense 2,765,451 1,412,300 2,121,183
General and administrative expense 331,687 168,444 68,702
----------- ----------- -----------
Total operating expenses 21,508,110 11,020,189 12,421,455
----------- ----------- -----------
Operating income 1,513,400 458,255 131,531
----------- ----------- -----------
Interest expense 572,613 274,163 291,079
----------- ----------- -----------
Income (loss) before income taxes 940,787 184,092 (159,548)
Provision (benefit) for income taxes 338,303 43,560 (45,171)
----------- ----------- -----------
Net Income (Loss) 602,484 140,532 (114,377)
=========== =========== ===========
See accompanying notes to combined financial statements.
3
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Combined Statements of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
BF
Transportation,
MDR Inc. Total
Common Common Treasury Retained Stockholders'
Stock Stock Stock Earnings Equity
--------- --------------- ---------- ----------- -------------
Balance at December 31, 1997 $ 6,281 $ 1,000 $(274,323) $5,463,069 $5,196,027
Distributions (855,102) (855,102)
Net Income 602,484 602,484
--------- --------- --------- ---------- ----------
Balance at December 31, 1998 6,281 1,000 (274,323) 5,210,451 4,943,409
Distributions (440,445) (440,445)
Net Loss (unaudited) (114,377) (114,377)
--------- --------- --------- ---------- ----------
Balance at June 30, 1999 $ 6,281 $ 1,000 $(274,323) $4,655,629 $4,388,587
(unaudited) ========= ========= ========= ========== ==========
See accompanying notes to combined financial statements.
4
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Combined Statements of Cash Flows
- --------------------------------------------------------------------------------
Year Ended (Unaudited)
December 31, Six Months Ended June 30,
------------- --------------------------
1998 1998 1999
Cash flows from operating activities
Income (loss) from operations $ 602,484 $ 140,532 $ (114,377)
----------- ----------- -----------
Adjustments to reconcile net income (loss)
to cash provided by operating activities
Depreciation and amortization 2,765,451 1,412,300 2,121,183
Changes in assets and liabilities
Increase (decrease) in accounts receivable 336,829 63,848 (678,156)
Increase (decrease) in other assets 347,959 (72,350) (308,567)
Increase (decrease) in accounts payable and accrued expenses 254,901 (50,931) (82,010)
----------- ----------- -----------
Total adjustments 3,705,140 1,352,867 1,052,450
----------- ----------- -----------
Net cash provided by operating activities 4,307,624 1,493,399 938,073
----------- ----------- -----------
Cash flows from financing activities
Net repayments on long-term debt (2,983,307) (1,143,636) (844,044)
Distributions to stockholders (855,107) (667,755) (440,445)
----------- ----------- -----------
Net cash used in financing activities (3,838,414) (1,811,391) (1,284,489)
----------- ----------- -----------
Increase (decrease) in cash 469,210 (317,992) (346,416)
Cash, beginning of period 497,275 497,275 966,485
----------- ----------- -----------
Cash, end of period $ 966,485 $ 179,283 $ 620,069
Supplemental cash flow data
Cash paid for interest $ 568,621 $ 272,381 $ 293,290
=========== =========== ===========
Cash paid for taxes $ 119,592 $ 119,592 $ 411,641
=========== =========== ===========
Non-cash Investing and Financing Activities
The Company acquired property and equipment with a book value of $4,639,448,
$1,791,687 and $1,116,996 during the year ended December 31, 1998 and the six
months ended June 30, 1998 and June 30, 1999, respectively, by incurring
indebtedness.
See accompanying notes to combined financial statements.
5
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
1. Organization and Basis of Presentation
MDR Cartage, Inc. and BF Transportation, Inc. are nationwide bulk freight
trucking companies based in Jonesboro, Arkansas, engaged in the short and
long haul transportation services business. The Companies' primary areas of
operations are the Northeast, Eastern seaboard, and the Southern United
States.
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 MDR Cartage, Inc.
and BF Transportation, 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
the Company's results of operations or financial position.
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 programs utilize zero balance accounts. The Company
maintains its cash balances in financial institutions located in Jonesboro,
Arkansas. The balances are insured up to $100,000.
Concentrations of credit risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade accounts
receivable. Three companies accounted for 42% of the Company's revenue for
the year ended December 31, 1998 and the six months ended June 30, 1998 and
1999. The Company reviews a customer's credit history before extending
credit and generally does not require collateral. The Company maintains an
allowance for doubtful accounts based upon factors surrounding the credit
risk of
6
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
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 are believed inherent in the
Company's trade accounts receivable.
Inventories
Inventories consist principally of repair parts and fuel and are stated at
the lower of cost or market on a first-in first-out (FIFO) basis.
Fair Values of Financial Instruments
Disclosure of fair value information about certain financial instruments,
whether or not recognized in the balance sheet for which it is practicable to
estimate that value, is required by SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments."
The carrying amounts of financial instruments including cash and cash
equivalents, trade accounts receivable, trade accounts payable, and accrued
liabilities and expenses approximate fair value because of the relatively
short maturity of these investments. The carrying value of notes payable
approximate fair value as their interest rates approximate market rates.
Property and 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. Depreciation is provided using
the straight-line method over the estimated useful life of the asset. 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
Revenue Equipment 6 to 10
Service and garage equipment 3 to 7
Office Furniture, Fixtures and Equipment 5 to 10
Buildings and Leasehold Improvements 7 to 40
Income taxes
MDR Cartage, Inc. applies Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS 109, the deferred
tax liability or asset is determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by
the enacted tax rates which will be in effect when these differences reverse.
BF Transportation, Inc. is organized as an S-Corporation and is therefore
exempt from federal and Arkansas 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.
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 provisions of SFAS 130
were adopted during the current period.
7
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -------------------------------------------------------------------------------
The Company has no items of other comprehensive income at December 31, 1998
and June 30, 1999.
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 the current period. 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:
June 30,
December 31, 1999
1998 (Unaudited)
------------ -----------
Refundable income taxes $ - $220,067
Inventories 211,090 221,793
Deposits 86,560 86,560
Prepaid licenses and insurance 116,347 194,144
-------- --------
$413,997 $722,564
======== ========
4. Income Taxes
The provision (benefit) for income taxes consists of the following:
6 months 6 months
ended ended
Year Ended June 30, June 30,
December 31, 1998 1999
1998 (Unaudited) (Unaudited)
-------------- ----------- -----------
Current
-------
Federal $ 387,283 $ 92,456 $ (86,994)
State 93,000 17,357 (16,332)
--------- -------- ---------
480,283 109,813 (103,326)
Deferred (141,980) (66,253) 58,155
--------- -------- ---------
$ 338,303 $ 43,560 $ (45,171)
========= ======== =========
8
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
The components of the net deferred tax liability are as follows:
Year ended June 30,
December 31, 1999
1998 (Unaudited)
----------- -------------
Depreciation $3,288,260 $3,237,685
Estimated expenses deductible in
future tax periods (697,349) (592,028)
---------- ----------
Net deferred income tax liability $2,590,911 $2,645,657
========== ==========
The difference between the provision for income taxes attributable to
continuing operations and the amounts that would be expected using the
Federal statutory income tax rate of 34% is explained below:
6 months 6 months
ended ended
Year Ended June 30, June 30,
December 31, 1998 1999
1998 (Unaudited) (Unaudited)
------------ ----------- -----------
Tax at federal statutory rate $ 319,868 $ 62,591 $(54,246)
Income not subject to taxation
at Corporate level (232,409) (118,032) (84,597)
Nondeductible expenses 191,543 95,772 98,386
State taxes, net 59,301 3,229 (4,714)
--------- --------- --------
Net provision benefit for income tax $ 338,303 $ 43,560 $(45,171)
========= ========= ========
9
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
5. Property and Equipment
December 31, June 30,
1998 1999
(unaudited)
------------ -----------
Property and Equipment consists of
the following:
Revenue Equipment $22,082,314 $21,314,886
Service and Garage Equipment 810,713 616,530
Office Furniture, Fixtures, and
Equipment 370,701 370,701
Buildings and Leasehold Improvements 972,787 972,787
Land 305,322 305,322
----------- -----------
24,541,837 23,580,226
Less: Accumulated depreciation
and amortization (9,271,814) (9,314,390)
----------- -----------
$15,270,023 $14,265,836
=========== ===========
10
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
6. Long-Term Debt
June 30,
December 31, 1999
1998 (Unaudited)
------------ -----------
Notes payable to commercial lenders,
secured primarily by revenue equipment;
interest rates from 5.69% to 9.5%; payable
in monthly installments through 2004 $ 6,668,152 $5,955,597
Notes payable to related parties, unsecured;
interest at 8%; $919,500 due July 30, 1999,
remainder payable in monthly installments
through 2002 2,419,305 2,722,174
----------- ----------
$ 9,087,457 $8,677,771
Less current portion (4,658,633) (4,761,768)
----------- ----------
$ 4,428,824 $3,916,003
=========== ==========
Long-term debt matures as follows:
December 31,
Year Ended 1998
---------- -------------
1999 $4,658,633
2000 2,448,045
2001 1,039,355
2002 654,886
2003 232,061
Thereafter 54,477
----------
Total long-term debt 9,087,457
==========
7. Line of Credit Facility
MDR Cartage, Inc. has a line of credit facility which provides for borrowings
up to $700,000 with interest accruing at 9%. The line was secured by accounts
receivable and real estate. The initial term of the line of credit facility
matured on July 16, 1999, and was renewed for an additional term of one year.
11
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
8. Operating Leases
MDR leases equipment from independent lessors and an employee on a regular
basis. All of the leases are operating leases, and no leases have terms
extending beyond 12 months from December 31, 1998. The terms of the lease
with an employee is, in the opinion of the Company, no less favorable to the
Company than would be obtained from unrelated third parties.
9. Retirement Plan
In 1997, MDR Cartage, Inc. adopted a 401(k) Retirement Plan covering
substantially all employees with at least 12 months of service. The plan
provides for MDR Cartage, Inc. matching contributions of up to 6% of wages.
The expenses associated with this plan reflected in the combined statements
of income for the year ended December 31, 1998, and for the six months ended
June 30, 1998 and June 30, 1999, were $36,848, $25,104, and $18,000,
respectively.
10. Contingencies
The Company is a party to various legal actions, which are ordinary, and
incidental to its business. While the outcomes of legal actions cannot be
predicted with certainty, the Company believes the outcome of any of these
proceedings, or all of them combined, will not have a material adverse
effect on its combined financial position or results of operations.
12
MDR CARTAGE, INC. AND BF TRANSPORTATION, INC.
Notes to Combined Financial Statements
December 31, 1998, June 30, 1998, and June 30, 1999
- -----------------------------------------------------------------------------
11. Subsequent Events
On June 30, 1999, the Company was purchased by Transit Group, Inc. for
2,450,000 shares of Transit Group, Inc. common stock and $1,800,000 of cash.
As a result of the purchase, BF Transportation, Inc. was converted to a
C-corporation and recorded a noncurrent deferred tax liability of
approximately $135,000.
13