UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
4174 Jiles Road, Kennesaw, Georgia 30144
(Address of principal executive offices) (Zip Code)
(770) 795-4600
Registrant's telephone number, including area code
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
As of June 30, 1999, 5,702,137 shares of TRISM, Inc.'s common stock,
par value $.01 per share, were outstanding.
1
TRISM, INC
TABLE OF CONTENTS
ITEM PAGE
Part I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2 Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 6. Exhibits and Reports on Form 8-K 14
2
ITEM 1. Financial Statements
TRISM, Inc.
Consolidated Balance Sheets
As of June 30, 1999 and December 31, 1998
(In thousands, unaudited)
June 30, December 31,
1999 1998
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,797 $ 2,029
Restricted cash and insurance deposits 848 847
Accounts receivable, net of allowance for doubtful accounts
of $1,017 and $1,063 for 1999 and 1998, respectively 40,218 37,388
Materials and supplies 1,080 1,389
Prepaid expenses 17,385 18,795
Deferred income taxes 3,053 3,901
--------- -----------
Total current assets 64,381 64,349
Property and equipment, at cost 198,039 193,953
Less: accumulated depreciation and amortization (72,502) (64,775)
--------- -----------
Net property and equipment 125,537 129,178
Intangibles and other, net 19,172 19,624
Other 499 801
--------- -----------
Total assets $209,589 $ 213,952
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,153 $ 7,206
Bank overdraft 2,952 5,642
Accrued expenses and insurance reserves 11,502 11,832
Accrued interest expense 5,607 580
Current maturities of long-term debt:
Principal payments 16,837 13,857
Residual obligations on equipment debt 1,667 4,014
Long-term debt classified as current 143,206 -
--------- -----------
Total current liabilities 189,924 43,131
Long-term debt, less current maturities - 144,419
Insurance reserves 7,221 6,702
Deferred income taxes 3,053 3,901
--------- -----------
Total liabilities 200,198 198,153
Stockholders' equity:
Common stock; $.01 par; 10,000 shares authorized;
issued 5,903 shares 59 59
Additional paid-in capital 37,229 37,229
Loans to stockholders - (83)
Accumulated deficit (26,260) (19,769)
Treasury stock, at cost, 201 shares (1,637) (1,637)
--------- -----------
Total stockholders' equity 9,391 15,799
--------- -----------
Total liabilities and stockholders' equity $209,589 $ 213,952
========= ===========
See accompanying notes to consolidated financial statements.
3
ITEM 1. Financial Statements, Continued
TRISM, Inc.
Consolidated Statements of Operations
For the three and six months ended June 30, 1999 and 1998
(In thousands, except per share amounts, unaudited)
Three Months Ended Six Months Ended
1999 1998 1999 1998
--------- --------- ------------ -----------
Revenues $ 72,170 $ 77,193 $ 140,800 $ 149,322
Operating expenses:
Salaries, wages and fringe benefits 25,610 28,894 51,027 56,917
Operating supplies and expenses 10,119 10,493 19,556 21,409
Contractor equipment 7,369 5,877 13,973 11,178
Brokerage carrier expense 6,686 4,512 11,803 9,136
Operating taxes and licenses 5,789 6,951 11,913 13,542
Depreciation and amortization 4,976 5,006 10,106 10,055
General supplies and expenses 3,534 3,792 7,397 7,354
Claims and insurance 3,029 2,259 5,174 4,685
Revenue equipment rents 2,511 3,454 6,154 6,665
Communications and utilities 1,072 1,366 2,241 2,639
Loss on disposition of assets 102 121 134 538
Non-recurring expenses 99 402 99 402
--------- --------- ------------ -----------
Total operating expenses 70,896 73,127 139,577 144,520
Operating income 1,274 4,066 1,223 4,802
Interest expense, net 3,677 3,558 7,272 7,210
Other expense, net 243 193 441 273
--------- --------- ------------ -----------
Income (loss) before income tax benefit (2,646) 315 (6,490) (2,681)
Income tax expense (benefit) - 110 - (939)
--------- --------- ------------ -----------
Net income (loss) $ (2,646) $ 205 $ (6,490) $ (1,742)
========== ========= ============ ==========
Basic earnings (loss) per share $ (0.46) $ 0.04 $ (1.14) $ (0.30)
========== ========= ============ ==========
Diluted earnings (loss) per share $ (0.46) $ 0.04 $ (1.14) $ (0.30)
========== ========= ============ ==========
Weighted average number of shares used in
computation of basic and diluted earnings (loss) per share 5,702 5,724 5,702 5,724
========== ========= ============ ==========
See accompanying notes to consolidated financial statements.
4
ITEM 1. Financial Statements, Continued
TRISM, Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and 1998
(In thousands, unaudited)
1999 1998
--------- --------
Cash flows from operating activities:
Net loss $ (6,490) $(1,742)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 10,612 10,441
Loss on disposition of assets 134 538
Provision for losses on accounts receivable 121 404
Deferred gain on sale-leaseback (129) (129)
Deferred income taxes - (939)
Changes in assets and liabilities:
Accounts receivable (2,892) 789
Prepaid expenses 1,719 (769)
Accrued expenses and insurance reserves 447 (1,157)
Accrued interest expense, net 4,635 10
Accounts payable 952 (363)
Other 240 (130)
--------- --------
Net cash provided by operating activities 9,349 6,953
--------- --------
Cash flows from investing activities:
Proceeds from sale of assets 1,959 4,773
Purchases of property and equipment (2,691) (1,923)
Other, net 170 595
--------- --------
Net cash (used in) provided by investing activities (562) 3,445
--------- --------
Cash flows from financing activities:
Net proceeds (repayment) under revolving credit agreement (346) 826
Repayment of long-term debt and capital lease obligations (8,533) (11,898)
Issuance of long-term debt 2,750 -
Decrease in bank overdrafts (2,690) (260)
Payment of financing fees (74)
Payment of deferred loan costs (209) -
Collection of stockholder receivable 83 -
Purchase of treasury stock - (87)
--------- --------
Net cash used in financing activities (9,019) (11,419)
--------- --------
Decrease in cash and cash equivalents (232) (1,021)
Cash and cash equivalents, beginning of period 2,029 6,271
--------- --------
Cash and cash equivalents, end of period $ 1,797 $ 5,250
========= ========
Supplemental cash flow information:
Cash paid during the period for:
Interest (non-capitalized) $ 1,355 $ 7,679
========= ========
Capital lease equipment purchases and borrowings $ 5,549 $ 3,785
========= ========
See accompanying notes to consolidated financial statements.
5
TRISM, Inc.
Notes to Consolidated Financial Statements
Accounting Policies
The 1998 Annual Report on Form 10-K for Trism, Inc. includes a summary of
significant accounting policies and should be read in conjunction with this
Form 10-Q. The statements for the periods presented are condensed and do
not contain all information required by generally accepted accounting
principles to be included in a full set of financial statements. In the
opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June
30, 1999 and December 31, 1998 and the results of operations and cash flows
for the periods ended June 30, 1999 and 1998, respectively, have been
included. 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 materially lower than the quarters ending in June
and September due to reduced shipments and higher operating costs in the
winter months. The results of operations for any interim period are not
necessarily indicative of the results of operations to be expected for the
entire year. Certain reclassifications were made to the 1998 accounts to
reflect classifications adopted in 1999.
Long-Term Indebtedness
The Company had approximately $86.2 million of Senior Subordinated Notes
(the "Notes") outstanding as of June 30, 1999, which mature December 15,
2000. The Executive committee of the board of Directors and key management
(the "Committee") were mandated to evaluate the various options available
to refinance the Notes and select the appropriate strategy to successfully
execute a recapitalization plan.
The Company has classified all of its outstanding indebtedness as current.
As described below, the Company failed to make a scheduled interest payment
due on June 15, 1999. The grace period for the payment expired on July 15,
1999. This payment default constitutes an Event of Default under the terms
of the indenture pursuant to which the Notes were issued. This Event of
Default caused other technical defaults under other secured borrowing
arrangements, including the Company's revolving credit facility
("Revolver"). The Company executed a Forbearance Agreement with its
working capital lender on August 1, 1999 which states that the working
capital lender will not exercise any remedy available under the terms of
the Revolver until the earlier of September 30, 1999 or occurrence of
additional items of default. The company is required under the Forbearance
Agreement to maintain a minimum of $5 million in availability under the
Revolver during the forbearance period.
On July 15, 1999, the Company reached an agreement in principle with the
steering committee representing major holders of the Notes. The Company
expects that this agreement will significantly reduce its existing long-
term debt, pay all of its other debt in full, and fully satisfy its trade
and leasing obligations in accordance with their terms. The agreement in
principle is subject to execution of definitive documentation, and is to be
affected pursuant to a pre-arranged plan, which may require court approval.
Pursuant to the restructuring agreement, the Notes will be converted into
(i) new notes in the aggregate principal amount of $30 million, due 2004,
with interest at the rate of 12% per annum (the first semi-annual interest
payment on which will be due in March 2000), and (ii) 95% of the new common
equity of TRISM to be issued post-recapitalization, prior to dilution
respecting a contemplated management stock incentive program. TRISM's
existing common stock will be converted into 5% of the new common equity to
be issued post-recapitalization, prior to dilution.
As a result of the Events of Default under the Indenture to the Notes and
the other secured borrowing arrangements, and pending the completion of the
debt restructuring, the Company has recorded all liabilities in default as
current liabilities in the June 30, 1999 consolidated balance sheet.
Revolving Credit Facility
Cash and Availability under the Revolver was approximately $9.4 million at
June 30, 1999, net of a reduction for outstanding letters of credit of
approximately $12.1 million.
6
Notes to Consolidated Financial Statements, Continued
Contingencies
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.
Segment and Related Information
The Company identifies operating segments based on management
responsibility and marketing strategies. The Company has three reportable
segments: Heavy Haul, Secured Materials and Logistics.
Heavy Haul
This segment consists of Trism Specialized Carriers, Inc. ("TSC"), the
Company's largest operating segment, specializing in the transportation of
over-sized and over-dimensional loads throughout the United States, Canada,
and Mexico. 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. Also, the Company entered the Super Heavy Haul market in 1997
through its strategic alliance with Econofreight Group Limited, a U.K.
subsidiary of Brambles Corporation. The Super Heavy Haul market allows for
the transportation of freight in excess of 80 tons up to 10,000 tons.
Secured Materials
The Secured Materials segment consists of the following: Tri-State Motor
Transit Co. ("TSMT"), Diablo Systems, Inc. ("Diablo") and C.I. Whitten
Transfer ("CIW"), and is characterized by the toxic or explosive nature and
special handling requirements of the cargo. The cargo typically consists
of military munitions, commercial explosives, 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, Diablo and CIW service customers in the munitions and explosives
market and are collectively the largest transporters of Department of
Defense munitions in the continental United States. TSMT and CIW operate
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 continental United States and certain provinces of Canada.
In addition, the group maintains trailer interchange agreements with
certain Mexican carriers.
7
Notes to Consolidated Financial Statements, Continued
Segment and Related Information, Continued
Logistics
The Trism Logistics, Inc. ("TLI") segment specializes in the management of
freight by truck (particularly in the hazardous waste market). TLI's client
base includes engineering and construction companies, suppliers to the
European Community, Fortune 500 companies and major utility companies. In
September of 1998, TLI began operations to provide logistics services to
the rail industry through its intermodal division.
A summary of segment information is presented below (in thousands):
Operating Revenue
Three Months Ended Six Months Ended
Segment 1999 1998 1999 1998
Heavy Haul $ 49,626 $ 53,865 $ 99,320 $ 102,645
Secured Materials 22,561 24,878 42,596 49,205
Trism Logistics 3,442 1,816 5,244 4,129
Eliminations and other (3,459) (3,366) (6,360) (6,657)
---------- ---------- ----------- -----------
Consolidated $ 72,170 $ 77,193 $ 140,800 $ 149,322
========== ========== =========== ===========
Operating Income
Three Months Ended Six Months Ended
Segment 1999 1998 1999 1998
Heavy Haul $ 663 $ 3,016 $ 1,271 $ 3,223
Secured Materials 513 1,031 (339) 1,362
Logistics 98 19 291 217
---------- ---------- ----------- -----------
Consolidated $ 1,274 $ 4,066 $ 1,223 $ 4,802
========== ========== =========== ===========
Interest expense, net 3,677 3,558 7,272 7,210
Other expense, net 243 193 441 273
---------- ---------- ----------- -----------
Loss before income taxes $ (2,646) $ 315 $ (6,490) $ (2,681)
========== ========== =========== ===========
8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain statements in this Form 10-
Q 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, the results of legal
proceedings, and the possible restructuring of the Company as contemplated
by the agreement in principle reached with representatives of certain Note
holders.
The matters referred to in forward-looking statements could be affected by
the risks and uncertainties involved in the Company's business. In
addition, there can be no assurance that the restructuring will occur as
described or at all. 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.
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and notes for the year
ended December 31, 1998 and quarter ended June 30, 1999.
The following table summarizes certain financial information on a
percentage of revenue basis for the three and six months ended June 30,
1999 and 1998.
Three Months Ended Six Months Ended
1999 1998 1999 1998
------ ------ ------ ------
Percentage of Revenue Basis:
Operating Revenue: 100.0 100.0 100.0 100.0
------ ------ ------ ------
Operating Expenses:
Salaries, wages and fringe benefits 35.5 37.4 36.2 38.1
Operating supplies and expenses 14.0 13.6 13.9 14.3
Contractor equipment 10.2 7.6 9.9 7.5
Brokerage carrier expense 9.3 5.8 8.4 6.1
Operating taxes and licenses 8.0 9.0 8.5 9.1
Depreciation and amortization 6.9 6.5 7.2 6.7
General supplies and expenses 4.9 4.9 5.3 4.9
Claims and insurance 4.2 2.9 3.7 3.1
Revenue equipment rents 3.5 4.5 4.4 4.5
Communications and utilities 1.5 1.8 1.6 1.8
Loss on disposition of assets 0.1 0.2 0.1 0.4
Non-recurring expenses 0.1 0.5 0.1 0.3
------ ------ ------ ------
Total operating expenses 98.2 94.7 99.3 96.8
Income from operations 1.8 5.3 0.7 3.2
Interest expense, net 5.1 4.6 5.2 4.8
Other expense, net 0.3 0.3 0.3 0.2
------ ------ ------ ------
Income (loss) before income taxes (3.6) 0.4 (4.8) (1.8)
Income tax expense (benefit) - 0.1 - (0.6)
------ ------ ------ ------
Net income (loss) (3.6) 0.3 (4.8) (1.2)
====== ====== ====== =======
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued
Summary of Second Quarter 1999 Results
Net loss for the quarter ended June 30, 1999, amounted to $2.6 million or
$0.46 per basic share compared to a net earnings of $0.2 million or $0.04
per basic share in the second quarter of 1998. The results for the second
quarter of 1999 include the full reserve for additional tax benefits
associated with the net operating loss carry-forwards in the amount of $0.9
million, or $.16 per share. Furthermore, second quarter operating results
were negatively impacted by lower asset productivity in both the Heavy Haul
and Secured segments. The Company reduced its average owned tractor
capacity by 130 units from the second quarter of 1998. Additionally, the
Heavy Haul and Secured segments were negatively impacted by lower freight
volume.
Operating Revenue
Second Quarter 1999 as compared to the Second Quarter of 1998
Operating revenue decreased $5.0 million, or 6.5% from the second quarter
of 1998 to the second quarter 1999. Revenue per loaded mile was $1.76 for
the quarter ended June 30, 1999 and 1998. Additionally, operating revenues
were impacted by a decline in the load ratio of 0.2% and total miles driven
of approximately 5.0 million from the second quarter of 1998 to the second
quarter of 1999.
The Secured segment was affected by continued competitive market conditions
in the munitions and hazardous waste markets which negatively impacted
asset productivity. In addition, the Heavy Haul segment was impacted by
lower demand, load ratio and asset productivity. The Logistics segment
revenues increased by $1.6 million, primarily as a result of the intermodal
division which began operations in September of 1998.
Six Months Ended June 30, 1999 as compared to Six Months Ended June 30,
1998
Operating revenue decreased $8.5 million, or 5.7% for the six months ended
June 30, 1999 as compared to 1998. Revenue per loaded mile was $1.74 for
the six months ended June 30, 1999 as compared to $1.75 for the six months
ended June 30, 1998. The Company's load ratio and total miles driven also
declined by 0.1% and 8.8 million miles from the six months ended June 30,
1998 to the same period in 1999.
For the six months ended June 30, 1999 and 1998, the Secured segment was
impacted by a decline in the higher margin government munitions and
hazardous waste business of approximately $1.9 million and $6.5 million,
respectively. The foregoing revenue declines were partially offset by an
increase in general freight business that traditionally has lower profit
margins. The Heavy Haul segment was impacted from lower asset
productivity and lower demand. The Logistics segment positively impacted
revenue with an increase of $1.1 million during 1999.
Operating Income
Second Quarter 1999 as compared to the Second Quarter of 1998
Operating income for the three months ended June 30, 1999, was $1.3 million
compared to $4.1 million in 1998. The decline in operating revenue of $5.0
million negatively impacted operating income by $2.4 million primarily as a
result of fewer miles driven.
In addition, certain variable costs on a per mile basis negatively impacted
operating income as follows: (a) higher fuel costs of $0.4 million; (b)
higher contractor equipment costs of $0.7 million as a result of increased
miles driven by contractor equipment; (c) higher maintenance charges
of $0.5 million resulting from an increase in the overall age
of the tractor and trailer fleet; and (d) higher claims and insurance
costs of $0.6 million primarily as a result of accidents relating to cargo
claims.
Furthermore, certain positive cost variances increased operating income in
the second quarter of 1999 as compared to the second quarter of 1998 as
follows: (a) lower general supplies and expenses of $0.2 million; (b)
lower fixed freight operating costs of $1.7 million resulting from reduced
tractor and trailer fleet size and lower general and administrative costs;
and (c) higher Logistics segment operating income of $0.1 million primarily
relating to the intermodal division.
10
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued
Operating Income, Continued
Six Months Ended June 30, 1999 as compared to Six Months Ended June 30,
1998
Operating income for the six months ended June 30, 1999 was $1.2 million as
compared to $4.8 million in 1998. The decline in operating revenue of $8.5
million negatively impacted operating income by $4.1 million primarily as a
result of fewer miles driven.
In addition, certain variable costs on a per mile basis negatively impacted
operating income as follows: (a) higher fuel costs of $0.3 million; (b)
higher contractor equipment costs of $1.1 million as a result of increased
miles driven by contractor equipment; (c) higher maintenance charges
of $0.7 million resulting from an increase in the overall age
of the tractor and trailer fleet; and (d) higher claims and insurance
costs of $0.5 million as result of higher frequency of accidents relating
to cargo claims.
Furthermore, certain positive cost variances increased operating income for
the six months ended June 30, 1998 as compared to the same period in 1998
as follows: (a) lower fixed freight operating costs of $2.7 resulting from
reduced tractor and trailer fleet size and lower general and administrative
costs; (b) lower loss on disposition of assets of $0.4 million; and (c)
higher Logistics segment operating income of $0.1 million.
Operating and Other Expenses
Total operating expenses were approximately $70.9 million for the three
months ended June 30, 1999 and $139.6 million for the six months ended June
30, 1999 as compared to $73.1 million for the three months ended June 30,
1998 and $144.5 million for the six months ended June 30, 1998. The
following expense categories increased or decreased significantly as a
percentage of revenue between the periods:
Salaries, wages and fringe benefits decreased 1.9% of revenue during the
quarter and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The decrease is primarily due to lower non-driver wage
costs and lower driver wages due to an overall increase in the use of
independent contractors.
Operating supplies increased by 0.4% for the three months ended June 30,
1999 as compared to the same period in 1998, due to an increase in fuel
price per gallon and lower tractor fuel economy resulting from an increase
in the age of the tractor fleet. For the six months ended June 30, 1999,
operating supplies decreased by 0.4% due to lower fuel prices during the
first three months of 1999 as compared to the same period in 1998.
Brokerage expenses increased by 3.5% and 2.3 % of revenue from the quarter
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. Brokerage revenue as a percentage of overall revenues increased
3.8% and 2.7% of revenue for the quarter and six months ended June 30,
1999.
Claims and insurance expenses increased by 1.3% and 0.6% of revenue for the
quarter and six months ended June 30, 1999 as compared to the corresponding
periods in 1998 primarily as a result of increased cargo claims.
Revenue equipment rent expenses decreased by 1.0% and increased by 0.1% of
revenue for the quarter and six months ended June 30, 1999 as compared to
the corresponding periods in 1998 consistent with the decrease in the
average number of tractors under operating leases for the quarter ended
1999. The six months ended 1999 increase relates to additional trailer
rentals of $1.1 million pertaining to additional revenues in the Super
Heavy Haul market.
The Company established a valuation allowance of $0.9 and $2.2 million
relating to tax benefits associated with net operating loss carryforwards
for the quarter and six months ended of 1999. In 1998, the Company
recorded an income tax expense of $0.1million and an income tax benefit of
$0.9 million for the quarter and six months ended.
11
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued
Liquidity and Capital Resources
Net cash provided by operating activities was $9.3 million in 1999 compared
to $6.9 million in 1998. The increase is primarily due to the non-payment
of the scheduled interest payment due on June 15, 1999 of $4.6 million on
the Company's 10-3/4% senior subordinated notes.
Net cash used by investing activities was $0.6 million in 1999 compared to
cash provided of $3.4 million in 1998. The decrease in investing
activities is primarily attributed to a decrease in proceeds from sale of
assets due to the expiration and replacement of operating lease tractors.
Net cash used in financing activities was $9.0 million in 1999 compared to
$11.4 million in 1998. The decrease in cash used in financing activities
is primarily related to a term loan under its revolving credit facility in
which the Company borrowed $2.8 million in 1999.
See "Long-Term Indebtedness" below for a discussion of the Company's
revolving credit facility.
Capital Requirements
The Company does not anticipate material additional capital expenditures
during the remainder of 1999. The Company intends to extend the maturities
of approximately $3.0 million in tractor equipment under certain operating
and capital lease obligations.
Long-Term Indebtedness
The Company had approximately $86.2 million of Senior Subordinated Notes
(the "Notes") outstanding as of June 30, 1999, which mature December 15,
2000. The Executive committee of the board of Directors and key management
(the "Committee") were mandated to evaluate the various options available
to refinance the Notes and select the appropriate strategy to successfully
execute a recapitalization plan.
The Company has classified all of its outstanding indebtedness as current.
As described below, the Company failed to make a scheduled interest payment
due on June 15, 1999. The grace period for the payment expired on July 15,
1999. This payment default constitutes an Event of Default under the terms
of the indenture pursuant to which the Notes were issued. This Event of
Default caused other technical defaults under other secured borrowing
arrangements, including the Company's revolving credit facility
("Revolver"). The Company executed a Forbearance Agreement with its
working capital lender on August 1, 1999 which states that the working
capital lender will not exercise any remedy available under the terms of
the Revolver until the earlier of September 30, 1999 or occurrence of
additional items of default. The company is required under the Forbearance
Agreement to maintain a minimum of $5 million in availability under the
Revolver during the forbearance period.
On July 15, 1999, the Company reached an agreement in principle with the
steering committee representing major holders of the Notes. The Company
expects that this agreement will significantly reduce its existing long-
term debt, pay all of its other debt in full, and fully satisfy its trade
and leasing obligations in accordance with their terms. The agreement in
principle is subject to execution of definitive documentation, and is to be
affected pursuant to a pre-arranged plan, which may require court approval.
Pursuant to the restructuring agreement, the Notes will be converted into
(i) new notes in the aggregate principal amount of $30 million, due 2004,
with interest at the rate of 12% per annum (the first semi-annual interest
payment on which will be due in March 2000), and (ii) 95% of the new common
equity of TRISM to be issued post-recapitalization, prior to dilution
respecting a contemplated management stock incentive program. TRISM's
existing common stock will be converted into 5% of the new common equity to
be issued post-recapitalization, prior to dilution.
As a result of the Events of Default under the Indenture to the Notes and
the other secured borrowing arrangements, and pending the completion of the
debt restructuring, the Company has recorded all liabilities in default as
current liabilities in the June 30, 1999 consolidated balance sheet.
12
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Continued
Year 2000 Position Statement
The Company has evaluated its internal date-sensitive systems and equipment
for Year 2000 compliance. The assessment and testing phase of the Year
2000 project is complete and included both information technology equipment
and non-information technology equipment. Based on its assessment and
testing, the Company determined that it's critical software, hardware and
information technology equipment was in compliance with Year 2000
requirements. However, at June 30, 1999, the Company was approximately 95%
complete in the modification or replacement of the non-information
technology equipment requiring remediation. The Company expects such
remediation to be completed by August 1999. The Company does not believe
the effect of the Year 2000 on its systems is likely to have a material
adverse impact. The total estimated cost of the Year 2000 project was not
material and is being funded by operating cash flows.
The Company has also communicated with key suppliers and customers to
determine their Year 2000 compliance and the extent to which the Company is
vulnerable to any third-party Year 2000 issues. This program will be
ongoing, and the Company's efforts with respect to specific problems
identified will depend on its assessment of the risk. Most key suppliers
and customers who have replied to the Company's inquiries indicated they
expect to be Year 2000 compliant on a timely basis. There can be no
assurance that there will not be an adverse effect on the Company if third
parties do not make the necessary modifications to their systems in a
timely manner. However, management believes that ongoing communication
with and assessment of these third parties will minimize these risks.
Where needed, the Company will establish contingency plans based on actual
testing results and assessment of outside risks.
The costs of the Year 2000 issue and completion dates are based on
management's best estimates which are derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources, third-party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved,
and actual results could differ materially from those plans.
The above statement in its entirety is designated a Year 2000 readiness
disclosure under the Year 2000 Information and Readiness Disclosure Act.
Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives are recognized as either assets or liabilities at fair value
and establishes specific criteria for the use of hedge accounting. The
Company's required adoption date is January 1, 2001. SFAS 133 is not to be
applied retroactively to financial statements of prior periods. The
Company expects no material adverse effect on consolidated results of
operations, financial position, cash flows or stockholders' equity upon
adoption of SFAS 133.
13
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibit is filed as part of this report.
Designation Nature of Exhibit
10 Forbearance Agreement
11 Computation of Basic and Diluted
earnings (loss) per share
27 Financial Data Schedule
B. Reports on Form 8-K
During the quarter covered by this report there were three
reports on Form 8-K filed.
I. Other Events - Filed on June 14, 1999
Omit Interest Payment on Senior Subordinated
Notes
On June 10, 1999, the Registrant issued a
press release, included as an exhibit to
the Form 8-K, that the Board of Directors
of the Company determined that the Company
would not make the June 15, 1999 interest
payment aggregating $4.6 million on its
10 3/4% Senior Subordinated Notes due 2000.
II. Other Events - Filed on July 26, 1999
Agreement in Principle to Restructure Debt
On July 15, 1999, the Registrant issued a
press release, included as an exhibit to the
Form 8-K, announcing that it had reached
an agreement in principle with the steering
committee representing major holders of
the Registrant's approximately $86.2 million
of 10 3/4% Senior Subordinated Notes due 2000.
III. Other Events - Filed on July 26, 1999
Trism, Inc. to be traded on the OTC Bulletin Board
On July 21, 1999, the Registrant issued a press
release, included as an exhibit to the Form 8-K,
announcing that the Company's Common Stock
will no longer be listed on the NASDAQ Stock Market.
Items 2, 3, and 5 of Part II were not applicable and have been
omitted.
14
SIGNATURES
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.
By:/s/Edward L. McCormick
Edward L. McCormick
Director, President and
Chief Executive Officer
By:/s/James G. Overley
James G. Overley
Senior Vice President of Finance,
Chief Financial Officer and
Treasurer
Date: August 16, 1999
15
TRISM, INC.
Exhibit Index
Exhibit Number Description Page Number
11 Computation of basic and diluted earnings 17
per common share
27 Financial Data Schedule 18
10 Forbearance Agreement 19
16