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 September 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.
(DEBTOR-IN-POSSESSION)
(Exact name of registrant as specified in its charter)
DELAWARE 13-3491658
(State or other jurisdiction of
incorporation or organization) (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
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 September 30, 1999, 5,702,137 shares of TRISM, Inc.'s
common stock, par value $.01 per share, were outstanding.
TRISM, INC.
(DEBTOR-IN-POSSESSION)
TABLE OF CONTENTS
ITEM PAGE
Part I FINANCIAL INFORMATION
3
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
ITEM 1. Financial Statements
TRISM, Inc.
(DEBTOR-IN-POSSESSION)
Consolidated Balance Sheets
As of September 30, 1999 and December 31, 1998
(In thousands, unaudited)
September 30, December 31,
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,078 $ 2,029
Restricted cash and insurance deposits 845 847
Accounts receivable, net of allowance for doubtful accounts
of $1,094 and $1,063 for 1999 and 1998, respectively 38,905 37,388
Materials and supplies 1,179 1,389
Prepaid expenses 16,567 18,795
Deferred income taxes 3,089 3,901
-------- ---------
Total current assets 61,663 64,349
Property and equipment, at cost 190,339 193,953
Less: accumulated depreciation and amortization (70,840) (64,775)
-------- ---------
Net property and equipment 119,499 129,178
Intangibles and other, net 18,114 19,624
Other 625 801
-------- ---------
Total assets $ 199,901 $ 213,952
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
Current liabilities:
Accounts payable $ 8,798 $ 7,206
Bank overdraft 1,312 5,642
Accrued expenses and insurance reserves 12,182 12,412
Current maturities of long-term debt:
Principal payments 14,818 13,857
Residual obligations on equipment debt 3,999 4,014
Long-Term debt classified as current 49,928 -
-------- --------
Total current liabilities 91,037 43,131
Long-term debt, less current maturities - 144,419
Insurance reserves 7,431 6,702
Deferred income taxes 3,089 3,901
-------- ---------
Total liabilities not subject to compromise 101,557 198,153
LIABILITIES SUBJECT TO COMPROMISE (All Current):
Long term debt - senior subordinated notes, 10.75% 86,230 -
Accrued interest expense on senior subordinated notes 7,757 -
-------- ---------
Total liabilities subject to compromise 93,987 -
Stockholders' equity:
Common stock; $.01 par; 10,000 shares authorized;
issued 5,903 shares 59 59
Additional paid-in capital 37,243 37,229
Loans to stockholders - (83)
Accumulated deficit (31,308) (19,769)
Treasury stock, at cost, 201 shares (1,637) (1,637)
--------- ---------
Total stockholders' equity 4,357 15,799
========= =========
Total liabilities and stockholders' equity $ 199,901 $ 213,952
=========== ============
See accompanying notes to consolidated financial statements.
ITEM 1. Financial Statements, Continued
TRISM, Inc.
(DEBTOR-IN-POSSESSION)
Consolidated Statements of Operations
For the three and nine months ended September 30, 1999 and 1998
(In thousands, except per share amounts, unaudited)
Three Months Ended Nine Months Ended
1999 1998 1999 1998
----- ---- ---- ------
Revenues $ 69,606 75,170 210,406 224,492
Operating expenses:
Salaries, wages and fringe benefits 24,175 28,506 75,271 85,423
Operating supplies and expenses 9,939 10,172 29,495 31,580
Contractor equipment 7,041 6,134 20,944 17,312
Brokerage carrier expense 7,695 5,243 19,498 14,379
Operating taxes and licenses 5,568 6,959 17,482 20,501
Depreciation and amortization 4,655 4,871 14,761 14,926
General supplies and expenses 3,984 3,672 11,381 11,025
Revenue equipment rents 2,502 3,590 8,656 10,255
Claims and insurance 2,348 2,497 7,523 7,182
Communications and utilities 1,086 1,178 3,327 3,819
(Gain) loss on disposition of assets (136) 379 (3) 917
Non-recurring expenses - 350 99 752
------ ------ -------- --------
Total operating expenses 68,857 73,551 208,434 218,071
Operating income 749 1,619 1,972 6,421
Interest expense, net 3,230 3,550 10,500 11,147
Other expense, net 68 114 509 -
Reorganization items:
Loss on write-off of deferred
debt issuance costs 750 - 750 -
Financial restructuring costs 1,748 - 1,748 -
----- -------- ------ --------
Loss before income tax benefit
and extraordinary item (5,047) (2,045) (11,535) (4,726)
Income tax benefit - (715) - (1,654)
----- -------- ------ --------
Loss before extraordinary item (5,047) (1,330) (11,535) (3,072)
----- -------- ------ --------
Extraordinary item, gain on extinguishment
of debt, net of income taxes of $841 1,563 - 1,563
----- -------- ------ --------
Net earnings (loss) $ (5,047) 233 (11,535) (1,509)
====== ==== ======== ========
Basic earnings (loss) per share
Loss before extraordinary item $ (0.89) (0.23) (2.02) (0.53)
Extraordinary item - 0.27 - 0.27
----- ---- -------- -------
Net earnings (loss) $ (0.89) 0.04 (2.02) (0.26)
====== ==== ======== ========
Diluted earnings (loss) per share
Loss before extraordinary item $ (0.89) (0.23) (2.02) (0.53)
Extraordinary item - 0.27 - 0.27
-------- ----- -------- ---------
Net earnings (loss) $ (0.89) 0.04 (2.02) (0.26)
====== ==== ======= ========
Weighted average number of shares used in
computation of basic and diluted
earnings (loss) per share 5,702 5,719 5,702 5,719
========== ======= ======= ========
See accompanying notes to consolidated financial statements.
ITEM 1. Financial Statements, Continued
TRISM, Inc.
(DEBTOR-IN-POSSESSION)
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998
(In thousands, unaudited)
1999 1998
Cash flows from operating activities:
Net loss (11,535) $ (1,509)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 15,494 15,553
Loss on disposition of assets (3) 917
Provision for losses on accounts receivable 180 488
Deferred gain on sale-leaseback (151) (194)
Deferred income taxes - (813)
Extraordinary gain, net - (1,563)
Changes in assets and liabilities:
Accounts receivable (1,733) 1,662
Prepaid expenses 2,405 (669)
Accrued expenses and insurance reserves 1,853 3,599
Accrued interest expense, net 6,566 10
Accounts payable 1,761 (2,076)
Other (582) 642
Net cash provided by operating activities before
------ ------
reorganization items 14,255 16,047
------ ------
Cash flows from operating activities relating to reorganization items:
Write-off of deferred debt issuance costs 750 -
------ -------
Net cash provided by operating activities 15,005 16,047
------ -------
Cash flows from investing activities:
Proceeds from sale of assets 4,905 10,098
Purchases of property and equipment (2,839) (3,296)
Other, net (71) 317
------ -------
Net cash (used in) provided by investing activities 1,995 7,119
------ -------
Cash flows from financing activities:
Net proceeds (repayment) under revolving credit agreement (1,514) 194
Repayment of long-term debt and capital lease obligations (13,949) (27,039)
Issuance of long-term debt 1,830 -
Decrease in bank overdrafts (4,330) (1,583)
Payment deferred loan costs (83) -
Other, net 95 (88)
------- --------
Net cash used in financing activities (17,951) (28,516)
-------- --------
Decrease in cash and cash equivalents (951) (5,350)
Cash and cash equivalents, beginning of period 2,029 6,271
====== ======
Cash and cash equivalents, end of period $ 1,078 $ 921
========== =========
Supplemental cash flow information:
Cash paid during the period for interest $ 4,397 $ 8,772
========= =========
Equipment purchases and borrowings $ 8,196 $ 15,781
========= ========
Conversion of capital lease to an operating lease $ 1,880 $ -
========= =========
See accompanying notes to the consolidated financial statements.
TRISM, Inc.
(DEBTOR-IN-POSSESSION)
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 September 30, 1999 and December 31, 1998 and the
results of operations and cash flows for the periods ended
September 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.
Recent Developments
The Company has approximately $86.2 million of Senior
Subordinated Notes (the "Notes") outstanding as of September
30, 1999, which mature December 15, 2000. 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.
On July 15, 1999, the Company reached an agreement in principle
with the steering committee representing major holders of the
Notes. On September 10, 1999, the Company executed a
restructuring agreement with the steering committee. The Company
expects the 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 provides for the Notes to 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.
On September 16, 1999, the Company filed (the"Filing") for
protection under Chapter 11 of the United States Bankruptcy Code
(the "Code") in the State of Delaware. The Company is
operating as Debtor-in-Possession ("DIP") under the Code.
Subsequent to the Filing, the Company obtained a $42.4 million
senior secured super priority DIP credit facility to meet its
ongoing working capital needs and replace its pre-petition
revolving credit facility. The DIP facility provides for
borrowings up to $35 million on a revolving credit facility, with
availability depending upon a borrowing base formula based on
accounts receivable. Additionally, the DIP facility provides
additional borrowings capacity of $2.4 million to refinance an
existing term loan secured by five hundred and forty-one trailers
and an incremental $5 million of borrowings, if drawn, to be
secured by identified real property and other unencumbered
trailers. The borrowings bear interest rates ranging from prime
rate plus .25% to .50% or from LIBOR rates plus 2.25% to 2.50%.
The DIP facility matures at the earliest of: (a) the six-month
anniversary of the effective date of the credit agreement; (b)
the date the lender has terminated the right of the Company to
receive advances or accommodations for letters of credit based
upon certain conditions of Default; (c) the date of prepayment in
full by the Company; (d) the date a plan of reorganization in the
Chapter 11 case becomes effective; and (e) the date on which a
disclosure statement attendant to a plan of reorganization filed
by anyone except the Company is approved by the U.S. Bankruptcy
Court. The DIP facility was approved by the Court on October 11,
1999. The Company intends to seek financing for a revolving
credit facility upon post-reorganization.
On October 25, 1999, the Court signed an order approving the
second amended disclosure statement for a joint plan of
reorganization. As noted earlier, the plan of reorganization
contemplates the exchange of $86.2 million of senior subordinated
notes for $30.0 million of new notes and 95% of the new common
equity of the Company to be issued post-recapitalization. All of
the Company's other obligations are expected to be fully
satisfied in accordance with their terms. The Company
distributed proxy materials to all holders of record as of
October 21, 1999, for outstanding
Notes to Consolidated Financial Statements, Continued
Recent Developments, Continued
Notes and equity security holders. The deadline to vote on the
plan of reorganization, and file and serve objections to the
confirmation of the plan reorganization is December 1, 1999.
As a result of the Events of Default under 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 September
30, 1999 consolidated balance sheet.
Accounting and Reporting Requirements During Bankruptcy
Under Chapter 11 of the Bankruptcy Code, certain claims against
the Debtor in existence prior to the filing of the petitions for
relief under the U.S. bankruptcy laws are stayed while the Debtor
continues business operations as Debtor-in-possession. Under
AICPA Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code ("SOP 90-7"), the
Company is required to report liabilities subject to compromise.
In the case of Trism, Inc., the Notes and the related accrued
interest are reflected as liabilities subject to compromise. The
Company's plan of reorganization contemplates full satisfaction
of all other secured, trade and leasing obligations.
Furthermore, the Bankruptcy Court granted the Company approval to
pay pre-petition secured and leasing obligations and certain
essential pre-petition trade creditors during the proceeding.
In addition, SOP 90-7 requires the Company to report interest
expense during the bankruptcy proceeding only to the extent that
it will be paid during the proceeding or that it is probable to
be an allowed priority, secured or unsecured claim. Accordingly,
the Company recorded interest expense for its DIP credit facility
and secured debt obligations subsequent to the bankruptcy filing.
The difference between the reported interest expense and the
contractual interest expense was $0.4 million for the three and
nine months ended September 30, 1999, and relates to the Notes.
The Company recorded interest expense for all long-term debt
obligations prior to the Filing.
Reorganization Items
In accordance with SOP 90-7, the Consolidated Statements of
Operations should portray the results of operations of the
Company while it is in Chapter 11. Expenses resulting from the
restructuring are reported separately as reorganization items.
In the accompanying Consolidated Statements of Operations for the
three and nine months ending September 30, 1999, the Company
wrote-off $0.75 million of deferred debt issuance costs related
to the pre-petition revolving credit facility and the outstanding
Notes. Furthermore, the Company incurred financial restructuring
costs of $1.7 million for the three and nine months ended
September 30, 1999.
Long-Term Indebtedness and DIP Credit Facility
The Company had approximately $86.2 million of Notes outstanding
as of September 30, 1999, which mature December 15, 2000. 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. The accrued interest due as of September 30, 1999 under
the Notes was $7.8 million.
On September 16, 1999, the Company filed a Plan of Reorganization
with the United States Bankruptcy Court in Delaware under Chapter
11 of the Bankruptcy Code. The Company secured a $42.4 million
DIP facility which was approved by the Court on October 11, 1999.
Cash and availability under the DIP facility was approximately
$8.2 million at September 30, 1999, net of a reduction for
outstanding letters of credit of approximately $12.1 million.
Additional borrowings of $5 million secured by identified real
property and unencumbered trailers are also available.
The Company has classified certain long-term debt as current due
to the existence of technical defaults caused by the defaults
under the Notes. Furthermore, the Company has classified the
Notes and related accrued interest as subject to compromise due
to the contemplated plan of reorganization outlined above.
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" 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 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.
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 Nine Months Ended
Segment 1999 1998 1999 1998
- ------------------------------------ ---- ----- ------ ------
Heavy Haul $ 47,010 $ 52,730 $ 146,330 $ 155,375
Secured Materials 21,799 23,208 64,395 72,413
Trism Logistics 3,982 1,237 9,226 5,366
Eliminations and other (3,185) (2,005) (9,545) (8,662)
------- -------- -------- --------
Consolidated $ 69,606 $ 75,170 $ 210,406 $ 224,492
========= ========= ========= ==========
Operating Income
Three Months Ended Nine Months Ended
Segment 1999 1998 1999 1998
- ------------------------------------ ---- ---- ---- ----
Heavy Haul $ (67) $ 2,471 $ 1,129 $ 6,453
Secured Materials 684 (135) 652 1,402
Logistics (4) 12 287 235
Gain (loss) on sale of assets 136 (379) 3 (917)
Non-recurring charge - (350) (99) (752)
----- ------- ------- -------
Consolidated $ 749 $ 1,619 $ 1,972 $ 6,421
========== ========= =========== ============
Interest expense, net 3,230 3,550 10,500 11,147
Other expense, net 68 114 509 -
Reorganization items 2,498 - 2,498 -
-------- --------- ---------- ----------
Loss before income taxes $ (5,047) $ (2,045) $ (11,535) $ (4,726)
========== ========= ========== ============
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 anticipated liquidity and capital
requirements, the results of legal proceedings, and the
restructuring of the Company as contemplated by the restructuring
agreement executed 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 plan
of reorganization 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
September 30, 1999.
The following table summarizes certain financial information on a
percentage of revenue basis for the three and nine Months ended
September 30, 1999 and 1998.
Three Months Ended Nine 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 34.7 37.9 35.8 38.1
Operating supplies and expenses 14.3 13.5 14.0 14.1
Contractor equipment 10.1 8.1 10.0 7.7
Brokerage carrier expense 11.1 7.0 9.3 6.4
Operating taxes and licenses 8.0 9.2 8.3 9.1
Depreciation and amortization 6.7 6.5 7.0 6.6
General supplies and expenses 5.7 4.9 5.4 4.9
Revenue equipment rents 3.6 4.8 4.1 4.6
Claims and insurance 3.4 3.3 3.6 3.2
Communications and utilities 1.6 1.6 1.6 1.7
Loss on disposition of assets (0.2) 0.5 - 0.4
Non-recurring expenses - 0.5 - 0.3
------ ----- ----- -----
Total operating expenses 99.0 97.8 99.1 97.1
Income from operations 1.0 2.2 0.9 2.9
Interest expense, net 4.6 4.8 5.0 5.0
Other expense, net 0.1 0.2 0.2 -
Reorganization items:
Loss on write-off of deferred debt issuance costs 1.1 - 0.4 -
Financial restructuring costs 2.5 - 0.8 -
----- --- ---- ---
Loss before income tax benefit
and extraordinary item (7.3) (2.8) (5.5) (2.1)
Income tax benefit - 1.1 - 0.7
---- ---- ----- ------
Loss before extraordinary item (7.3) (1.7) (5.5) (1.4)
------ ------ ------ ------
Extraordinary item, gain on extinguishment
of debt, net of income taxes - 2.1 - 0.7
--- ----- ---- -----
Net earnings (loss) (7.3) 0.4 (5.5) (0.7)
===== ==== ===== =====
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Summary of Third Quarter 1999 Results
Net loss for the quarter ended September 30, 1999, amounted to
$3.1 million or $0.54 per basic share compared to a net earnings
of $0.2 million or $0.04 per basic share in the third quarter of
1998. The results for the quarter were negatively impacted by a
decline in revenues at Heavy Haul, lower asset utilization caused
by competition for available drivers and increased fuel costs.
These factors were partially offset by improved operating
performance at Secured, a reduction of fixed freight operating
costs and net gain on the disposal of real property and revenue
equipment. The results for the third quarter of 1999 include the
full reserve for additional tax benefits associated with the net
operating loss carry-forwards in the amount of $1.8 million, or
$.31 per share.
Operating Revenue
Third Quarter 1999 as compared to the Third Quarter of 1998
Operating revenue decreased $5.6 million, or 7.4% from the third
quarter of 1998 to the third quarter 1999. Revenue per loaded
mile was $1.77 for the quarter ended September 30, 1999 as
compared to $1.73 for the quarter ended September 30, 1998.
However, operating revenues were impacted by a decline in total
miles driven of approximately 6.7 million from the third quarter
of 1998 to the third quarter of 1999.
Operating revenues were primarily affected by a decline in
revenues at Heavy Haul as a result of a decline in demand in the
agricultural and aerospace industries. While the Secured segment
miles driven were lower in the third quarter of 1999 from 1998,
there was a positive increase in revenue quality. Both of these
segments were negatively impacted by lower asset utilization
caused by competition for available drivers. The Logistics
segment revenues increased by $2.8 million, primarily as a result
of new contracts in the third party logistics market and the
intermodal division which began operations in September of 1998.
Nine Months Ended September 30, 1999 as compared to Nine Months
Ended September 30, 1998
Operating revenue decreased $14.1 million, or 6.3% for the nine
months ended September 30, 1999 as compared to 1998. Revenue per
loaded mile was $1.75 for the nine months ended September 30,
1999 as compared to $1.74 for the nine months ended September 30,
1998. However, the Company's total miles driven also declined by
15.5 million miles from the nine months ended September 30, 1998
to the same period in 1999.
For the nine months ended September 30, 1999 and 1998, the Heavy
Haul segment was impacted from fewer miles driven and lower
demand. The Secured segment was impacted by competitiveness in
the military munitions market and a decline in freight volume of
approximately $11.2 million. Both segments were negatively
impacted by lower asset utilization caused by competition for
available drivers. The Logistics segment positively impacted
revenue with an increase of $3.9 million primarily as a result of
new contracts in the third party logistics market and the
intermodal division which began operations in September of 1998.
Operating Income
Third Quarter 1999 as compared to the Third Quarter of 1998
Operating income for the three months ended September 30, 1999,
was $0.7 million compared to $1.6 million in 1998. The decline
in operating revenue of $5.6 million negatively impacted
operating income by $0.8 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 $1.1 million caused by an increase in cost per gallon of
$0.16 cents; (b) higher contractor equipment costs of $0.6
million as a result of increased miles driven by contractor
equipment; (c) higher maintenance charges of $0.4 million
resulting from an increase in the overall age of the
tractor and trailer fleets; and (d) higher driver recruiting
costs of $0.4 million caused by increased expense to attract and
retain qualified drivers.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Operating Income, Continued
The decline in revenues and increase in certain variable costs in
the third quarter of 1999 were partially offset by lower fixed
freight operating costs of $2.3 million. The reductions resulted
from a reduced tractor and trailer fleet size and lower general
and administrative costs. Additionally, the Company recorded a
gain on the disposal of real property of $1.0 million offset by
losses on revenue equipment disposals of $0.9 million.
Nine Months Ended September 30, 1999 as compared to Nine Months
Ended September 30, 1998
Operating income for the nine months ended September 30, 1999 was
$2.0 million as compared to $6.4 million in 1998. The decline in
operating revenue of $14.1 million negatively impacted operating
income by $3.5 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 $1.3 million; (c) higher driver pay costs of $0.8
million as a result of driver incentive programs; (c) higher
contractor equipment costs of $1.5 million as a result of
increased miles driven by contractor equipment; (d) higher
maintenance charges of $1.1 million resulting from an
increase in the overall age of the tractor and trailer
fleets; and (e) higher claims and insurance costs of $0.8 million
as result of higher frequency of accidents relating to cargo
claims.
Furthermore, certain positive cost variances increased operating
income for the nine months ended September 30, 1999 as compared
to the same period in 1998 as follows: (a) lower fixed freight
operating costs of $3.5 resulting from a reduced tractor and
trailer fleet size and lower general and administrative costs;
(b) lower loss on disposition of assets of $0.9 million; and (c)
higher Logistics segment operating income of $0.2 million.
Operating and Other Expenses
Total operating expenses were approximately $68.9 million for the
three months ended September 30, 1999 and $208.4 million for the
nine months ended September 30, 1999 as compared to $73.5 million
for the three months ended September 30, 1998 and $218.1 million
for the nine months ended September 30, 1998. The following
expense categories increased or decreased significantly as a
percentage of revenue between the periods:
Salaries, wages and fringe benefits decreased 3.2% of revenue
during the quarter and 2.3% for nine months ended September 30,
1999 as compared to the corresponding periods in 1998. The
decrease is primarily due to lower driver wages due to an overall
increase in the use of independent contractors.
Operating supplies increased by 0.8% for the three months ended
September 30, 1999 as compared to the same period in 1998, due to
an increase in fuel price per gallon of $0.16 cents and lower
tractor fuel economy resulting from an increase in the age of the
tractor fleet. For the nine months ended September 30, 1999,
operating supplies decreased by 0.1% due to lower fuel prices
during the first three months of 1999 as compared to the same
period in 1998.
Brokerage carrier expenses increased by 4.1% and 2.9 % of revenue
from the quarter and nine months ended September 30, 1999 as
compared to the corresponding periods in 1998. Brokerage carrier
revenue as a percentage of overall revenues increased 4.6% and
3.3% of revenue for the quarter and nine months ended September
30, 1999.
General supplies increased by 0.6% for the three months ended
September 30, 1999 as compared to the same period in 1998,
primarily due to an increase in driver recruiting expenses to
attract and retain qualified drivers. For the nine months ended
September 30, 1999, general supplies expenses increased by 0.5%
primarily due to additional driver recruiting expenses.
Revenue equipment rent expenses decreased by 1.2% and 0.5% of
revenue for the quarter and nine months ended September 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 Company established a valuation allowance of $1.8 and $4.0
million relating to tax benefits associated with net operating
loss carryforwards for the quarter and nine months ended
September 30, 1999. In 1998, the Company recorded an income tax
expense of $0.1 million and an income tax benefit of $0.8 million
for the quarter and nine months ended September 30, 1998.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Liquidity and Capital Resources
Net cash provided by operating activities was $15.0 million in
1999 compared to $16.0 million in 1998. The decrease is
primarily due to the payment of financial restructuring costs of $1.7
million relating to the Notes.
Net cash provided by investing activities was $2.0 million in
1999 compared to cash provided of $7.1 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 $19.5 million in 1999
compared to $28.5 million in 1998. The decrease in cash used in
financing activities is primarily related to the repurchase of
senior subordinated notes of $9.5 million in 1999.
Prior to the Chapter 11 filing, the Company experienced
difficulty servicing its long-term debt caused by continued
declining revenues and a highly leveraged balance sheet. Upon
consummation of the financial restructuring plan, the Company's
debt service problems will be improved by eliminating a
significant portion of the payment obligations under the Notes.
While the Restructuring will significantly reduce the Company's
debt obligations, the Company will remain highly leveraged upon
exiting Bankruptcy. The Company's management believes that,
following the confirmation of the plan of reorganization; the
Company will have sufficient cash flow from operations to pay
interest on all of its outstanding debt as those payments become
due. However, the Company's ability to meet its debt service
obligations will depend on a number of factors, including its
ability to achieve future financial results by stabilizing
revenues and reducing costs.
See "Recent Developments" and "Long-Term Indebtedness and DIP
Credit Facility" below for an additional discussion of the
Company's liquidity and capital resources.
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 $5.4 million in tractor
equipment under certain operating and capital lease obligations.
Recent Developments
The Company has approximately $86.2 million of Senior
Subordinated Notes (the "Notes") outstanding as of September
30, 1999, which mature December 15, 2000. 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.
On July 15, 1999, the Company reached an agreement in principle
with the steering committee representing major holders of the
Notes. On September 10, 1999, the Company executed a
restructuring agreement with the steering committee. The Company
expects the 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 provides for the Notes to 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.
On September 16, 1999, the Company filed (the"Filing") for
protection under Chapter 11 of the United States Bankruptcy Code
(the "Code") in the State of Delaware. The Company is
operating as Debtor-in-Possession ("DIP") under the Code.
Subsequent to the Filing, the Company obtained a $42.4 million
senior secured super priority DIP credit facility to meet its
ongoing working capital needs and replace its pre-petition
revolving credit facility. The DIP facility provides for
borrowings up to $35 million on a revolving credit facility, with
availability depending upon a borrowing base formula based on
accounts receivable. Additionally, the DIP facility provides
additional borrowings capacity of $2.4 million to
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Recent Developments, Continued
refinance an existing term loan secured by five hundred and
forty-one trailers and an incremental $5 million of borrowings,
if drawn, to be secured by identified real property and other
unencumbered trailers. The borrowings bear interest rates
ranging from prime rate plus .25% to .50% or from LIBOR rates
plus 2.25% to 2.50%. The DIP facility matures at the earliest
of: (a) the six-month anniversary of the effective date of the
credit agreement; (b) the date the lender has terminated the
right of the Company to receive advances or accommodations for
letters of credit based upon certain conditions of Default; (c)
the date of prepayment in full by the Company; (d) the date a
plan of reorganization in the Chapter 11 case becomes effective;
and (e) the date on which a disclosure statement attendant to a
plan of reorganization filed by anyone except the Company is
approved by the U.S. Bankruptcy Court. The DIP facility was
approved by the Court on October 11, 1999. The Company intends
to seek financing for a revolving credit facility upon post-
reorganization.
On October 25, 1999, the Court signed an order approving the
second amended disclosure statement for a joint plan of
reorganization. As noted earlier, the plan of reorganization
contemplates the exchange of $86.2 million of senior subordinated
notes for $30.0 million of new notes and 95% of the new common
equity of the Company to be issued post-recapitalization. All of
the Company's other obligations are expected to be fully
satisfied in accordance with their terms. The Company
distributed proxy materials to all holders of record as of
October 21, 1999, for outstanding Notes and equity security
holders. The deadline to vote on the plan of reorganization, and
file and serve objections to the confirmation of the plan
reorganization is December 1, 1999.
As a result of the Events of Default under 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 September
30, 1999 consolidated balance sheet.
Accounting and Reporting Requirements During Bankruptcy
Under Chapter 11 of the Bankruptcy Code, certain claims against
the Debtor in existence prior to the filing of the petitions for
relief under the U.S. bankruptcy laws are stayed while the Debtor
continues business operations as Debtor-in-possession. Under
AICPA Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code ("SOP 90-7"), the
Company is required to report liabilities subject to compromise.
In the case of Trism, Inc., the Notes and the related accrued
interest are reflected as liabilities subject to compromise. The
Company's plan of reorganization contemplates full satisfaction
of all other secured, trade and leasing obligations.
Furthermore, the Bankruptcy Court granted the Company approval to
pay pre-petition secured and leasing obligations and certain
essential pre-petition trade creditors during the proceeding.
In addition, SOP 90-7 requires the Company to report interest
expense during the bankruptcy proceeding only to the extent that
it will be paid during the proceeding or that it is probable to
be an allowed priority, secured or unsecured claim. Accordingly,
the Company recorded interest expense for its DIP credit facility
and secured debt obligations subsequent to the bankruptcy filing.
The difference between the reported interest expense and the
contractual interest expense was $0.4 million for the three and
nine months ended September 30, 1999, and relates to the Notes.
The Company recorded interest expense for all long-term debt
obligations prior to the Filing.
Reorganization Items
In accordance with SOP 90-7, the Consolidated Statements of
Operations should portray the results of operations of the
Company while it is in Chapter 11. Expenses resulting from the
restructuring are reported separately as reorganization items.
In the accompanying Consolidated Statements of Operations for the
three and nine months ending September 30, 1999, the Company
wrote-off $0.75 million of deferred debt issuance costs related
to the pre-petition revolving credit facility and the outstanding
Notes. Furthermore, the Company incurred financial restructuring
costs of $1.7 million for the three and nine months ended
September 30, 1999.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Long-Term Indebtedness and DIP Credit Facility
The Company had approximately $86.2 million of Notes outstanding
as of September 30, 1999, which mature December 15, 2000. 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. The accrued interest due as of September 30, 1999 under
the Notes was $7.8 million.
On September 16, 1999, the Company filed a Plan of Reorganization
with the United States Bankruptcy Court in Delaware under Chapter
11 of the Bankruptcy Code. The Company secured a $42.4 million
DIP facility which was approved by the Court on October 11, 1999.
Cash and availability under the DIP facility was approximately
$8.2 million at September 30, 1999, net of a reduction for
outstanding letters of credit of approximately $12.1 million.
Additional borrowings of $5 million secured by identified real
property and unencumbered trailers are also available.
The Company has classified certain long-term debt as current due
to the existence of technical defaults caused by the defaults
under the Notes. Furthermore, the Company has classified the
Notes and related accrued interest as subject to compromise due
to the contemplated plan of reorganization outlined above.
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 its critical software, hardware and information
technology equipment was in compliance with Year 2000
requirements. However, at September 30, 1999, the Company was
approximately 98% complete in the modification or replacement of
the non-information technology equipment requiring remediation.
The Company expects such remediation to be completed by the end
of November 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.
The Company has established contingency plans based on actual
test results and assessment of outside risks to supplement any
unknown risks. These contingency plans are currently being
evaluated and tested.
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.
Item 3. Defaults Upon Senior Securities
On July 15, 1999, the Company defaulted on the payment of its 10-3/4%
Senior Subordinated Notes. See "Recent Developments" above
for an additional discussion and information.
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 Debtor in Possession Credit Facility
11 Computation of basic and diluted earnings
(loss) per common share
27 Financial Data Schedule
B. Reports on Form 8-K
During the quarter covered by this report there were
four reports on Form 8-K filed.
I. 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.
II. 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.
III. Other Events - Filed on September 24, 1999
TRISM, Inc. Announces Agreement to Restructure Debt
On September 10, 1999, the Registrant announced that
it finalized an agreement with the steering committee
representing major holders of the company's
approximately $86.2 million of 10-3/4% Senior
Subordinated Notes due 2000.
Item 6. Exhibits and Reports on Form 8-K, Continued
B. Reports on Form 8-K, Continued
IV. Other Events - Filed on September 24, 1999
Trism, Inc. Petitions for Reorganization
On September 16, 1999, the Registrant filed petitions for
its previously announced financial reorganization under
Chapter 11 of the United States Bankruptcy Code 11 U.S.C.
Sections 101 et seq. The petitions were filed in the
United States Bankruptcy Court for the District of Delaware.
Simultaneously, the Registrant filed a Plan of Reorganization
which embodies the ``pre- arranged'' restructuring agreement
and a proposed disclosure statement
Items 2 and 5 of Part II were not applicable and have been omitted.
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: November 15, 1999
TRISM, INC.
(DEBTOR-IN-POSSESSION)
Exhibit Index
Exhibit Number Description Page Number
10 Debtor in Possession Credit Facility 22
11 Computation of basic and diluted
earnings (loss) 20
per common share
27 Financial Data Schedule 21