SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[_] 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 0-18601
Transit Group, Inc.
(Exact name of Registrant as specified in its Charter)
Florida 59-2576629
(State of Incorporation) (I.R.S. Employer Identification No.)
Overlook III
2859 Paces Ferry Road, Suite 1740
Atlanta, Georgia 30339
(Address of principal office, including zip code)
(770) 444-0240
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: None. Securities
Registered pursuant to Section 12(g) of the Act: common stock, par value $.01
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. YES [_] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. YES [_] NO [X]
The aggregate market value of the voting stock and non-voting common equity held
by non-affiliates of the Registrant at November 1, 2001 was approximately
$1,132,833. Since November 15, 2000, there has been no established trading
market for shares of common stock of the Registrant, so the Registrant has
valued its shares on the basis of the last bid price for these shares reported
on the Pink Sheets on October 29, 2001, which was $0.035.
The number of shares of the Registrant's common stock outstanding at
November 14, 2001, was 32,366,692 shares.
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I. 1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II. 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 9
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
7a. Quantitative and Qualitative Disclosures About Market Risk 22
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III. 10. Directors and Executive Officers of the Registrant 44
11. Executive Compensation 46
12. Security Ownership of Certain Beneficial Owners and
Management 49
13. Certain Relationships and Related Transactions 51
PART IV. 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 53
Exhibit Index 53
ii
PART I
ITEM 1. BUSINESS
Forward-Looking Statement
This Annual Report on Form 10-K contains certain forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995, as amended,
including or related to the Company's future results including certain
projections and business trends.
These and other statements, which are not historical facts, are based largely on
current expectations and assumptions of management and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. Risks related to
forward-looking statements include the Company's history of operating losses and
its significant amount of indebtedness, the operating and financial restrictions
contained in the Company's new credit agreements, a growth strategy that relied
on the completion of acquisitions of companies in the trucking industry and the
risk factors set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 18 herein.
Assumptions related to forward-looking statements include that competitive
conditions within the Company's markets will not change materially or adversely,
that fuel prices will not significantly increase, that the demand for the
Company's services will remain strong, and that the Company will retain key
managers, drivers and other personnel. Assumptions relating to forward-looking
statements involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the Company's control. When used in this Annual Report, the words
"estimate," "project," "intend," and "expect" and similar expressions are
intended to identify forward-looking statements. Although the Company believes
that assumptions underlying the forward-looking statements are reasonable, any
of the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in the forward-looking information will
be realized.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its business
strategy, which may in turn, affect the Company's results of operations. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as the Company's representation that any strategy, objectives, or other
plans will be achieved. The forward-looking statements contained in this Annual
Report speak only as of the date of this Annual Report, and the Company does not
have any obligation to publicly update or revise any of these forward-looking
statements.
Introduction
Transit Group, Inc. (the "Company") is a holding company concentrating on the
operation of short and long haul trucking, logistics and intermodal companies.
Based on available industry information, management believes that the Company is
the eighth largest truckload carrier in North America.
History and Development
The Company was incorporated on August 28, 1985 as a Florida corporation under
the name General Parcel Service, Inc., and was originally engaged in the parcel
delivery business. The Company's operations began in Jacksonville, Florida and
expanded into Georgia, North Carolina and South Carolina. The Company
discontinued its parcel delivery operations in March 1997.
In January 1997, the Company reorganized into a holding company structure and
began acquiring mid-size short and long haul trucking companies. The Company
has acquired 19 companies since July 1997.
3
These companies operate both directly and through agents to provide truckload,
logistics and intermodal services to the Company's customers.
Industry Overview
The trucking industry can be divided into four general categories: package
delivery, less-than-truckload, household goods, and truckload. The Company
operates in the truckload segment of the trucking industry, which is highly
fragmented with thousands of companies in this segment.
The Company believes that the following trends are evolving in the truckload
segment:
. shippers are limiting the number of carriers to larger more efficient
trucking companies who can provide a consistent level of service at a
competitive price;
. companies are outsourcing their shipping needs to trucking companies
who can offer a full range of logistic services; and
. the advent of just-in-time inventory systems has demanded significant
levels of technology to provide reliable, time-definite service.
Acquisitions
The Company built a national trucking organization by acquiring truckload,
logistic and intermodal carriers.
The Company has acquired the following 19 companies since July 1997:
Company Date Acquired
------- -------------
Carolina Pacific Distributors, Inc. 07/11/97
Service Express, Inc. 08/16/97
Capitol Warehouse, Inc. 08/16/97
Carroll Fulmer Group, Inc. 08/30/97
Rainbow Trucking, Inc. 12/30/97
Transportation Resources and Management, Inc. 01/31/98
Certified Transport, Inc. 05/05/98
KJ Transportation, Inc. 06/17/98
Network Transportation, Inc. 07/13/98
Diversified Trucking, Inc. 08/05/98
Northstar Transportation, Inc. 08/11/98
Priority Transportation, Inc. 01/19/99
Massengill Trucking Service, Inc. 03/03/99
KAT, Inc. 03/22/99
R&M Enterprises, Inc. 07/19/99
MDR Cartage, Inc. 07/30/99
Bestway Trucking Services, Inc. 07/30/99
Fox Midwest, Inc. 09/27/99
Land Transportation, LLC 11/04/99
Operations
The Company's business operations are divided between the corporate office,
located in Atlanta, Georgia, and its operating divisions and locations. The
corporate office is responsible for the overall direction of the Company's
operations, information systems, finance, banking, human resources, and
financial reporting. In addition to the locations set forth in Item 2 hereof,
the Company has the following operating divisions and subsidiaries:
4
. Transit Group Transportation, LLC
. Land Transportation, LLC
. Carroll Fulmer & Company, Inc.
. Transit Holdings Company, Inc.
. Transit Group of Canada, Inc.
. Network Transport Limited
Sales, Marketing and Logistics
The Company markets its services through its own sales force and a developed
network of brokers and agents operating throughout the United States. Revenues
attributable to customers in Canada and Mexico are immaterial.
Substantially all of the companies the Company has acquired are core carriers
for one or more shippers that were limited from expanding that relationship, due
to various financial and operational constraints. Due to the capacity of the
affiliated companies and the resources of the consolidated group, the Company
has been able to expand certain core carrier relationships and has initiated
discussions for the expansion of others.
Fleet Summary
The Company plans to trade-in power units on a 3-5 year cycle (400,000 - 600,000
miles) and trailers approximately every 5-8 years. An approximate summary of its
fleet is as follows:
December 31,
2000
----
Company Tractors............................................... 1,697
Contractor Tractors............................................ 1,186
Total Tractors..................................... 2,883
Trailers....................................................... 6,661
The approximate average age of the Company's tractors and trailers is 4 and 6
years, respectively.
Business Operations Sold
In December 1997, the Company sold the parcel delivery business to a corporation
controlled by affiliates of the Company's Chairman. In this transaction, the
buyer assumed liabilities of approximately $4.0 million in excess of assets. To
compensate for the estimated excess liabilities assumed by the buyer, the
Company issued 876,569 shares of restricted common stock to the buyer. In 1999,
the Company issued an additional 50,130 shares of common stock in final
satisfaction of all liabilities assumed by the buyer.
In June 2000, the Company sold substantially all of the assets of J&L Truck
Leasing of Farmington, Inc. to J&L Transportation Solutions, Inc. for
approximately $1.5 million. J&L Transportation Solutions, Inc. is controlled by
Kenneth Johnson, who controlled J&L Truck Leasing of Farmington, Inc. at the
time the Company acquired it. Approximately $235,000 of the purchase price the
Company received was in the form of a promissory note bearing interest at the
annual rate of 8.5% and secured by a security interest in the purchased assets.
Recent Developments
On April 19, 2001 the Company restructured its outstanding debt and
recapitalized the Company (the "Reorganization"). The Reorganization included
the execution of a new, two-year, $50 million revolving credit facility with
Congress Financial Corporation ("Congress"), the restructuring of approximately
$100 million in existing bank debt, the negotiation of approximately $115
million in equipment debt and leases and the modification of $25 million in
redeemable convertible preferred stock. The Company also raised
5
$7.0 million from the issuance of Series B preferred stock. The Company used a
portion of the proceeds from the new credit facility and the sale of the Series
B preferred stock to repay $26.5 million in bank debt. The remaining bank debt
was amortized over a 54-month period. The Company also modified the terms of its
equipment debt and leases to include the return of certain equipment, reductions
in monthly payments and extensions of maturities. In addition, the Company
modified the terms of its Series A preferred stock to include certain
limitations on dividend payments and extensions of redemption provisions. The
new Series B preferred stock contains a cumulative dividend accruing at 10.5%
per annum; however, certain conditions must be satisfied prior to the payment of
any dividends by the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Competition
The truckload industry is highly competitive and includes thousands of carriers,
none of which dominates the market. The Company competes primarily with other
truckload carriers, and to a lesser extent with railroads, intermodal service,
less-than-truckload carriers, and private fleets operated by existing and
potential customers. Although intermodal and rail service has improved in recent
years, such service has not been a major factor in the Company's strategies.
Historically, competition has created downward pressure on the truckload
industry's pricing structure. Management believes that competition for the
freight targeted by the Company is based primarily upon service and efficiency
and to a lesser degree upon freight rates.
Intellectual Property
The Company believes that the growth of its business will depend primarily upon
the quality of its products and the Company's relationships with its customers,
rather than the extent of its intellectual property protection. The Company has
registered its trademark KAT(R) and its servicemark "CF CARROLL FULMER & CO.,
INC." with the United States Patent and Trademark Office. The Company also
considers its logo and the trade names of its operating subsidiaries and
divisions as proprietary.
In addition, to its trademarks and servicemarks, the Company has a registered
patent for Patent No. 5,201,427. The Company also licenses two patents, Patent
No. 4,887,860 and Patent No. 5,340,268. The licenses for these patents expire on
September 22, 2008 and February 20, 2012, respectively. While the Company
believes that these patents are important to its business operations, the loss
of any patent would not have a material adverse effect on the Company.
Regulation
The Company is a common and contract motor carrier of general commodities.
Historically, the Interstate Commerce Commission (the "ICC") and various state
agencies regulated motor carriers' operating rights, accounting systems, mergers
and acquisitions, periodic financial reporting, and other matters. In 1995,
federal legislation preempted state regulation of prices, routes, and services
of motor carriers and eliminated the ICC. Several ICC functions were transferred
to the DOT. Management does not believe that regulation by the DOT or by the
states in their remaining areas of authority has had a material effect on the
Company's operations. The Company's employee and independent contractor drivers
also must comply with the safety and fitness regulations promulgated by the DOT,
including those relating to drug and alcohol testing and hours of service.
The DOT presently is considering proposals to amend the hours-in-service
requirements applicable to truck drivers. Any change which reduces the potential
or practical amount of time that drivers can spend driving could adversely
affect the Company. We are unable to predict the nature of any changes that may
be adopted. The DOT also is considering requirements that tractors be equipped
with certain equipment that the DOT believes would result in safer operations.
The cost of the equipment, if required, could adversely affect the Company's
profitability if shippers are unwilling to pay higher rates to fund the purchase
of such equipment.
6
The Company's operations are subject to various federal, state, and local
environmental laws and regulations, implemented principally by the Federal
Environmental Protection Agency and similar state regulatory agencies, governing
the management of hazardous wastes, other discharge of pollutants into the air
and surface and underground waters, and the disposal of certain substances. If
the Company should be involved in a spill or other accident involving hazardous
substances, if any such substances were found on the Company's property, or if
the Company were found to be in violation of applicable laws and regulations,
the Company could be responsible for clean-up costs, property damage, and fines
or other penalties, any one of which could have a materially adverse effect on
the Company. The Company does not utilize any on-site underground fuel storage
tanks at any of its locations. Management believes that its operations are in
material compliance with current laws and regulations.
Employees
The Company employs approximately 2,150 persons, of which approximately 1,600
are drivers, 150 work in various maintenance facilities, and 500 work in
administrative and operational capacities at the divisional locations and in the
corporate office. The Company also had contracts with certain independent
contractors ("contractors") for services that provide both a tractor and a
qualified driver or drivers. None of the Company's employees are covered by
collective bargaining agreements, and the Company believes that its relationship
with its employees is satisfactory.
Customers
The Company has approximately 2,711 regular customers with an average monthly
revenue billing of $1,000 or more. The Company's customers are not concentrated
in any one area or industry and no one customer accounts for over 10% of total
revenues.
Where You Can Find More Information
At your request, the Company will provide you, without charge, a copy of any
exhibits to this annual report on Form 10-K. If you want an exhibit or more
information, call, write or e-mail the Company at:
Transit Group, Inc.
Overlook III
2859 Paces Ferry Road, Suite 1740
Atlanta, Georgia 30339
Telephone: (770) 444-0240
Fax: (770) 444-0246
www.trgp.com
The Company's fiscal year ends on December 31. The Company files annual,
quarterly, and special reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements, or other information the Company files at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The
Company's SEC filings are also available to the public from commercial document
retrieval services and at the Internet site maintained by the SEC at
http://www.sec.gov.
7
ITEM 2. PROPERTIES
The Company has material operations at the following locations that it either
leases or owns:
City State Lease/Own City State Lease/Own
--------------------------------------------------------------------------------
Atalla Alabama Lease Indianapolis Indiana(1) Lease
Madison Alabama Lease Hickory Flat Mississippi Own
Tuscalossa Alabama Lease Olive Branch Mississippi(1) Lease
Dothan Alabama Lease Omaha Nebraska Lease
Jonesboro Arkansas Lease Gretna Nebraska Lease
Barstow California Lease Farmington New York Lease
Gonzales California Lease Charlotte North Carolina Lease
Mississauga Canada Lease Linden North Carolina Lease
Wheat Ridge Colorado Lease Archdale North Carolina Lease
Miami Florida Lease Mechanicsburg Pennsylvania Lease
Groveland Florida Own Philadelphia Pennsylvania Lease
Atlanta Georgia Lease Barnwell South Carolina Lease
Macor Georgia Own Charleston South Carolina Own
La Grange Georgia Lease Knoxville Tennessee Lease
Bloomington Indiana Lease Tyler Texas Lease
Jeffersonville Indiana Lease Waco Texas Lease
Chesterton Indiana Lease Hortonville Wisconsin Lease
Fort Wayne Indiana Lease Green Bay Wisconsin Lease
(1) Consisting of warehouse facilities.
The Company leases its headquarters located in Atlanta, Georgia.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to its business and
material litigation that may subject it to significant costs and liabilities.
Pending litigation includes actions against the Company, its subsidiaries and
certain of its officers and directors. Such material litigation includes the
following:
On November 8, 2000, Philip J. Moore ("Moore") filed an action in the Circuit
Court of the Ninth Judicial Circuit in and for Orange County, Florida (Case No.:
CIO-00-8130) against the Company. Moore subsequently amended the Complaint to
add claims against Philip A. Belyew, President and Chief Executive Officer, and
T. Wayne Davis, Chairman, as individual defendants. Moore seeks damages for
breach of contract, breach of employment agreement, and fraud alleged in
connection with the acquisition of Fox Midwest Transport Group, Inc. ("Fox
Midwest"). The Company has asserted counterclaims against Moore based on the
failure to disclose material liabilities related to the acquisition of Fox
Midwest.
On November 16, 2000, Annemarie L. Warren and Paula E. Delawter, Trustees of
Transit Trust One ("Transit Trust One"), filed an action in the Superior Court
of the Commonwealth of Massachusetts (Civil Action No. 00-5099 A) against the
Company and Transit Group Transportation, LLC. This case was removed to the
United States District Court for the District of Massachusetts on November 27,
2000 (Case No. 00-CV-12427-PBS). Transit Trust One sought damages for breach of
contract, redelivery/replevin, and injunctive relief relating to certain leased
equipment including trailers and tractors. On February 5, 2001, the Court
entered a Settlement Order of Dismissal providing either party with the right to
reopen within ninety days if a settlement was not consummated. Thereafter,
Transit Trust One filed a motion to reopen the case. Subsequently, the parties
entered into a settlement agreement and Transit Trust One withdrew its motion to
reopen the case. On November 13, 2001, Transit Trust One filed an action in the
Superior Court of the Commonwealth of Massachusetts against the Company, Transit
Group Transportation, LLC and Carroll Fulmer & Co., Inc. alleging a default
under certain promissory notes owned to Transit Trust One in the aggregate
amount of $4,098,523, together with their attorneys fees and other costs.
On November 30, 2000, David L. Summitt ("Summitt") filed an action in Clark
Circuit Court, Clark County, Indiana (Cause No. 10-C01-0011-CP-636) against
Bestway Trucking, Inc., a company purchased by the Company. This case was
removed on December 21, 2000, to the United States District Court for the
Southern District of Indiana, New Albany Division (NA 00-251-C H/S). Summitt
filed this complaint for
8
damages arising from the termination of a real estate lease contract, for
environmental clean-up costs allegedly arising from the occupancy of the leased
premises and for declaratory relief relating to the enforceability of a non-
competition and non-solicitation agreement executed by Summitt for the benefit
of the Company. The Company has vacated the leased premises, answered the
Amended Complaint and asserted a counterclaim for interference with the use and
possession of the leased property.
On December 14, 2000, Patricia H. Johnson, Kent L. Johnson, Kenneth F. Johnson,
Kimberly J. Riccio, Kevin L. Johnson, James W. Lake, Douglas P. Hadden, Dana L.
Quackenbush and James B. Stalker (former shareholders of KJ Transportation,
Inc.) filed an action in the Superior Court of Cobb County, Georgia (Civil
Action No.00-1-9879) against the Company, Philip A. Belyew and T. Wayne Davis.
The Plaintiffs seek damages from an alleged breach of the Agreement and Plan of
Reorganization pursuant to which the Company acquired KJ Transportation,
injunctive relief permitting them to compete with the Company, and injunctive
relief prohibiting the Company from indemnifying or defending individual
defendants Davis or Belyew. The Company has moved to dismiss the action and to
stay all discovery until that motion is resolved.
On August 7, 2001, Larry E. Wray filed an action in the Circuit Court of Gibson
County, Tennessee against Bestway Trucking, Inc. The Plaintiff alleges reverse
racial discrimination under Tennessee's Human Rights Act and infliction of
emotional distress in connection with the separation of his employment with the
Company. The prayer for relief requests $1 million in compensatory damages and
$10 million in punitive damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 8, 2001, the Company's shareholders acted by majority written consent
for the purpose of approving its Amended and Restated Articles of Incorporation,
which increased the Company's authorized common stock from 100,000,000 shares to
500,000,000 shares and increased the number of shares available for grant under
the Company's 1998 Stock Incentive Plan by 30,000,000. Holders of 17,062,950
shares, or 53.21% of the Company's outstanding common stock, voted for amending
and restating the Articles of Incorporation and increasing the number of shares
available for grant under the 1998 Stock Incentive Plan.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
From October 25, 2000, to January 2, 2001 the Company's common stock was traded
on the Over the Counter Bulletin Board under the trading symbol "TRGP.OB." Since
January 2, 2001, the Company's common stock has been traded on the Pink Sheets.
Prior to October 25, 2000, the Company's common stock was traded on the Nasdaq
SmallCap Market. The closing sale price for the Company's common stock on
October 29, 2001, the last reported sale on the Pink Sheets, was $0.035.
The following table sets forth the range of high and low bid prices for the
Company's common stock on the Over the Counter Bulletin Board for the period
indicated. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.
Bid Ask
--- ---
High Low High Low
---- --- ---- ---
Calendar Year 2000
Fourth Quarter (since October 24, 2000).......... $0.375 $0.100 $0.375 $0.100
The following table sets forth the high and low closing sales prices for the
Company's common stock as reported by the Nasdaq SmallCap Market for 1999 and
through October 24, 2000, the date the Company was delisted from the Nasdaq
SmallCap Market.
9
Closing Sales Price
-------------------
High Low
---- ---
Calendar Year 1999
First Quarter.................................. $5.25 $3.94
Second Quarter................................. $6.75 $4.31
Third Quarter.................................. $6.69 $3.94
Fourth Quarter................................. $4.50 $3.00
Calendar Year 2000
First Quarter.................................. $3.13 $1.88
Second Quarter................................. $2.25 $ .53
Third Quarter ................................. $1.06 $ .28
Fourth Quarter (through October 24, 2000) ..... $ .38 $ .16
Shareholders
As of November 1, 2001, there were 373 shareholders of record of the Company's
common stock, not including individuals and entities holding shares in street
name.
Dividends
The holders of our Series B preferred stock are entitled to receive dividends
equal to 10.5% per annum of the outstanding dollar amount invested by the
holder. The dividend accrues and is payable in cash at such time as declared by
the Board. Each holder of Series B preferred stock has the option to convert
such accrued dividend into additional shares of Series B preferred stock of the
Company at a $5.00 per share conversion price. The 9.0% per annum dividend to
which the holders of the Series A preferred stock are entitled will accrue and
be payable in cash at such time as declared by the Board of Directors. However,
the credit agreements entered into by the Company with its lenders prohibit the
payment of any dividend on any capital stock of the Company until such lenders
are repaid in full. Therefore, the Company does not expect to declare or pay any
cash dividends in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
10
ITEM 6. SELECTED FINANCIAL DATA
The Company's selected combined financial information set forth below should be
read in conjunction with its consolidated financial statements, including the
notes thereto. The following statement of operations and balance sheet data have
been derived from the Company's audited consolidated financial statements and
should be read in conjunction with those statements which are included in this
report.
(In thousands, except share data) Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenue and other income $ 504,607 $ 355,526 $ 177,553 $ 34,011 $ -
============ =========== ============ ============ ===========
Operating (loss) income $ (181,955) $ 12,964 $ 8,892 $ 1,378 $ (359)
Interest expense, net 13,948 6,853 4,310 1,045 -
------------ ----------- ------------ ------------ -----------
(Loss) income from continuing operations (195,903) 6,111 4,582 333 (359)
before income taxes
Income (benefit) taxes (15,972) 1,731 (7,114) 71 -
------------ ----------- ------------ ------------ -----------
(Loss) income from continuing operations (179,931) 4,380 11,696 262 (359)
Loss from discontinued operations - - - (6,114) (4,790)
Loss on disposal of discontinued operations - - - (5,792) -
------------ ----------- ------------ ------------ -----------
Net (loss) income (179,931) 4,380 11,696 (11,644) (5,149)
Preferred stock dividend requirement (2,251) (1,420) - (385) (429)
------------ ----------- ------------ ------------ -----------
Net (loss) income available to common shareholders $ (182,182) $ 2,960 $ 11,696 $ (12,029) $ (5,578)
============ =========== ============ ============ ===========
Basic (loss) earnings per share:
(Loss) income from continuing operations $ (5.64) $ 0.16 $ 0.52 $ 0.02 $ (0.10)
Loss from discontinued operations - - - (0.55) (1.27)
Loss on disposal of discontinued operations - - - (0.52) -
Preferred stock dividend requirement (0.07) (0.05) - (0.03) (0.11)
------------ ----------- ------------ ------------ -----------
Net (loss) income available to common
shareholders $ (5.71) $ 0.11 $ 0.52 $ (1.08) $ (1.48)
============ =========== ============ ============ ===========
Diluted (loss) earnings per share:
(Loss) income from continuing operations $ (5.64) $ 0.15 $ 0.49 $ 0.02 $ (0.10)
Loss from discontinued operations - - - (0.55) (1.27)
Loss on disposal of discontinued operations - - - (0.52) -
Preferred stock dividend requirement (0.07) (0.05) - (0.03) (0.11)
------------ ----------- ------------ ------------ -----------
Net (loss) income available to common shareholders $ (5.71) $ 0.10 $ 0.49 $ (1.08) $ (1.48)
============ =========== ============ ============ ===========
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $ (133,456) $ 43,255 $ 7,108 $ (5,344) $ (3,770)
============ =========== ============ ============ ===========
Total assets $ 124,627 $ 326,414 $ 130,527 $ 75,055 $ 5,820
============ =========== ============ ============ ===========
Long-term debt, capital lease obligations
and redeemable preferred stock $ 24,818 $ 164,325 $ 42,463 $ 27,652 $ -
============ =========== ============ ============ ===========
Redeemable common stock $ 3,675 $ 3,675 $ 5,115 $ 7,452 $ -
============ =========== ============ ============ ===========
Stockholders' (deficit) equity $ (104,085) $ 78,097 $ 48,156 $ 18,717 $ 2,013
============ =========== ============ ============ ===========
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following table sets forth items in the Company's Consolidated Statement of
Operations for the years ended December 31, 2000, 1999 and 1998 as a percentage
of operating revenues.
Percentage of Operating Revenues
Year Ended December 31,
---------------------------------------
2000 1999 1998
---- ---- ----
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Purchased Transportation 44.7% 36.9% 43.6%
Salaries, wages and benefits 23.9% 25.8% 22.9%
Operating supplies and expenses 12.8% 11.0% 9.2%
Fuel 9.9% 9.0% 7.3%
Lease expense-revenue equipment 5.6% 5.7% 3.4%
Depreciation and amortization expense 3.9% 3.9% 4.2%
General and administrative expense 3.6% 2.7% 2.8%
Insurance 2.0% 1.4% 1.6%
Loss on disposition of assets 1.1% 0.0% 0.0%
Loss on impairment of goodwill 22.1% 0.0% 0.0%
Loss on impairment of fixed assets 6.5% 0.0% 0.0%
----- ----- -----
Total operating expenses 136.1% 96.4% 95.0%
----- ----- -----
Operating (loss) income -36.1% 3.6% 5.0%
===== ===== =====
Year ended December 31, 2000 as compared to year ended December 31, 1999
Total operating revenues. Total operating revenue increased from $355.5 million
in 1999 to $504.6 million, or increase of 41.9% in 2000. The increase is due
primarily to the full year of revenues for the eight companies acquired by the
Company in 1999.
Purchased transportation. Purchased transportation increased from $131.3 million
in 1999 to $225.3 in 2000. As a percentage of revenues purchase transportation
increased from 36.9% in 1999 to 44.7% in 2000. The increase is primarily from an
increase in the number of contractor tractors operated.
Salaries, wages and benefits. Salaries, wages and benefits increased from $91.6
million in 1999 to $120.8 million, or by 31.9% in 2000. Salaries, wages and
benefits as a percentage of total operating revenue decreased from 25.8% in 1999
to 23.9% in 2000. The decrease as a percentage of total operating revenue is
attributed to the change in fleet mix discussed in the preceding paragraph as
well as a decline in the number of non-driver personnel employed.
Operating supplies and expenses. Operating supplies and expenses increased from
$39.2 million in 1999 to $64.3 million, or by 64.0%, in 2000. As a percentage of
total operating revenue operating supplies and expenses increased from 11.0% in
1999 to 12.8% in 2000. The increase as a percentage of total operating revenue
is attributed to the change in fleet mix of company and contractor equipment.
12
Fuel. Fuel increased from $31.9 million in 1999 to $49.8 million, or by 56.2% in
2000. Fuel as a percentage of total operating revenue increased from 9.0% in
1999 to 9.9% in 2000. Fuel costs have increased by approximately 20% over the
prior year, however, these increases are mitigated by fuel surcharges passed on
to customers.
Rental expense. Rental expense increased from $20.4 million in 1999 to $28.4
million in 2000, an increase of $8.0 million due to the acquisitions during 1999
and the full year effect of rental expense in 2000.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $13.9 million in 1999 to $19.7 million, an increase of $5.8
million, due to the acquisitions during 1999 and the full year effect of the
depreciation expense in 2000.
General and administrative expense. General and administrative expense increased
from $9.5 million in 1999 to $18.2 million, or by 91.6% in 2000. General and
administrative expense as a percentage of total operating revenue increased from
2.7% in 1999 to 3.6% in 2000.
Insurance. Insurance expense increased from $4.8 million in 1999 to $9.9
million, an increase of $5.1 million in 2000. Insurance expense as a percentage
of total operating revenue increased from 1.4% in 1999 to 2.0% in 2000. The
increase as a percentage of total operating revenue is due to the higher cost of
insurance and an increase in cargo related insurance claims.
Impairment charges. The decline in operations, cash flows and market conditions
have affected the analysis used to assess the recoverability of goodwill. As a
result, management recorded an impairment charge in 2000, in the amount of
$111.4 million to write-off all remaining goodwill. Furthermore, the decline in
market values for used trucking equipment has affected the analysis used to
assess the recoverability of these assets. As a result, management recorded a
charge of $29.2 million to reflect fair market values of certain revenue
equipment and a charge of $3.8 million to reflect fair market values of certain
other assets in 2000.
Operating (loss) income. Operating income decreased from $13.0 million in 1999
to an operating loss of $182.0 million in 2000, primarily as the result of the
impairment charges and a difficult operating environment in 2000.
Interest expense. Interest expense increased from $6.9 million in 1999 to $13.9
million, or by 101.4%, in 2000 as a result of increased borrowings to fund
operations partially offset by more favorable interest rates and the increased
use of contractor equipment.
Income taxes. The Company determines the provision for income taxes using the
best estimate of the effective tax rate expected to be applicable for the full
fiscal year. As a result of continued operating losses and the Company's
inability to generate sufficient cash to meet its obligations, the Company has
fully reserved for any future tax benefits associated with current year losses.
The difference between the provision for income taxes and the amount that would
be expected using the Federal statutory income tax rate of 34% is related to
nondeductible goodwill, changes in valuation allowances for deferred taxes,
amortization expense, the meal component of per diem expenses paid to drivers,
and certain other non-deductible expenses.
13
Year ended December 31, 1999 as compared to year ended December 31, 1998
Total operating revenues. Total operating revenue increased from $177.6 million
in 1998 to $355.5 million, or by 100.2% in 1999. The increase is due primarily
to the acquisition of eight companies in 1999 ($123.8 million) and a full year
of revenues for those companies acquired in 1998.
Purchased transportation. Purchased transportation increased from $77.3 million
in 1998 to $131.3 million or by 69.7% in 1999. As a percentage of total
operating revenue, purchased transportation decreased from 43.6% in 1998 to
36.9% in 1999. Changes in the fleet mix from brokerage and contractor tractors
to company owned tractors as a result of the acquisitions resulted in the
decline in purchase transportation as a percentage of sales.
Salaries, wages and benefits. Salaries, wages and benefits increased from $40.7
million in 1998 to $91.6 million, or by 125.2% in 1999. Salaries, wages and
benefits as a percentage of total operating revenue increased from 22.9% in 1998
to 25.8% in 1999. The increase as a percentage of total operating revenue is
attributed to the change in revenue mix discussed in the preceding paragraph as
well as continued pressure on driver wages and the growth of the Company's
corporate services area.
Fuel. Fuel increased from $12.9 million in 1998 to $31.9 million, or by 146.4%
in 1999. Fuel as a percentage of total operating revenue increased from 7.3% in
1998 to 9.0% in 1999. In addition to the change in fleet mix, fuel costs have
increased approximately 37% over the prior year.
Operating supplies and expenses. Operating supplies and expenses increased from
$16.4 million in 1998 to $39.2 million, or by 139.6% in 1999. As a percentage of
total operating revenue operating supplies and expenses increased from 9.2% in
1998 to 11.0% in 1999. The increase as a percentage of total operating revenue
is attributed to the change in mix of company and contractor equipment.
Insurance. Insurance expense increased from $2.8 million in 1998 to $4.8
million, or by 68.8% in 1999. Insurance expense as a percentage of total
operating revenue decreased from 1.6% in 1998 to 1.4% in 1999. The decrease as a
percentage of total operating revenue is due to the Company's ability to
negotiate more favorable insurance rates because of its larger, more diverse
insurance base.
Rental expense. Rental expense increased from $6.1 million in 1998 to $20.4
million in 1999, an increase of 237.4%. Expressed as a percentage of total
operating revenue, rental expense increased from 3.4% in 1998 to 5.7% in 1999.
The increase is a result of the Company fully utilizing its $50 million
operating lease facility.
Depreciation and amortization expense. Depreciation and amortization expense
increased from $7.5 million in 1998 to $13.9 million, or by 84.3% in 1999.
Depreciation and amortization expense as a percentage of total operating revenue
decreased from 4.2% in 1998 to 3.9% in 1999. The decrease as a percentage of
total operating revenue is due to the increased use of leased equipment offset
by higher levels of goodwill amortization ($1.2 million in 1998 compared with
$1.8 million in 1999.)
General and administrative expense. General and administrative expense increased
from $4.9 million in 1998 to $9.5 million, or by 94.3% in 1999. General and
administrative expense as a percentage of total operating revenue decreased from
2.8% in 1998 to 2.7% in 1999. The decrease as a percentage of total operating
revenue is related to the ongoing consolidation of certain accounting, finance,
legal and administrative functions in 1999.
Operating income. Operating income increased from $8.9 million in 1998 to $13.0
million, or by 45.8%, in 1999. As a percentage of total operating revenue,
operating income declined from 5.0% in 1998 to 3.6% in 1999 as a result of the
various factors discussed above.
Interest expense. Interest expense increased from $4.3 million in 1998 to $6.9
million, or by 59.0% in 1999 as a result of increased borrowings to fund
acquisitions offset by more favorable interest rates and
14
the increased use of leased equipment. Expressed as a percentage of total
operating revenue interest expense declined from 2.4% in 1998 to 1.9% in 1999.
Income taxes. In 1998, the Company recognized the future value of net operating
loss carryforwards by reducing the valuation allowance in the amount of
approximately $7.5 million. Due to non-deductible goodwill, and the
non-deductible portion of per diems paid to drivers the Company has incurred a
tax rate of approximately 50% (before the utilization of any net operating
losses.) In the first quarter of 2000, the Company discontinued per diems. As a
result, its tax rate is expected to decline in 2000. In 1999, as a result of
changes in Federal tax laws, the Company reduced the valuation allowance for net
operating loss carryforwards and recognized a benefit of $2.7 million. The
Company recognized this benefit effective June 30, 1999 and restated its second
quarter 1999 financial information.
Liquidity and Capital Resources
During 2000, the Company incurred an operating loss of approximately $182.0
million. This loss is primarily attributable to the impairment of all of the
Company's goodwill and other intangible assets, an impairment in the Company's
fleet, reduced shipper demand, difficulties in efficiently integrating the
Company's acquisitions and rising fuel prices, among other factors. Late in the
third quarter of 2000 and continuing into the second quarter of 2001, the
Company experienced severe cash flow difficulties, which combined with the
factors noted above, resulted in violations of the debt covenants under all of
the Company's credit facilities and many of its lease agreements. In April 2001,
the Company restructured all of its debt, as more fully described in Note 15 of
the notes to consolidated financial statements. As of the date of this report,
the Company was not in compliance with its new credit facilities, accordingly
the lenders are entitled to require immediate repayment of all outstanding
amounts.
In response to these problems, the Company has developed an action plan which
contemplates, among other actions, certain new senior management, reduction in
the size of the Company's fleet and number of terminals, effective and efficient
integration of the Company's acquisitions and reductions in the amount of fixed
costs. The Company faces several significant challenges, including declining
economic conditions, competition from larger and financially stronger trucking
firms, and uncertainties with respect to the availability of credit. There can
be no assurance that management will be able to successfully implement the
action plan, nor that those actions will be sufficient. In the event additional
corrective actions are required, the Company will consider further reductions in
its fleet, terminals, and sales of its businesses.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Net cash provided by operating activities was $15.1 million in 2000 as compared
to $7.5 million cash used in operating activities in 1999. The increase is
primarily attributable to an increase in accounts payable, a reduction in
accounts receivable, a reduction in other assets and an increase in depreciation
and amortization. The net loss of $182.0 million was primarily attributable to
non-cash charges for impairments of goodwill and fixed assets that amounted to
$144.4 million.
Net cash provided by investing activities was $0.4 million in 2000 as compared
to $25.1 million cash used in investing activities in 1999. The increase is
primarily due to a reduction in business combinations of $28.4 million and
partially offset by a reduction in disposition proceeds.
Net cash used in financing activities was $13.3 million in 2000 as compared to
$32.7 million cash provided by financing activities in 1999. The decrease is
primarily due to net increase in repayments of long-term debt of $23.0 million
and a reduction from issuance of preferred stock of $24.7 million, partially
offset by a reduction in stock redeemed and dividends paid.
In 1999, the Company entered into a $150 million credit facility which replaced
the existing $35 million revolving credit and term facility. The Company was not
in compliance with payment and other covenants and provisions of this $150
million facility from December 31, 1999 through April 19, 2001 when the
15
Reorganization was completed. In accordance with the requirements of generally
accepted accounting principles, this debt was classified as a current liability.
In the Reorganization on April 19, 2001, the Company modified or significantly
changed the terms of virtually all of its capital leases, equipment notes and
operating leases (the "Equipment Obligations") which approximate $120 million on
April 19, 2001. As a result of the Company's continued operating losses, it had
not made payments on the Equipment Obligations from September, 2000 through
March, 2001. Accordingly, virtually all of the Equipment Obligations were in
default on December 31, 2000 until the Reorganization. The Company classified
all of these obligations as current as of December 31, 2000.
In May 1999, the Company issued five million shares of its 9% Series A
redeemable preferred stock for $5.00 per share to GE Capital Equity Investments,
Inc. ("GE Capital"). The Series A preferred stock agreement contained certain
anti-dilutive provisions which required the issuance of additional shares of the
Series A preferred stock if the Company issued stock at a price less than $5.00
per share. The Company did not make the preferred stock dividend payments in the
aggregate amount of approximately $1.875 million from June 2000 through January
31, 2001.
In connection with the Reorganization, the Company agreed with GE Capital to
convert currently payable dividends accrued from June 2000 through January 31,
2001 in an aggregate amount of approximately $1.875 million into 375,000 shares
of the Company's Series B preferred stock. All dividends accruing after January
31, 2001 will accrue and will be paid in cash at such time as declared by the
Board of Directors. However, the loan agreements the Company entered into with
certain of its lenders in connection with the Reorganization prohibit the
payment of any dividend until such lenders are repaid in full. Therefore, the
Company does not expect to declare or pay any dividends in the foreseeable
future.
Both the Series A preferred stock held by GE Capital and the Series B preferred
stock issued in the Reorganization are redeemable at the option of the holder.
The holders of each series of preferred stock will be entitled to require the
Company to redeem their shares of preferred stock, at a redemption price equal
to the purchase price plus all accrued and unpaid dividends per share, in an
amount of up to one-third of the number of shares of preferred stock originally
issued, on or after October 19, 2005 up to two-thirds of such amount on or after
October 19, 2006, and up to all such shares on or after October 19, 2007. In the
case of Series A preferred stock, such redemption rights shall expire October
19, 2010, and in the case of Series B preferred stock, such redemption rights
shall expire October 19, 2008. In addition, at any time upon the occurrence of
certain mergers, sales of assets or change of control of the company, the
Company will redeem all of the outstanding shares of Series A and Series B
preferred stock. However, the loan agreements the Company entered into with
certain of its lenders in connection with the Reorganization prohibit the
redemption of any of the Company's stock until such lenders are repaid in full.
Therefore, the Company does not expect to redeem any of the Series A or Series B
preferred stock in the foreseeable future.
Redemption Rights for Selling Shareholders in Acquisitions
In connection with certain 1997 acquisitions, the Company granted the selling
shareholders the right to require the Company to redeem a portion of the shares
received in exchange for selling their businesses to the Company. The dollar
amount of stock subject to mandatory redemption aggregated approximately $8.1
million upon acquisition of those companies.
On May 24, 2000, the holders of redemption rights for $3.6 million or 865,608
shares of the Company's common stock (the "Holders") exercised their redemption
rights. The Holders' redemption rights obligated the Company and its Chairman,
jointly, to purchase 865,608 shares of common stock from the Holders at a price
of $3.60 per share. The purchase price of $3.6 million was reduced to reflect
the return of 138,999 shares by one of the Holders, Carroll A. (Tony) Fulmer, to
the Company in consideration of the forgiveness of all principal and interest
accrued under his promissory note to the Company in the original principal
amount of $500,000. The remaining $3.1 million, together with interest accrued
thereon at a rate of 10.5% per annum, will be paid in twenty-nine monthly
installments of $100,000 each and one final payment of $83,481. Each payment
shall be allocated among the Holders and bear interest at 10.5%.
16
The obligations of the Chairman to purchase the stock from the Holders, to the
extent the Company does not do so over such period, has been limited to $1.8
million and shall be further reduced by the principal amount of each installment
payment by the Company after such payments have reduced the purchase price to
$1.8 million. Therefore, as of the date of this report, the Chairman's stock
purchase obligation has been reduced to $1.8 million, and will be further
reduced as each installment is paid by the Company as well as any prepayments
made by the Company after such installments have reduced the purchase price to
$1.8 million.
In connection with the Reorganization, the Company issued to the Holders a total
of 300,000 shares of its Series B preferred stock as a deferral fee for no
additional consideration. Further, the Company has agreed not to place, nor
permit its subsidiaries to place, any additional mortgages other than those
currently outstanding or refinanced on the real property owned by Transit Group
Transportation, LLC in Groveland, Florida which was acquired by the Company in
connection with the merger with the Carroll Fulmer Group, Inc.
In the event that the Company fails to make its monthly payment in connection
with this stock purchase or if the Company defaults on certain other payments or
commitments made pursuant to the restructuring of such stock purchase, the
entire amount owed to the Holders will be accelerated and become immediately due
and payable.
Inflation and Fuel Costs
Most of the Company's operating expenses are inflation-sensitive, with inflation
generally producing increased costs of operations. During the past three years,
the most significant effects of inflation have been on revenue equipment prices
and the compensation paid to the drivers. Innovations in equipment technology
and comfort have resulted in higher tractor prices, and there has been an
industry-wide increase in wages paid to attract and retain qualified drivers.
The Company attempts to limit the effects of inflation through increases in
freight rates and certain cost control efforts.
In addition to inflation, fluctuations in fuel prices can affect profitability.
Most of the Company's contracts with customers contain fuel surcharge
provisions. Although the Company historically has been able to pass through most
long-term increases in fuel prices and taxes to customers in the form of
surcharges and higher rates, increases usually are not fully recovered. In the
fourth quarter of 1999, fuel prices escalated rapidly and have remained high
throughout 2000. This has increased the Company's cost of operating.
Seasonality
The Company experiences some seasonal fluctuations in freight volume.
Historically, its shipments decrease during the winter months. In addition, the
Company's operating expenses historically have been higher in the winter months
due to decreased fuel efficiency and increased maintenance costs for revenue
equipment in colder weather. The Company's operating revenue and net earnings
may vary as a result of seasonal factors, and accordingly, results of operations
are subject to fluctuation, and results in any period should not be considered
indicative of the results to be expected for any future period.
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 be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedge accounting. The Company
adopted SFAS 133 on January 1, 2001. There was no material effect on
consolidated results of operations, financial position, cash flows or
stockholders' deficit upon adoption of SFAS 133.
17
In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens the criteria
for recording intangible assets separate from goodwill. Recorded goodwill and
intangibles will be evaluated against this new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-amortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001 will be adopted by the Company on January 1, 2002. During the
year ended December 31, 2000, the Company determined that goodwill relating to
previous acquisitions was impaired and recorded a charge of $111.4 million to
write-off all remaining goodwill. The Company expects no material adverse effect
on consolidated results of operations, financial position, cash flows or
stockholders' deficit upon adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires that obligations associated with the retirement
of tangible long-term assets be recorded as a liability when the obligations
are incurred. The statement is effective for fiscal years beginning after June
15, 2002, with earlier adoption encouraged. The Company does not expect any
material impact on the results of operations upon implementations of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement establishes a single accounting
model for long-lived assets to be disposed of by sale based on the framework
established by SFAS 121. The statement is effective for fiscal years beginning
after December 15, 2001. The Company is currently assessing the new standard.
Risk Factors
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company has
suffered a substantial operating loss, has negative working capital, and is not
in compliance with its credit facilities. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company is in default or in violation of certain covenants contained in its
credit agreements with Congress and Bank One.
On July 13, 2001, the Company received notice from Congress that the Company is
in default under its credit agreement with Congress because the Company failed
to furnish Congress with complete monthly financial statements within 30 days of
May 31, 2001 and failed to maintain a tangible net worth of not less than
$63,000,000. Because of these defaults, Congress has increased the interest rate
payable by the Company on the outstanding principal amount of the credit
facility by 2% per annum in excess of the interest rate otherwise in effect
under the credit facility and may demand immediate repayment of all amounts
outstanding on the facility. Also, the Company is in violation of certain
covenants contained in its credit agreement with Bank One. As a result, Bank One
may demand immediate repayment of all amounts outstanding under the credit
agreement.
The Company has a significant amount of indebtedness.
As of November 14, 2001, the Company had total indebtedness in excess of $156
million. While the Company has restructured its indebtedness, it continues to
have a significant amount of indebtedness. This substantial indebtedness has
important consequences to the Company. For example, it:
. requires the Company to dedicate a substantial portion of its cash
flow from operations to payments on this indebtedness, thereby
reducing the availability of cash flow to fund operations;
. increases the Company's vulnerability to general adverse economic and
industry conditions;
. limits flexibility in planning for, or reacting to, changes in the
Company's business and the transportation industry generally;
18
. places the Company at a competitive disadvantage compared to
competitors that have less debt; and
. limits the Company's ability to borrow additional funds to fund growth
and provide for capital expenditures.
The Company's business may not generate sufficient cash flow from operations in
an amount sufficient to enable the Company to pay its indebtedness or to fund
its other liquidity needs. If the Company cannot service its indebtedness, it
will be forced to take actions such as delaying or reducing the implementation
of its business strategy or capital expenditures, selling assets, restructuring
or refinancing indebtedness, seeking additional equity capital or filing for
bankruptcy protection. The Company may be unable to effect any of these remedies
on commercially reasonable terms if at all.
The Company has been negatively impacted by the ongoing attempts to restructure
the Company's finances.
Due to the uncertainty of the Company's financial position, several significant
customers have declined to continue relationships with the Company. Other
customers have decreased load volumes with the Company as a result of the
uncertainty surrounding the Company's financial condition. In connection with
the Company's default under various equipment leases, some lessors have
repossessed certain tractors and trailers. Such repossessions have impacted
several of the Company's existing customers and further eroded the stability of
the Company's customer base. The Company's tenuous financial condition has made
the recruitment and retention of contractors and drivers very difficult. Under
these circumstances, it has been difficult to attract new business. Further, the
scope and complexity of the Company's Reorganization finalized in April 2001 has
demanded significant management time which would otherwise be spent generating
such new business and improving operations.
The Company is not current in its required filings with the Securities and
Exchange Commission.
The Company did not file with the Securities and Exchange Commission the
required Form 10-Q, due November 14, 2000, timely or this Form 10-K timely. The
Company has not filed the required Form 10-Q's, that were due on May 15, 2001,
August 14, 2001 and November 14, 2001. As a result, the Company's shareholders
may not currently sell their stock under Rule 144 of the Securities Act of 1933.
Since the Company is not current in its filing requirements the Securities and
Exchange Commission may take such action against the Company that it deems
appropriate. In addition, the Company may be subject to shareholder litigation
as a result of the Company's failure to remain current in its filings with the
Securities and Exchange Commission.
The market price of the Company's common stock has been highly volatile.
There is currently little or no public market for the Company's common stock.
The Company's shares were listed on the NASDAQ SmallCap Market but were
delisted on October 25, 2000 and its shares are now quoted on the "pink sheets"
published by Pink Sheets, LLC. There is very little trading volume in the
Company's stock. The market price of the Company's common stock declined
substantially in 2000 and remains highly volatile. Changes in market valuations
of other companies in the motor carrier industry and general market and economic
conditions could further affect the market price of the Company's common stock.
Trading in securities quoted in the pink sheets is often more sporadic than
trading in securities listed on an exchange or on the Nasdaq National Market
System. The Company believes it is unlikely that the Company will ever relist
its common stock with the NASDAQ National Market or the NASDAQ SmallCap Market.
The Company's common stock is a "penny stock," because it is not listed on an
exchange and trades at less than $5.00 per share. Broker-dealers who sell penny
stocks must provide purchasers of these
19
stocks with a standardized risk-disclosure document prepared by the Securities
and Exchange Commission. This document provides information about penny stocks
and the nature and level of risks involved in investing in the penny-stock
market. A broker must also give a purchaser, orally or in writing, bid and offer
quotations and information regarding broker and salesperson compensation, make a
written determination that the penny stock is a suitable investment for the
purchaser, and obtain the purchaser's written agreement to the purchase.
Consequently, the penny stock rules may make it difficult for the Company's
shareholders to sell their shares of the Company's common stock.
The Company does not expect to declare or pay future dividends without the
consent of its lenders.
The loan agreements entered into by the Company with certain of its lenders in
connection with the Reorganization prohibit the payment of any dividend until
such lenders are repaid in full. Therefore, the Company does not expect to
declare or pay any dividends in the foreseeable future.
The agreements governing the Company's new credit facility imposes operating and
financial restrictions on the Company that may prevent the Company from
capitalizing on business opportunities.
The agreements governing the Company's new credit facility with Congress and the
restated credit agreement with the Company's prior lender as well as the
purchase agreement the Company entered into in connection with the sale of the
Series A preferred stock and Series B preferred stock impose significant
operating and financial restrictions on the Company. The terms of any other
financings the Company may obtain may do so as well. These restrictions
substantially limit or prohibit the Company from taking various actions,
including incurring additional debt, making investments, paying dividends to the
Company's shareholders, creating liens, selling assets, engaging in mergers and
consolidations, repurchasing or redeeming capital stock and capitalizing on
business opportunities. If the Company fails to comply with the covenants (at
November 10, 2001, the Company was in violation of several of the covenants) and
restrictions in the Company financing agreements, the Company will be in default
under such agreements even if the Company is able to make payments on its debt.
The Company may need additional financing to meet its future capital
requirements.
The Company's financial resources are limited and the amount of funding that the
Company may require in the future is uncertain. The Company may be unable to
secure adequate funds on satisfactory terms, if at all. The Company may seek
financing through the issuance of equity securities. The proceeds of any such
offering however, will be used by the Company to purchase shares of common stock
at $3.60 per share in accordance with certain contractual redemption rights
applicable to the Company. If adequate funds are not available or are not
available on acceptable terms, the Company may be unable to retain personnel,
fund its operations, or respond to competitive pressures. Any of these could
have a material and adverse effect on the Company's business as well as severely
impact near term operations and the Company's financial condition.
The Company may incur costs and liabilities related to pending and potential
litigation.
The Company is involved in material litigation that may subject the Company to
significant costs and liabilities. See Part I, Item III "Legal Proceedings."
The Company faces significant competition from trucking companies in the markets
the Company serves.
The motor carrier industry is highly competitive and subject to pressures from
major business cycles. The Company believes that competition in the motor
carrier industry is based primarily on service and efficiency. The Company
competes with many companies located in the market areas it serves.
The shipping requirements of "just-in-time" inventory systems demand
geographically diverse companies with well-developed tracking and dispatching
information systems. The Company anticipates that the motor carrier industry
will continue to consolidate and remain extremely competitive for both customers
and qualified personnel and that the Company's current size and anticipated
growth will allow it to
20
participate in the consolidating motor carrier industry. However, there is
significant disparity in the Company's revenues and financial resources and
those of the largest trucking companies. The Company may be unable to maintain
its growth.
The Company is subject to potential liability associated with trucking accidents
that may exceed its insurance coverage.
Potential liability associated with accidents in the motor carrier industry is
severe and occurrences are unpredictable. The industry is also subject to
substantial workers' compensation expense. A material increase in the frequency
or severity of accidents, workers' compensation claims, or an unfavorable
development of existing claims can be expected to adversely affect the Company's
operating income.
The Company carries insurance to cover liability and workers' compensation
claims. However, the Company's insurance may be inadequate to cover all of its
liabilities. To the extent the Company were to experience a material increase in
the frequency or severity of accidents, cargo claims or workers' compensation
claims, or in the unfavorable resolution of existing claims, the Company may be
required to incur substantial costs to cover these claims. In addition, the
Company's results of operations would be adversely affected if the premiums for
the Company's liability, workers' compensation and casualty claims were to
increase substantially.
The Company's growth through acquisitions has placed a significant strain on its
administrative, operational and financial resources.
The Company acquired 19 operating companies from June 30, 1997, through November
4, 1999. The growth of its business through acquisitions and the expansion of
its operations have placed a significant strain on the Company's administrative,
operational and financial resources. The Company's acquisition growth has also
resulted in a substantial increase in the scope of its operations. The Company's
inability to assimilate these acquired operations and support the growth of its
business has had a material adverse effect on the Company's financial condition
and results of operations.
The Company's difficulty in hiring drivers may have a material adverse effect on
its business.
The long-haul motor carrier industry has experienced problems in hiring
qualified, experienced drivers. The availability of drivers is an important
factor in the Company's ability to serve its customers. Commercial driver
license and drug testing requirements have contributed to a nationwide driver
shortage and competition for drivers is intense. The Company has periodically
experienced driver shortages in certain geographical areas. The Company may be
unable to employ a sufficient number of drivers from time to time to meet
customer shipment demands, resulting in loss of revenue. Any shortage of
qualified drivers would have an adverse effect on the Company's business,
financial condition and results of operations.
The Company may not be able to pay off the debt on certain of its assets in the
event of liquidation due to the depressed current market value of such assets.
There is currently an oversupply of used tractors and trailers available for
sale in the long-haul motor carrier industry. As a result, the current market
value of such equipment is low and the Company may be unable to sell these
assets for amounts sufficient to pay its equipment related debt, if at all.
The Company depends on key personnel.
The loss of any of the Company's executive officers, including its Chief
Executive Officer, Philip A. Belyew, the Company's Chief Operating Officer,
James G. Overley, or other key financial and strategic personnel could have a
material adverse effect upon the Company's business, operating results and
financial condition. The Company's success depends largely on the efforts and
abilities of the Company's key personnel.
21
The Company's operating results are subject to cyclical and seasonal
fluctuations.
The Company's operations are subject to seasonal trends common in the motor
carrier industry. Operating results in the first and fourth quarters are
normally lower due to reduced shipments during the winter months. Harsh winter
weather can also adversely impact the Company's performance by reducing demand
and increasing operating expenses.
The Company's failure to comply with, or the costs of complying with, government
regulation could negatively affect the Company's results of operations.
The Company's operations are subject to a number of complex and stringent
transportation, labor, employment and other laws and regulations. These laws and
regulations generally require the Company to maintain and comply with a wide
variety of certificates, permits, licenses and other approvals. If the Company
fails to maintain required certificates, permits or licenses, or to comply with
applicable laws, ordinances or regulations, the Company could be subject to
substantial fines or the possible revocation of the Company's authority to
conduct its operations.
Existing laws or regulations may be revised and new laws or regulations may be
enacted that could adversely impact the Company's operations. The Company may be
unable to recover any or all increased costs of compliance from its customers
and the Company's business and financial condition may be materially and
adversely affected by future changes in applicable laws and regulations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to market risk from changes in interest rates and fuel
prices. The Company manages its exposure to these market risks through its
regular operating and financing activities and may utilize fuel forward purchase
commitments, though no agreements were in place during 2000.
Interest Rate Risk
The fair value of the Company's cash and cash equivalents at December 31, 2000
approximated carrying value due to its short-term duration. Market risk was
estimated as the potential decrease in fair value resulting from a hypothetical
10% increase in interest rates for the issues contained in the investment
portfolio and was not materially different from the year-end carrying value.
The Company has no material future earnings or cash flow exposures from changes
in interest rates related to the Company's equipment obligations, as these
long-term debt obligations have fixed rates. The fair value of the Company's
long-term debt, including current maturities, approximated carrying value at
December 31, 2000. A hypothetical 10% increase in the interest rates on the
Company's credit facility for a duration of one year would have an impact on
interest expense and cash flows in 2001 of approximately $0.9 million.
Commodity Price Risk
The Company may use forward purchase commitments to reduce the exposure to
fluctuations in fuel prices by entering into short-term fuel price agreements
for the actual delivery of fuel. These forward purchase commitments have the
effect of locking in for specified periods the price the Company will receive
for the fuel volumes to which the forward purchase commitment relates. As a
result, while these forward purchase commitments are structured to reduce the
Company's exposure to increases in the price of fuel, they also limit the
benefit the Company might otherwise have received from any price decreases
associated with the fuel volumes. At December 31, 2000, the Company did not have
any outstanding forward purchase commitments.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS OF THE COMPANY Page
Report of Independent Accountants......................................... 23
Consolidated Balance Sheets as of December 31, 2000 and 1999.............. 24
Consolidated Statements of Operations for the Years
Ended December 31, 2000, 1999 and 1998.................................. 25
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998.................................. 26
Consolidated Statements of Changes in Total Non Redeemable
Preferred Stock, Common Stock and Other Stockholder's Equity for
the Years Ended December 31, 2000, 1999 and 1998........................ 27
Notes to Financial Statements............................................. 28
Report of Independent Accountants
To the Board of Directors and Stockholders of
Transit Group, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 8 on page 23 present fairly, in all material
respects, the financial position of Transit Group, Inc. (the "Company") at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, 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
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered a substantial operating loss, has
negative working capital, and is not in compliance with its credit facilities.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
October 18, 2001
23
Transit Group, Inc.
Consolidated Balance Sheets
(In thousands)
December 31,
-----------------------------
2000 1999
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,443 $ 2,156
Accounts receivable (net of allowances of $4,789 and $3,441) 56,466 71,543
Other current assets 5,854 10,259
Refundable income taxes - 4,210
Deferred income taxes - 9,655
---------- -----------
Total current assets 66,763 97,823
Noncurrent assets:
Property, equipment, and capitalized leases 56,529 114,718
Goodwill - 112,197
Other assets 1,335 1,676
---------- -----------
Total noncurrent assets 57,864 228,591
---------- -----------
Total assets $ 124,627 $ 326,414
========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 17,871 $ 11,043
Bank overdrafts 2,984 2,856
Accrued expenses and other current liabilities 28,873 16,679
Long-term obligations under capital leases classified as current - 1,586
Long-term debt classified as current 150,491 22,404
---------- -----------
Total current liabilities 200,219 54,568
Noncurrent liabilities
Long-term obligations under capital leases - 1,952
Long-term debt - 137,578
Other liabilities - 267
Deferred income taxes - 25,482
---------- -----------
Total noncurrent liabilities - 165,279
---------- -----------
Total liabilities 200,219 219,847
---------- -----------
Redeemable common stock 3,675 3,675
Redeemable preferred stock 24,818 24,795
Non redeemable preferred stock, common stock and other
stockholders' (deficit) equity:
Preferred stock, no par value, 20,000,000 and 5,000,000 shares
authorized, none outstanding - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 31,974,780 shares issued and outstanding 320 320
Additional paid-in capital 94,565 94,565
Accumulated deficit (198,970) (16,788)
---------- -----------
Total non redeemable preferred stock, common stock and other
stockholders' (deficit) equity (104,085) 78,097
---------- -----------
Total liabilities and stockholders' (deficit) equity $ 124,627 $ 326,414
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
24
Transit Group, Inc.
Consolidated Statements of Operations
(In thousands, except share data)
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
------------ ----------- -----------
Operating revenues $ 504,607 $ 355,526 $ 177,553
------------ ----------- -----------
Operating expenses:
Purchased Transportation 225,341 131,296 77,372
Salaries, wages and benefits 120,846 91,574 40,670
Operating supplies and expenses 64,344 39,187 16,670
Fuel 49,776 31,862 12,932
Lease expense-revenue equipment 28,415 20,436 6,057
Depreciation and amortization expense 19,738 13,856 7,518
General and administrative expense 18,221 9,549 4,914
Insurance 9,922 4,802 2,845
Loss on disposition of assets 5,539 - -
Loss on impairment of goodwill 111,420 - -
Loss on impairment of fixed assets 33,000 - -
------------ ----------- -----------
Total operating expenses 686,562 342,562 168,661
------------ ----------- -----------
Operating (loss) income (181,955) 12,964 8,892
Interest expense, net 13,948 6,853 4,310
(Loss) income before income tax expense (195,903) 6,111 4,582
Income tax (benefit) expense (15,972) 1,731 (7,114)
------------ ----------- -----------
Net (loss) income (179,931) 4,380 11,696
Preferred stock dividends (2,251) (1,420) -
------------ ----------- -----------
Net (loss) income available to common
shareholders $ (182,182) $ 2,960 $ 11,696
============ =========== ===========
Basic (loss) earnings per common share $ (5.71) $ 0.11 $ 0.52
============ =========== ===========
Diluted (loss) earnings per common share $ (5.71) $ 0.10 $ 0.49
============ =========== ===========
Weighted average number of common shares used in
computation of basic (loss) earnings per share 31,907,256 28,048,889 22,391,142
============ =========== ===========
Weighted average number of common shares used in
computation of diluted (loss) earnings per share 31,907,256 28,904,089 23,646,073
============ =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
25
Transit Group, Inc.
Consolidated Statements of Cash Flow
(In thousands)
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
-------------- --------------- -------------
Cash flows from operating activities:
Net (loss) income $ (179,931) $ 4,380 $ 11,696
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,738 13,856 7,518
Deferred income taxes (15,827) 1,138 (7,666)
Loss (gain) on disposition of assets 5,539 - -
Loss on impairment of goodwill 111,420 - -
Loss on impairment of fixed assets 33,000 - -
Bad debt expense 3,093 390 -
Changes in assets and liabilities:
Accounts receivable 11,984 (17,009) (2,797)
Other assets 8,615 (4,184) 162
Accounts payable and accrued expenses 17,147 (5,091) (471)
Other 341 (964) (36)
------------- --------------- --------------
Net cash provided by (used in) operating activities 15,119 (7,484) 8,406
------------- --------------- --------------
Cash flows from investing activities:
Business combinations, net of cash acquired - (28,413) (3,812)
Proceeds from disposal of equipment 12,162 24,259 15,044
Purchase of equipment (11,731) (21,553) (7,067)
Collection of shareholder loan 258 - -
Other, net (267) 608 82
------------- --------------- --------------
Net cash provided by (used in) investing activities 422 (25,099) 4,247
------------- --------------- --------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 23 24,795 -
Repayment of long-term debt and capital lease obligations (40,236) (118,025) (30,485)
Issuance of long-term debt and capital lease obligations 27,207 128,882 17,799
Issuance of short-term debt - - 606
Increase (decrease) in bank overdrafts 128 (236) 657
Stock redeemed and retired - (1,548) -
Dividends paid on preferred stock (376) (1,420) -
Stock options exercised - 271 -
------------- --------------- -------------
Net cash (used in) provided by financing activities (13,254) 32,719 (11,423)
------------- --------------- -------------
(Decrease) increase in cash and cash equivalents 2,287 136 1,230
Cash and cash equivalents, beginning of period 2,156 2,020 790
------------- --------------- -------------
Cash and cash equivalents, end of period $ 4,443 $ 2,156 $ 2,020
============= =============== =============
Supplemental cash flow information:
Cash paid during the period for interest $ 11,194 $ 6,252 $ 3,917
============= =============== =============
Business combinations:
Fair value of assets acquired $ - $ 177,846 $ 57,055
Fair value of liabilities assumed - (122,766) (37,141)
Common stock issued - (26,628) (15,413)
------------- --------------- -------------
Net Cash Payments $ - $ 28,452 $ 4,501
============= =============== =============
The accompanying notes are an integral part of these consolidated
financial statements.
26
Transit Group, Inc.
Consolidated Statements of Changes in Total Non Redeemable
Preferred Stock, Common Stock and Other Stockholders' (Deficit) Equity
(In thousands)
Total
Note receivable stockholders'
Preferred Common secured Additional Accumulated (deficit)
stock stock by stock paid-in capital deficit equity
------------ ----------- --------------- ---------------- ------------- ---------------
Balance at December 31, 1997 $ - $ 186 $ (675) $ 50,651 $ (31,444) $ 18,718
Stock retired - - - (109) - (109)
Exercise of stock options - - - 155 - 155
Accrued interest - - (54) - - (54)
Stock issued for acquisitions - 30 - 15,383 - 15,413
Stock subject to redemption - 6 - 2,331 - 2,337
Net income - - - - 11,696 11,696
---------- --------- ------------ ------------- ---------- -------------
Balance at December 31, 1998 - 222 (729) 68,411 (19,748) 48,156
Exercise of stock options - - - 271 - 271
Accrued interest - - (41) - - (41)
Preferred stock dividends - - - - (1,420) (1,420)
Redemption of non recourse note - (1) 770 (769) - -
Stock returned to settle
contingencies and retired - (4) - (1,544) - (1,548)
Stock issued to affiliate of
Chairman - 1 - 230 - 231
Stock issued for acquisitions - 98 - 26,530 - 26,628
Stock subject to redemption - 4 - 1,436 - 1,440
Net income - - - - 4,380 4,380
---------- --------- ------------ ------------- ---------- -------------
Balance at December 31, 1999 - 320 - 94,565 (16,788) 78,097
Preferred stock dividends - - - - (2,251) (2,251)
Net loss - - - - (179,931) (179,931)
---------- --------- ------------ ------------- ---------- -------------
Balance at December 31, 2000 $ - $ 320 $ - $ 94,565 $ (198,970) $ (104,085)
========== ========= ============ ============= ========== =============
The accompanying notes are an integral part of these consolidated
financial statements.
27
TRANSIT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
1. Basis of Presentation
Transit Group, Inc. ("Transit Group" or the "Company") is a Florida corporation
engaged, through subsidiaries, in the short and long haul transportation
services business.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include accounts of the Company and its wholly-owned subsidiaries. All material
inter-company accounts and balances have been eliminated.
Reclassifications - Certain prior year data has been reclassified to conform
with presentation in 2000. These reclassifications had no effect on previously
reported net loss, stockholders' equity or net cash flows.
Use of Estimates - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition - All freight revenue and related costs are recognized in
accordance with the Financial Accounting Standards Board Emerging Issues Task
Force Consensus 91-9 which requires that revenues be allocated between reporting
periods based on the relative transit time in each reporting period with
expenses recognized as incurred.
Cash and Cash Equivalents - The Company considers all highly liquid temporary
cash investments that are readily convertible into cash, and which present
minimal risk of changes in value because of changes in interest rates, to be
cash equivalents.
Concentrations of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of trade accounts
receivable. No single customer accounted for a significant amount of the
Company's sales, and there were no significant accounts receivable from a single
customer. The Company reviews a customer's credit history before extending
credit and generally does not require collateral. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends, and other information. The Company's
historical experience in collection of accounts receivable falls within the
recorded allowances. Due to these factors, no additional credit risk beyond
amounts provided for collection losses is believed inherent in the Company's
trade accounts receivable.
Equipment - Equipment is stated at historical cost, (except for equipment
obtained in connection with the Company's business acquisitions which is stated
at fair market value on the date of acquisition) net of accumulated depreciation
and amortization. Except for life extending repair costs (such as engine
overhauls), all equipment maintenance and repair costs are charged to operating
expense as incurred. The Company periodically reviews the value of its equipment
to determine if an impairment has occurred. The Company determines the potential
impairment of its equipment by the undiscounted value of expected
28
future operating cash flows in relation to the carrying value of the equipment.
See Note 6 for additional discussion on impairment of long lived assets.
Depreciation is provided using the straight-line method over the estimated
useful life of the asset. Leased equipment is amortized over varying periods not
in excess of the estimated useful life of the asset or lease term depending on
the type of capital lease. Gain or loss upon retirement or disposal of equipment
is recorded as income or expense. The ranges of depreciable lives used for
financial reporting purposes are:
Years
Autos, tractors, trailers and life extending repairs 2 to 10
Office equipment and furniture 3 to 10
Terminal equipment 3 to 10
Buildings and improvements 10 to 20
Goodwill - Goodwill, representing the excess of cost over fair value of net
assets acquired in business combinations accounted for by the purchase method,
is amortized by the straight-line method over 40 years. The Company periodically
reviews the value of its goodwill to determine if an impairment has occurred.
The Company determines the potential impairment of recorded goodwill by the
undiscounted value of expected future operating cash flows in relation to its
net capital investment in the acquired business. If an impairment were
determined to exist, goodwill would be written down to fair market value. See
Note 6 for additional discussion of impairment of goodwill. Amortization expense
was $0.8 million, $1.8 million, and 1.0 million, in 2000, 1999 and 1998,
respectively. Accumulated amortization was $3.0 million at December 31, 1999.
Income Taxes - Deferred tax liabilities or assets are 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.
Insurance and Other Claims - Losses resulting from claims for personal injury,
property damage, cargo loss and damage, and other sources are covered by
insurance, subject to deductibles. Losses resulting from uninsured claims are
recognized when such losses are known and estimable.
Comprehensive Income - The Company has no items of other comprehensive income at
December 31, 2000, 1999 and 1998.
Business Segments - Management views the Company as operating in a single
segment.
Earnings Per Share - Basic earnings (loss) per share excludes dilution and is
computed by dividing net earnings (loss) available to common shareholders by the
weighted average number of common shares outstanding. Diluted earnings per share
reflect the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock (common
stock equivalents). Diluted earnings per share is calculated by dividing net
earnings (loss) available to common shareholders by the sum of the weighted
average number of common shares outstanding and dilutive common stock
equivalents during each reporting period. Common stock equivalents are excluded
from the diluted calculation if a net loss was incurred for the period, as the
results would be anti-dilutive.
The computation of basic and diluted earnings (loss) per share is shown in the
table below:
29
(Dollars in thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------------
2000 1999 2000
----------- ----------- -----------
Numerator:
Net (loss) income $ (179,931) $ 4,380 $ 11,696
Preferred stock dividends (2,251) (1,420) -
----------- ----------- -----------
Net (loss) income available to common shareholders $ (182,182) $ 2,960 $ 11,696
=========== =========== ===========
Weighted average number of shares:
Denominator:
Basic:
Weighted average common shares outstanding 31,907,256 28,048,889 22,391,142
----------- ----------- -----------
Diluted:
Weighted average common shares outstanding 31,907,256 28,048,889 22,391,142
Common stock equivalents resulting from
assumed exercise of stock options and warrants - 855,200 1,254,931
----------- ----------- -----------
31,907,256 28,904,089 23,646,073
=========== =========== ===========
Basic (loss) earnings per common share:
Net (loss) income available to common shareholders $ (5.71) $ 0.11 $ 0.52
=========== =========== ===========
Diluted (loss) earnings per common share:
Net (loss) income available to common shareholders $ (5.71) $ 0.10 $ 0.49
=========== =========== ===========
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 be recognized as either assets or liabilities at
fair value and establishes specific criteria for the use of hedge accounting.
The Company adopted SFAS 133 on January 1, 2001. There was no material effect on
consolidated results of operations, financial position, cash flows or
stockholders' deficit upon adoption of SFAS 133.
In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens the criteria
for recording intangible assets separate from goodwill. Recorded goodwill and
intangibles will be evaluated against this new criteria and may result in
certain intangibles being subsumed into goodwill, or alternatively, amounts
initially recorded as goodwill may be separately identified and recognized apart
from goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-amortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The provisions
of each statement which apply to goodwill and intangible assets acquired prior
to June 30, 2001 will be adopted by the Company on January 1, 2002. During the
year ended December 31, 2000, the Company determined that goodwill relating to
previous acquisitions was impaired and recorded a charge of $111.4 million to
write-off all remaining goodwill. The Company expects no material adverse
30
effect on consolidated results of operations, financial position, cash flows or
stockholders' deficit upon adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires that obligations associated with the retirement
of tangible long-term assets be recorded as a liability when the obligations are
incurred. The statement is effective for fiscal years beginning after June 15,
2002, with earlier adoption encouraged. The Company does not expect any material
impact on the results of operations upon implementations of SFAS 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement establishes a single accounting
model for long-lived assets to be disposed of by sale based on the framework
established by SFAS 121. The statement is effective for fiscal years beginning
after December 15, 2001. The Company is currently assessing the new standard.
3. Financial Results and Liquidity
During 2000, the Company incurred an operating loss of approximately $182.0
million. This loss is primarily attributable to the impairment of all of the
Company's goodwill and other intangible assets, an impairment in the Company's
fleet, reduced shipper demand, difficulties in efficiently integrating the
Company's acquisitions and rising fuel prices, among other factors. Late in the
third quarter of 2000 and continuing into the third quarter of 2001, the
Company experienced severe cash flow difficulties, which combined with the
factors noted above, resulted in violations of the debt covenants under all of
the Company's credit facilities and many of its lease agreements. In April 2001,
the Company restructured all of its debt, as more fully described in Note 15. As
of the date of this report, the Company was not in compliance with its new
credit facilities, accordingly the lenders are entitled to require immediate
repayment of all outstanding amounts.
In response to these problems, the Company has developed an action plan which
contemplates, among other actions, certain new senior management, reduction in
the size of the Company's fleet and number of terminals, effective and efficient
integration of the Company's acquisitions and reductions in the amount of fixed
costs. The Company faces several significant challenges, including declining
economic conditions, competition from larger and financially stronger trucking
firms, and uncertainties with respect to the availability of credit. There can
be no assurance that management will be able to successfully implement the
action plan, or that those actions will be sufficient. In the event additional
corrective actions are required, the Company will consider further reductions in
its fleet, terminals, and sales of its businesses.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
4. Redeemable Preferred Stock
In May 1999, the Company issued five million shares of its 9% Series A
redeemable preferred stock for $5.00 per share to GE Capital. The Series A
preferred stock agreement contained certain anti-dilutive provisions which
required the issuance of additional shares of the Series A preferred stock if
the Company issued preferred stock at a price less than $5.00 per share. The
Company did not make the preferred stock dividend payments in the aggregate
amount of approximately $1.875 million from June 2000 through January 31, 2001.
In connection with the Reorganization, the Company and GE Capital agreed to
convert currently payable dividends accrued from June 2000 through January 31,
2001 in an aggregate amount of approximately $1.875 million into 375,000 shares
of the Company's Series B preferred stock. All dividends accruing after January
31, 2001 will accrue and will be paid in cash at such time as declared by the
Board of Directors. The holders of Series B preferred stock will be entitled to
receive dividends equal to 10.5% per annum. The dividend accrues and is payable
in cash, at such time as declared by the Company's Board of Directors. Each
holder of Series B preferred stock has the option to convert accrued dividends
into additional shares of Series B preferred stock at $5.00 per share. However,
the loan agreements entered into by the Company with certain of its lenders in
connection with the Reorganization prohibit the payment of any dividend until
such lenders are repaid in full. Therefore, the Company does not expect to
declare or pay any dividends in the foreseeable future.
Both the Series A preferred stock held by GE Capital and the Series B preferred
stock issued in the Reorganization are redeemable at the option of the holder.
The holders of each series of preferred stock will be entitled to require the
Company to redeem their shares of preferred stock, at a redemption price equal
to the purchase price plus all accrued and unpaid dividends per share, in an
amount of up to one-third of the number of shares of preferred stock originally
issued, on or after October 19, 2005, up to two-
31
thirds of such amount on or after October 19, 2006, and up to all such shares on
or after October 19, 2007. In the case of Series A preferred stock, these
redemption rights will expire October 19, 2010, and, in the case of Series B
preferred stock, such redemption rights shall expire October 19, 2008. In
addition, at any time upon the occurrence of certain mergers, sales of assets or
change of control of the Company, the Company will redeem all of the outstanding
shares of Series B preferred stock. However, loan agreements entered into by the
Company with certain of its lenders in connection with the Reorganization
prohibit the redemption of any stock of the Company until such lenders are
repaid in full. Therefore, the Company does not expect to redeem any of the
Series A or Series B preferred stock in the foreseeable future.
5. Redemption Rights
In connection with certain 1997 acquisitions, the Company granted the selling
shareholders the right to require the Company to redeem a portion of the shares
received in exchange for selling their businesses to the Company.
On May 24, 2000, the holders of redemption rights for $3.6 million or 865,608
shares of our common stock (the "Holders") exercised their redemption rights.
The Holders' redemption rights obligate the Company and the Chairman, jointly,
to purchase 865,608 shares of common stock from the Holders at a price of $3.60
per share. The purchase price of $3.6 million was reduced to reflect the return
of 138,999 shares by one of the Holders, Carroll A. (Tony) Fulmer, to the
Company in consideration of the forgiveness of all principal and interest
accrued under his promissory note to the Company in the original principal
amount of $500,000. The remaining $3.1 million will be paid in twenty-nine
monthly installments of $100,000 each and one final payment of $83,481. Each
payment shall be allocated among the Holders and bear interest at 10.5%. The
obligations of the Chairman to purchase the stock from the Holders, to the
extent the Company does not do so over such period, has been limited to $1.8
million and shall be further reduced by the principal amount of each installment
payment by the Company after such payments have reduced the purchase price to
$1.8 million. Therefore, as of the date hereof, the Chairman's stock purchase
obligation has been reduced to $1.8 million, and will be further reduced as each
installment, or any prepayment, is paid by the Company after such installments
or prepayments have reduced the purchase price to $1.8 million.
In connection with the restructuring of this repurchase obligation, the Company
issued to the Holders a total of 300,000 shares of its Series B preferred stock
as a deferral fee for no additional consideration. The amount of this deferral
fee was determined by negotiation between the Company, the Chairman and the
Holders. Further, the Company has agreed not to place, nor permit its
subsidiaries to place, any additional mortgages other than those currently
outstanding or refinanced on the real property owned by Transit Group
Transportation, LLC in Groveland, Florida which was acquired by the Company in
connection with the merger with the Carroll Fulmer Group, Inc.
In the event that the Company fails to make its monthly payment in connection
with this stock purchase or if the Company defaults on certain other payments or
commitments made pursuant to the restructuring of such stock purchase, the
entire amount owed to the Holders will be accelerated and become immediately due
and payable.
6. Impairment of Goodwill and Long-Lived Assets
The Company reviews its goodwill and other intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable. The Company's policy is to assess the
recoverability of goodwill using estimated undiscounted cash flows. Those cash
flows include an estimated terminal value based on a hypothetical sale of an
acquisition at the end of the related goodwill amortization period. The Company
has recently incurred significant operating losses and failed to generate
sufficient cash from operations. The Company has been faced with a variety of
operating challenges, including, among others, escalating fuel costs, reduced
shipper demand given present domestic economic conditions, and a declining used
trucking equipment market. These factors have and are significantly impacting
the Company's liquidity. The decline in operations,
32
cash flows and market conditions have affected the analysis used to assess the
recoverability of goodwill. As a result, management has recorded an impairment
charge in the quarter ended September 30, 2000, in the amount of $111.4 million
to write-off all remaining goodwill.
The Company evaluates the carrying value of long-lived assets for impairment
losses by analyzing the operating performance and future cash flows for those
assets. The Company adjusts the net book value of the underlying assets if the
sum of expected cash flows is less than book value. The market values for used
trucking equipment are in a depressed state and the trucking industry has an
over supply of used trucking equipment available to the marketplace because of
the high failure rate of trucking companies and the low demand for truckload
capacity during the current economic slowdown. The decline in market values for
used trucking equipment has affected the analysis used to assess the
recoverability of these assets. As a result, management has recorded a charge of
$29.2 million to reflect fair market values of certain revenue equipment and a
charge of $3.8 million to reflect fair market values of certain other assets in
the quarter ended September 30, 2000.
Considerable management judgment is necessary to estimate fair value.
Accordingly, actual results could vary significantly from management's
estimates.
7. Business Combinations
In January 1998, the Company acquired Transportation Resources & Management,
Inc. ("TRM"), an Indiana corporation with operations based in Fort Wayne,
Indiana. Pursuant to the Reorganization Agreement executed at closing, the
Company purchased all the outstanding capital stock of TRM and the business and
related assets operated and owned by the shareholders of TRM for $.2 million in
the form of a secured promissory note and 365,957 shares of the Company's common
stock. The promissory note was increased by $.2 million and the due date
extended to May 2000 from its original due date of April 1999. In accordance
with the terms of the Purchase Agreement if the Company's common stock price did
not exceed a specified target price on February 1, 1999, the selling
shareholders were entitled to additional shares. In the second quarter of 1999,
20,823 additional common shares were issued.
In May 1998, the Company acquired Certified Transport and Venture Logistics,
Inc., Indiana corporations with headquarters in Indianapolis. The Company
purchased all of the outstanding capital stock of Certified and Venture for $.8
million in cash, a $.4 million secured promissory note and 1,072,165 shares of
the Company's common stock. The original due date of the loan was extended from
November 1999 to May 2000.
In June 1998, the Company consummated the acquisition of KJ Transportation,
Inc., a New York corporation with operations based in Farmington, New York.
Pursuant to the Agreement and Plan of Reorganization executed at closing, KJ
merged with and into Transit Group Subsidiary, Inc. in a forward triangular
merger with the Subsidiary remaining as the surviving corporation of the merger.
Upon consummation of the merger all of the outstanding stock of KJ was converted
into 878,688 shares of the Company's stock and a cash payment in the amount of
$3.0 million. Simultaneously with the acquisition of KJ, we acquired all of the
outstanding stock of J&L Leasing, Inc. of Farmington, New York for $.5 million.
In July 1998, the Company purchased all of the issued and outstanding stock of
two Canadian numbered companies, which together own 100% of the outstanding
stock of Network Transport, Ltd. a Toronto, Canada based trucking company. The
Company made a cash payment of $.25 million and issued 191,491 shares of the
Company's common stock in exchange for all of the issued and outstanding shares
of the two numbered companies.
In August 1998, the Company issued 178,519 common shares in exchange for all of
the issued and outstanding shares of Diversified Trucking Corporation, an
Opelika, Alabama based trucking company.
Also in August 1998, the Company acquired all of the issued and outstanding
shares of Dothan, Alabama - based Northstar Transportation, Inc. in exchange for
349,091 shares of Transit Group common stock.
33
In January 1999, the Company acquired Olive Branch, Mississippi - based Priority
Transportation, Inc. in exchange for a cash payment of $1.5 million and 890,000
shares of the Company's common stock.
In March 1999, the Company made two acquisitions. First, the Company acquired
Massengill Trucking Services, Inc. in a forward triangular merger. Based in
Hickory Flat, Mississippi, the Company issued 1,069,518 shares of the Company's
common stock and paid $2.2 million in cash for all of the issued and outstanding
shares of Massengill. Next the Company acquired KAT, Inc., headquartered in
Chesterton, Indiana for a cash payment of $.75 million and the issuance of
811,500 shares of the Company's common stock.
In July 1999, the Company acquired three more companies. Based in Gretna,
Nebraska, the Company acquired R&M Transportation, Inc., and its affiliate
Williams Brothers Trucking for cash of $1.4 million and the issuance of
1,215,000 shares of the Company's common stock. Headquartered in Jeffersonville,
Indiana, Bestway Trucking, Inc. and its affiliates DLS and Connection One were
acquired for 1,542,501 shares of the Company's common stock and a cash payment
of $6.8 million. The Company's third July acquisition was MDR Cartage, Inc.,
headquartered in Jonesboro, Arkansas. In exchange for all of the issued and
outstanding shares of MDR, the Company issued 2,450,000 shares of its common
stock and paid $1.8 million in cash.
In September 1999, the Company acquired Green Bay, Wisconsin based Fox Midwest,
Inc. and its affiliate SDS Distributors in exchange for a cash payment of $1.875
million and the issuance of 510,204 shares of its common stock.
In November 1999, the Company completed the acquisition of Atlanta, Georgia
based - Land Transportation, LLC. The Company issued 100,000 shares of its
common stock and paid $18 million (including a $6 million note) for the accounts
receivables and container operations of Land Transportation, the inter-model
marketing arm of Land Transportation and the related brokerage operation.
In connection with companies acquired the Company determined certain
administrative positions were redundant and accrued $4.2 million for severance
related to the elimination of those positions. The liability recorded was
charged to the goodwill of the companies acquired. During 1999, $1.0 million was
paid in cash and an adjustment of $0.2 million was recorded to reduce the
liability with a corresponding reduction in goodwill. The remaining balance will
be paid through 2003 in accordance with certain employment contracts.
The business combinations of the 19 transportation companies acquired are
accounted for under the purchase method of accounting. Accordingly, the
operating results of the acquired companies have been included in our
consolidated financial statements since their respective dates of acquisition.
Assets acquired and liabilities assumed were recorded at fair market value.
The unaudited pro forma financial information for 1999 reflects the Company's
operations as if all of the acquisitions took place on January 1, 1999. The
following adjustments were made to the historical financial statements of the
acquired companies prior to acquisition:
. Depreciation expense was reduced due to changes in depreciation
policies and estimated lives;
. Amortization of goodwill incurred in connection with the acquisitions
has been recorded;
. Lease expense incurred in connection with certain sale-leaseback
transactions has been recorded;
. Interest costs for the cash portion of the acquisition costs has been
recorded;
. Interest costs of the acquired companies have been adjusted to reflect
financing costs; and
. The provision for income taxes has been calculated using the estimated
annual tax rate.
34
Unaudited Pro Forma Condensed Statement of Operations
Year Ended December 31, 1999 is as follows:
(In thousands except share data)
1999
---------
Revenues $ 493,968
Net (loss) income 4,564
Preferred stock dividend requirement (1,420)
---------
(Loss) income available to common shareholders $ 3,144
=========
(Loss) income per basic commons share $ 0.10
(Loss) income per diluted commons share $ 0.10
Weighted average number of basis common shares outstanding 31,888
Weighted average number of diluted common shares outstanding 32,743
8. Income Taxes
The (benefit) provision for income taxes consisted of the following:
35
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Current:
Federal $ (145) $ 189 $ 145
Foreign - 34 13
State - 370 394
--------------- --------------- ---------------
Total current (145) 593 552
Deferred:
Federal (13,766) 643 (7,190)
Foreign (661) 99 -
State (1,400) 396 (476)
--------------- --------------- ---------------
Total deferred (15,827) 1,138 (7,666)
(Benefit) provision for income taxes $ (15,972) $ 1,731 $ (7,114)
=============== =============== ===============
The components of the net deferred tax liability are as follows:
Year Ended December 31,
-----------------------------------
2000 1999
--------------- ---------------
Depreciation $ 16,200 $ 27,232
Net operating loss and credits (23,237) (9,994)
Bad debt expense (1,843) (919)
Accrued expenses (319) (1,502)
Other (4,723) (108)
--------------- ---------------
(13,922) 14,709
Valuation allowance 13,922 1,118
--------------- ---------------
Net deferred income tax liability(asset) $ - $ 15,827
=============== ===============
The difference between the provision for income taxes and the amounts that would
be expected using the Federal statutory income tax rate of 34% is explained
below.
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Tax at federal statutory rate $ (68,068) $ 2,078 $ 1,558
Effect of valuation allowance 12,804 (2,671) (9,710)
Nondeductible expenses 46,876 1,903 1,080
State taxes, net (6,923) 288 (54)
Foreign tax (661) 133 12
--------------- --------------- ---------------
Net (benefit) provision for income taxes $ (15,972) $ 1,731 $ (7,114)
=============== =============== ===============
36
At December 31, 2000, the Company has approximately $60 million of federal and
state net operating loss carry-forwards potentially available to offset taxable
income, which expire during the years 2007 to 2020. SFAS 109, "Accounting for
Income Taxes", requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. During 2000, the Company determined the
valuation allowance against the net deferred tax asset should be increased by
$12.8 million.
9. Property, Equipment and Capitalized Leases
December 31,
-----------------------
2000 1999
--------- ---------
Property, equipment and capitalized leases:
Land $ 728 $ 1,083
Buildings 3,759 3,734
Revenue equipment 62,896 112,472
Other 18,109 17,853
-------- ---------
Total 85,492 135,142
Less accumulated depreciation 28,963 20,424
-------- ---------
Property, equipment and
capitalized leases, net $ 56,529 $ 114,718
======== =========
Depreciation expense related to property, equipment and capitalized leases was
$18.9 million, $12.1 million and $6.6 million for the years ended December 31,
2000, 1999 and 1998, respectively. See Note 6 for discussion on impairment of
long-lived assets.
37
10. Indebtedness and Lease Commitments
Total long-term debt, less current maturities includes the following as of
December 31 (in thousands):
December 31,
------------------------------
2000 1999
---------- ----------
Notes payable to commercial lenders, secured
primarily by revenue equipment; interest rates
from 5.7% to 12.0%; payable in monthly
installments through 2003 $ 48,732 $ 70,212
Notes payable to bank, secured by land and
building; with a net book value of $3.4 million
interest rates from 6.9% to 12.0%;
payable in monthly installments through 2015 1,334 1,425
Capital lease obligations, secured by revenue equipment;
interest rates from 5.7% to 12.0%; payable in
monthly installments through 2000. - 3,538
Credit facility, secured by accounts receivable and
certain fixed assets; interest at 2.00% over LIBOR
(10.25% at December 31, 2000);
interest only for one year; acquisition credit
converts to a four year term facility payable
quarterly with final maturity in 2004. 100,425 88,345
-------- ---------
150,491 163,520
Less current maturities 150,491 23,990
-------- ---------
Total long-term debt $ - $ 139,530
======== =========
The credit facility contains customary financial covenants that include
limitations on dividends, indebtedness, mergers, sale of assets and the
repurchase of common stock. Requirements exist to maintain minimum levels of
coverage for a Fixed Charge Coverage Ratio, Leverage Ratio, Asset Coverage
Ratio, and Minimum Consolidated Net Worth (all defined). The Company was in
violation of all covenants at December 31, 2000. Accordingly the credit facility
is classified as current maturity with all other outstanding debt balances. At
December 31, 2000 the Company had a balance of $100.4 million under the credit
facility. The credit facility bore 10.25% interest at December 31, 2000. Refer
to Note 15 for detail on restructuring of debt subsequent to year-end.
The Company has entered into certain lease agreements in the past, which have
been accounted for as capital leases. All of the capital leases were for revenue
equipment and have either been paid in full at the end of December 31, 2000 or
have been redeemed and refinanced in the form of Notes Payable.
The Company has entered into certain lease agreements, which have been accounted
for as operating leases. Substantially all of the operating leases are for
vehicles. The terms of the leases will vary from 30-48 months, for used
equipment, and up to 60 months for new equipment.
38
The Company also leases terminal and office facilities under non-cancelable
operating lease agreements. Lease terms range from one to five years and provide
that the Company will pay real estate taxes, maintenance, insurance and certain
other expenses. At December 31, 2000 future minimum payments under non-
cancelable operating leases having an initial or remaining term of more than one
year were:
Operating
(Dollars in thousands) Leases
-------------------------------------------------------
2001 $ 7,927
2002 9,333
2003 7,528
2004 5,603
2005 6,162
Thereafter 3,461
-------------------------------------------------------
Total minimum lease payments $40,014
==========
Total rent expense under all operating leases was $28.4 million, $20.4 million
and $6.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
11. Stock Options and Warrants
The Company has granted options and warrants to acquire its common stock at
various times under various plans, contracts and employment agreements that
approximated or exceeded fair market value at the date of issue. Options and
warrants which vest over various periods (to a maximum of 4 years), may be
exercised over periods ranging up to ten years and generally expire in five to
ten years. The 1998 Stock Option Plan provides that the Board of Directors or
its delegate may grant stock options, stock appreciation rights ("SARs") or
restricted stock awards, to selected employees, directors and independent
contractors. The maximum aggregate number of shares of common stock that may be
issued under the Plan is 32,000,000, plus 1% of the total issued and outstanding
shares as of December 31 of every year the Plan is in effect. A summary of
outstanding options is as follows:
December 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------ -------------------------------
Shares Weighted-Avg. Weighted-Avg. Weighted-Avg.
Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding beginning of year 3,468,475 $3.99 3,413,058 $3.69 2,754,158 $3.19
Granted during year 595,000 1.17 903,700 4.49 807,000 5.81
Exercised - - (699,517) 2.93 (49,900) 4.54
Forfeited or expired (645,525) 4.67 (148,766) 4.80 (98,200) 6.01
--------- --------- ---------
Outstanding end of year 3,417,950 $3.37 3,468,475 $3.99 3,413,058 $3.69
========= ========= =========
Exercisable at end of year 2,217,293 2,250,058 2,394,787
========= ========= =========
Options outstanding at December 31, 2000 were exercisable at prices ranging from
$0.17 to $6.88. All stock options are non-compensatory.
39
Additionally, in conjunction with the initial public offering, the Company
issued 690,000 warrants. The warrants expired on November 16, 2000.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation".
In accordance with the provisions of SFAS 123, the Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its stock option and warrant grants.
If the Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under this plan consistent with the
methodology prescribed by SFAS 123, the Company's results of operations would be
as follows:
Year Ended December 31,
-----------------------------------
(In thousands, except per share amounts) 2000 1999 1998
----------- -------- ---------
Net (loss) income:
As reported $(179,931) $4,380 $11,696
Pro forma (181,285) 3,335 10,873
Basic (loss) earnings per share
As reported $ (5.64) $ 0.11 $ 0.52
Pro forma 0.07 0.49
(5.68)
Diluted (loss) earnings per share
As reported $ (5.64) $ 0.10 $ 0.49
Pro forma 0.07 0.46
(5.68)
The fair value of each option and warrant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively; expected
volatility of 105%, 22% and 1.02% and risk-free interest rates of 5.00%, 5.44%
and 4.28%, respectively. An expected option term of 5 years for all periods was
developed based on historical grant information. Because the Company has not
paid dividends and anticipates retaining earnings to provide funds for the
operation and expansion of the Company in the future, no dividends were assumed
in the Black-Scholes option pricing model. Because the Company's stock options
and warrants have characteristics significantly different from those of traded
options and warrants, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options and warrants.
12. Employee Benefit Plan
The Company sponsors a tax-qualified defined contribution plan under Section
401(a) of the Internal Revenue Code covering all full-time employees. This
Profit Sharing Plan includes a "401(k)" arrangement pursuant to which
participants may contribute, subject to certain Code limitations, a percentage
of their salary on a "pre-tax" basis. The Company contributes a matching
contribution with respect to the contributions made by participants at a rate
determined by the Board of Directors of the Company each year. The Company's
401(k) matching contributions were approximately $593,000, $306,000 and $103,000
in 2000, 1999 and 1998, respectively.
13. Related Party Transactions
The Company leases certain facilities from several of the former owners of the
businesses acquired. During 2000, 1999 and 1998, rental payments under operating
leases to related parties aggregated $1.4
40
million, $1.4 million and $0.1 million, respectively. Payments to related
parties under capitalized leases totaled $1.6 million in 2000, 1999 and 1998.
The terms of the leases with related parties is, in the opinion of the Company,
no less favorable to the Company than could be obtained from unrelated third
parties.
14. Commitments and 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 consolidated financial position or results of operations.
15. Subsequent Events - Reorganization
On April 19, 2001, the Company sold $7.0 million of its Series B preferred stock
and restructured its outstanding bank debt, its outstanding equipment leases,
certain stock purchase obligations, $1.875 million in accrued dividends payable
to the holder of its Series A preferred stock and certain other indebtedness
(collectively, the "Reorganization").
Debt Owed to Institutional Lenders and Equipment Lessors
In connection with the Reorganization, on April 19, 2001, the Company entered
into a new credit facility with Congress Financial Corporation ("Congress") and
the Company obtained an aggregate revolving credit facility of up to $30 million
based on certain lending formulas and bearing interest at 1.0% above the prime
rate. Congress will make an additional $29 million available under this credit
facility if the Company meets certain performance criteria. The new credit
facility has an initial term of two years with automatic annual renewals
thereafter. The Company is required to pay a fee upon early termination of the
new credit facility. Under its new credit facility, the Company will make
monthly payments of interest only, the exact amount of which will depend on the
outstanding loan amount and the Company's financial performance. All of the
Company's revenues are deposited in a cash management account, which amounts are
applied to the revolving loan. The Company's additional cash requirements are
drawn against such account to the extent funds are available under the terms of
the new credit facility. The amounts loaned under the Company's new credit
facility are collateralized by a security interest in all of the Company's
present and future assets.
On July 13, 2001, the Company received notice from Congress that the Company is
in default under the credit agreement because the Company failed to maintain a
tangible net worth of not less than $63 million and the Company failed to
furnish Congress with complete monthly financial statements within 30 days of
May 31, 2001. Because of these defaults, Congress has increased the interest
rate payable by the Company on the outstanding principal amount of the credit
facility by 2% per annum in excess of the interest rate otherwise in effect
under the credit facility and may demand immediate repayment of all amounts
outstanding on the facility.
On April 19, 2001, the Company also entered into an amended and restated credit
agreement with the bank group led by Bank One, N.A. ("Bank One"), the Company's
primary lenders prior to the new credit facility with Congress. The Company used
approximately $26.5 million of the proceeds from its new credit facility to
repay amounts owed under the Company's original credit facility with Bank One.
After the $26.5 million payment, approximately $74.5 million remained
outstanding under the Bank One original credit facility. The amended and
restated credit agreement with Bank One provides for two term loans. The first
term loan shall be in the amount of $49.5 million bearing interest at 10.5% and
shall mature on September 30, 2005. Interest only payments will be due for the
first six months, with principal and interest payments due thereafter through
maturity. The second loan shall be in the amount of $25 million bearing interest
at 10.5% and shall mature on September 30, 2005. Interest is payable monthly and
the principal will be reduced by mandatory and voluntary payments. Mandatory
payments will include (i)
41
100% of the proceeds from the sale of certain assets and collections under
certain insurance policies, and (ii) 50% of excess cash flow. The amounts loaned
under both term loans are collateralized by a first and second security interest
in certain of the Company's assets. As consideration for restructuring the
Company's credit facility with Bank One, the Company issued options to Bank One
to purchase a total of 5% of the Company's common stock on a fully diluted basis
with an exercise price of $.05 per share and warrants to purchase an additional
5% of the Company's common stock on a fully diluted basis with an exercise price
of $3.00 per share. The amended and restated credit agreement has certain
covenants that require fiscal year end audited financial statements be filed
within certain time requirements and also limits debt incurrence, capital
expenditures, changes in control and management, mergers and certain material
assets sales. These covenants are more fully defined in the amended and restated
credit agreement. Because the Company has violated certain of these covenants,
Bank One may demand immediate repayment of all amounts outstanding under the
credit agreement.
In connection with the Reorganization, the Company also modified or
significantly changed the terms of virtually all of its capital leases,
equipment notes and operating leases. Such modified terms include the return of
equipment to certain lenders and lessors, payment of deficient amounts and the
restructuring of lease payments. In connection with these modifications, the
Company issued to General Electric Capital Corporation an option to purchase 5%
of the Company's common stock on a fully diluted basis at an exercise price of
$.05 per share.
Sales of Series B Preferred Stock
In connection with the Reorganization, on April 19, 2001, the Company sold an
aggregate of $7.0 million of its Series B preferred stock. The ECD Trust, an
entity related to T. Wayne Davis, the Company's Chairman, purchased 700,000 of
the Series B preferred stock of the Company for an aggregate purchase price of
$3.5 million. In connection with this purchase, the Company issued to T. Wayne
Davis 400,000 additional shares of the Company's Series B preferred stock as a
placement fee for no additional consideration. The amount of this placement fee
was determined by negotiation between the Company and T. Wayne Davis. The other
investors who also purchased shares in the offering (other than through the
conversion of debt or accrued dividends) received a pro rata placement fee.
GE Capital Equity Investments, Inc. purchased 400,000 shares of the Series B
preferred stock of the Company for an aggregate purchase price of $2.0 million.
In connection with this purchase, the Company issued to GE Capital Equity
Investments, Inc. 228,571 additional shares of its Series B preferred stock as a
placement fee for no additional consideration. Additionally, GE Capital Equity
Investments, Inc. ("GE Capital") has been granted the right to nominate two
members to the Company's Board of Directors and a third member in the event the
Company defaults on its obligations to GE Capital. In addition, the Company
granted GE Capital certain approval rights regarding management changes within
the Company, including the right to approve the selection and removal of key
executive officers.
Certain members of the Company's management, including Philip A. Belyew, its
Chief Executive Officer, and several board members purchased approximately
300,000 shares of the Series B preferred stock of the Company for an aggregate
purchase price of approximately $1.5 million.
Debt Conversion
In connection with the Reorganization, the Company converted approximately
$250,000 that it owed to Philip A. Belyew its Chief Executive Officer into
50,000 shares of its Series B preferred stock and converted approximately
$225,000 that the Company owed to the former owners of MDR Cartage, Inc. into
45,000 shares of its Series B preferred stock. No shares were issued as
placement fees in connection with the conversion of indebtedness.
42
Supplementary Data - Quarterly financial data (unaudited)
(in thousands, except per share amounts)
Three month period ended
---------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------- --------- ------------- ------------
Year Ended December 31, 2000
----------------------------
Operating revenues $ 133,205 $ 132,136 $ 123,532 $ 115,734
Operating (loss) income (176) (6,091) (159,800)(1) (15,888)
(Loss) income before income tax expense (3,421) (9,323) (163,792) (19,367)
---------- ---------- ----------- -----------
Income tax expense (benefit) (1,750) (1,195) (13,027) -
---------- ---------- ----------- -----------
Net (loss) income (1,671) (8,128) (150,765) (19,367)
---------- ---------- ----------- -----------
Preferred stock dividends (562) (563) (563) (563)
---------- ---------- ----------- -----------
Net (loss) income available to common
shareholders $ (2,233) $ (8,691) $ (151,328) $ (19,930)
========== ========== =========== ===========
Basic earnings (loss) per common share $ (0.07) $ (0.27) $ (4.74) $ (0.63)
Diluted earnings (loss) per common share $ (0.07) $ (0.27) $ (4.74) $ (0.63)
Year Ended December 31, 1999
---------------------------- March 31, June 30, September 30, December 31,
----------- --------- ------------- ------------
Operating revenues $ 64,843 $ 75,167 $ 93,272 $ 122,244
Operating income (loss) 2,961 4,698 4,586 719
Income (loss) before income tax expense 1,959 3,181 2,939 (1,968)
---------- ---------- --------- ---------
Income tax expense (benefit) 1,026 (1,092) 1,559 238
---------- ---------- --------- ---------
Net income (loss) 933 4,273 1,380 (2,206)
---------- ---------- --------- ---------
Preferred stock dividends - (296) (562) (562)
---------- ---------- --------- ---------
Net income (loss) available to common
shareholders $ 933 $ 3,977 $ 818 $ (2,768)
========== ========== ========= =========
Basic earnings (loss) per common share $ 0.04 $ 0.15 $ 0.03 $ (0.09)
Diluted earnings (loss) per common share $ 0.04 $ 0.15 $ 0.03 $ (0.09)
(1) As discussed in Note 6 of the notes to consolidated financial statements,
the operating loss is primarily attributable to the impairment charges
recorded in the quarter ended September 30, 2000. The Company recorded an
impairment charge in the amount of $111.4 million to write-off all remaining
goodwill, $29.2 million to reflect fair market values of certain revenue
equipment and a charge of $3.8 million to reflect fair market values of
certain other assets.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages, positions and certain other
information regarding the Company's directors and executive officers as of
August 15, 2001:
Name Age Position
---- --- --------
T. Wayne Davis 53 Chairman
Philip A. Belyew 53 Chief Executive Officer and Director
James G. Overley 37 Chief Operating Officer
Kenneth Ollwerther 43 Chief Financial Officer
Kim L. Mattingly 44 Vice President - Human Resources
Derek E. Dewan 46 Director
Ford G. Pearson 59 Director
T. Wayne Davis has served on the Board of Directors since February 1988 and
served as the Chairman since February 1989. He has served as a director of
Winn-Dixie Stores, Inc., a grocery store operator, since October 1982 and served
that company as a Vice President from December 1971 to June 1987. Since July
1987, Mr. Davis has been a self-employed investor. He also serves on the Board
of Directors of Enstar Group, Inc. and Modis Professional Services, Inc.
Philip A. Belyew has served as the President, Chief Executive Officer and as a
Director since January 6, 1997. Until November 1996, Mr. Belyew was Chairman,
President and Chief Executive Officer of Atlanta-based United TransNet Inc.,
which was formed in December 1995 following the merger of Courier Dispatch Group
and five other ground and air courier companies, and acquired by Corporate
Express in November 1996. From March 1994 to December 1995, Mr. Belyew served as
President and Chief Executive Officer of Courier Dispatch Group and from
December 1991 to March 1994, Mr. Belyew served as Chief Operating Officer of the
same company.
James G. Overley has served as the Chief Operating Officer since June 2001. From
October 2000 to June 2001, Mr. Overley served as the Senior Vice President of
Finance, Chief Financial Officer and Treasurer. Immediately prior to joining the
Company, Mr. Overley served as Executive Vice President of Finance, Chief
Financial Officer and Treasurer of Trism, Inc., a Georgia-based transportation,
freight and transportation logistics services company. Prior to 1996, Mr.
Overley held various financial positions with Burlington Motor Holdings, Inc.
Kenneth Ollwerther has served as Chief Financial Officer since June 25, 2001.
Prior to joining the Company, Mr. Ollwerther served as Executive Vice President
and Chief Financial Officer of Grojean Transportation, a Minnesota-based
transportation, freight and transportation logistics company. Prior to 1998, Mr.
Ollwerther was President of Schanno Transportation, Inc.
Kim L. Mattingly has served as the Vice President of Human Resources since
September 1998. Previously, she served as Director of Human Resources for
Corporate Express Delivery, Inc. from November 1996 to October 1997. Ms.
Mattingly was employed by United TransNet, Inc., formerly known as Courier
Dispatch Group, Inc. from September 1980 through October 1996 as Director of
Human Resources.
Derek E. Dewan has served as a member of the Board of Directors since January
1997. Mr. Dewan is Chairman of the Board of Directors of Modis Professional
Services, Inc., a national provider of human
44
capital solutions, consulting and out-sourcing services to businesses and
governmental agencies. Prior to joining Modis in 1994, Mr. Dewan was managing
partner for the accounting firm of PricewaterhouseCoopers, LLP (formerly Coopers
& Lybrand LLP) in Jacksonville, Florida. Mr. Dewan also serves on the Board of
Epix Holdings, Corp.
Ford G. Pearson has served as a member of the Board of Directors since October
1997. Mr. Pearson has served since 1986 as Executive Vice President, Chief
Operating Officer of Wheels, Inc., an Illinois-based fleet leasing and
management company. Prior to his involvement with Wheels, Inc., Mr. Pearson held
several positions with Continental Bank in Chicago, Illinois most recently in
charge of Continental Bank's Commercial Finance Department.
Committees of the Board
The Board has standing Executive, Audit, Compensation and Nominating committees.
Certain information about these committees is provided below.
Messrs. Belyew and Davis currently serve on the Executive Committee. The purpose
of the Executive Committee is to exercise certain powers delegated by the Board
of Directors between regular Board Meetings. All actions of the Executive
Committee are subject to review and ratification by the full Board of Directors.
Messrs. Dewan and Pearson currently serve on the Audit Committee of the Board of
Directors. The purpose of the Audit Committee is to review our financial
statements and our internal financial reporting system and controls with our
management and independent accountants, recommend resolutions for any dispute
between our management and our auditors and review other matters relating to our
relationship with our auditors.
Messrs. Davis, Dewan and Pearson currently serve on the Compensation Committee.
The purpose of the Compensation Committee is to review and approve the
compensation of our officers and certain highly compensated employees for each
fiscal year. The compensation of our President and Chief Executive Officer
remains subject to approval by the full Board. Mr. Davis is one of our executive
officers.
Messrs. Pearson and Dewan currently serve on the Nominating Committee. The
purpose of the Nominating Committee is to review suggestions made by other
Directors for new Board members. Our Bylaws do not provide a process for
shareholders to nominate individuals for election as Directors.
Director Compensation
The members of our Board of Directors who are our employees receive no
additional compensation for serving on the Board or any committees thereof in
excess of their regular salaries. Members of the Board of Directors who are not
our employees receive a fee of $2,000 for each Board meeting attended.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, officers and persons who own more than 10% of the Company's
outstanding common stock to file with the Securities and Exchange Commission
reports of ownership and changes in ownership of the Company's common stock held
by such persons. Officers, directors and greater than 10% shareholders are also
required to furnish the Company with copies of all forms they file under this
section. To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during 1999, all Section 16(a) filing requirements applicable to
the Company's officers, directors and greater than 10% shareholders were timely
met, except that Mr. Overley inadvertently missed the filing deadline for two
Form 4 reports relating to 60,000 shares.
45
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the summary compensation paid by the Company to its
Chief Executive Officer and other most highly compensated executive officers
whose salary and bonus exceeded $100,000 in 2000 (the "Named Executive
Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
---------------------------------------------------
Securities
Other Annual Underlying All Other
Compensation Options Compensation
------------ ------- ------------
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) Granted (#) (2)($)
--------------------------- ---- ---------- ----- ------- -----------
Philip A. Belyew 2000 $241,452 $ - $ - $ -
President and Chief Executive 1999 $216,864 $ - $ 4,750 100,000 $ 53,460
Officer 1998 $176,896 $86,300 - 100,000 $ 34,741
T. Wayne Davis 2000 $221,653 $ - $ - - $ -
Chairman of the Board 1999 $157,692 $ - $ - 50,000 -
1998 $102,981 $ - $ - 25,000 -
Mark DiLuzio (3) 2000 $185,535 $ - $ - - $ -
Senior Vice President of Finance, 1999 $166,356 $ - $ - 50,000 $ 12,063
Mergers and Acquisitions 1998 $121,146 $20,000 $ - 50,000 $ 13,585
Wayne N. Nellums, Senior Vice 2000 $176,960 $ - $ - - $ -
President, Chief Financial 1999 $166,356 $ - $ - 50,000 $ 17,839
Officer, Secretary and Treasurer(4) 1998 $140,660 $32,200 $ - 50,000 $ 16,538
James G. Salmon, Senior Vice 2000 $208,471 $ - $ - - $ -
President of Operations 1999 $136,513 $ - $ - - $ -
1998 $ 73,065 $ - $ - - $ -
-----------------
(1) Consists of income tax payments and tax services paid on behalf of
the executive officer.
(2) In accordance with Securities and Exchange Commission rules,
reporting is not required with respect to a named executive officer
unless the aggregate of such compensation exceeds $50,000 or 10% of
the total annual salary and bonuses. The amounts reported for Mr.
Belyew in 2000 include an auto allowance of $9,500, life insurance
premiums of $45,410 and club dues of $5,844. The amounts reported
for Mr. Belyew in 1999 include an auto allowance of $11,400, life
insurance premiums of $35,160 and club dues of $6,900. The amounts
reported for Mr. Belyew in 1998 include an auto allowance of
$11,400, dues of $6,900 and life insurance premiums of $21,191. The
amounts for Mr. Nellums in 1999 include an auto allowance of
$11,400, life insurance premiums of $4,339 and club dues of $2,100.
(3) Mr. Diluzo resigned as Senior Vice President of Finance, Mergers and
Acquisitions in October 2000 and is no longer employed by the
Company.
(4) Mr. Nellums resigned as Senior Vice President, Chief Financial
Officer, Secretary and Treasurer in April 2000 and is no longer
employed by the Company.
46
Stock Options Granted in 2000
The following table provides information with respect to the stock options
granted in 2000 to the Named Executive Officers.
Number of Potential Realizable value
Securities Percent of Total at assumed annual rates
Underlying Options Granted of stock price appreciation
Options to Exercise for option term
Name Granted Employees in Price Per Expiration
(#)(1) 2000 Share ($) Date 5% ($) 10% ($)
------------- ------------------- ------------ ----------- ------------ -------------
Philip A. Belyew...... -- -- -- -- -- --
T. Wayne Davis........ -- -- -- -- -- --
Wayne N. Nellums...... -- -- -- -- -- --
Mark DiLuzio.......... 100,000 (2) 18.7 1.28 5/18/2010 -- --
James G. Salmon....... 100,000 18.7 1.28 5/18/2010 80,499 203,999
----------------
(1) One-third of the options granted vested immediately, one-third of the
options vested on May 18, 2001 and the remainder will vest on May 18, 2002.
All of the options have an exercise price equal to the fair market value at
the time of grant.
(2) Mark DiLuzio left the Company in the third quarter of 2000. As a result,
these options were forfeited and no estimate of potential realizable value
is necessary.
Fiscal Year End Option Values
The following table provides information with respect to year-end option values
for the Named Executive Officers. The Named Executive Officers did not exercise
any options in 2000.
Number of Securities Underlying Value of Unexercised
Unexercised Options (#) In-the-Money Options ($)
---------------------------------------- --------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------ ---------------- ------------------ ----------------- ----------------
Philip A. Belyew........ 700,000 -- -- --
T. Wayne Davis.......... 75,000 -- -- --
Wayne N. Nellums...... 200,000 -- -- --
Mark DiLuzio.......... -- -- -- --
James G. Salmon....... 100,000 33,333 -- --
----------------
(1) The year-end dollar value of unexercised in-the-money options was
calculated by determining the difference between the fair market value of
the securities underlying the options at December 31, 2000 and the exercise
price of the options.
47
(2) On October 30, 2000, the Company entered into an employment agreement with
James G. Overley for a term of three (3) years. Mr. Overley shall receive a
base salary of $200,000 in the first year, $210,000 in the second year and
$225,00 in the third year of the agreement. Under the terms of the
agreement, Mr. Overley was granted an option to purchase 60,000 shares of
common stock at a price of $0.17 per share and was made eligible to receive
an annual discretionary bonus of 25% to 40% of his base salary depending
upon the Company's financial performance. In the event Mr. Overley is
terminated by the Company without cause, he shall receive severance
compensation in the amount of his base salary for the greater of twelve
months or the remaining term of the employment agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2000, the Compensation Committee of the Board of Directors was comprised
of three non-employee members, Derek Dewan, Ford Pearson and Robert Herman and
one employee member of the Board, T. Wayne Davis. The Committee currently
consists of Messrs. Dewan, Pearson and Davis. The Compensation Committee is
responsible for:
. setting the Company's compensation philosophy and policies;
. establishing the compensation of the Chief Executive Officer, Philip
Belyew, and other executive officers; and
. administering and awarding options and other awards under our 1998
Stock Incentive Plan.
The Company's compensation policies have been designed to align the financial
interests of management with those of the Company's shareholders, and to take
into account the operating environment and expectations for continued growth and
enhanced profitability. Compensation for each of the executive officers consists
of a base salary, an annual bonus based on an executive incentive plan that
outlines revenue, profit and other financial goals for each quarter, and stock
options.
The Compensation Committee's current philosophy is that a portion of an
executive's compensation should be based directly upon the value of long-term
incentive compensation in the form of cash bonuses and stock option awards. The
Compensation Committee believes that providing executives with the opportunity
to acquire significant interests in the Company's growth and prosperity through
grants of stock options, while maintaining base salaries at competitive levels,
will enable the Company to attract and retain executives with the outstanding
management abilities and entrepreneurial spirit which are essential to the
Company's success. Furthermore, the Compensation Committee believes that this
approach to compensation motivates executives to perform to their fullest
potential.
At least annually, the Compensation Committee reviews salary recommendations for
the executives and then approves such recommendations, with any modifications it
considers appropriate. The annual salary recommendations for such persons are
made under the ultimate direction of the Chief Executive Officer, based on total
compensation packages for comparable companies in the trucking industry, as well
as evaluations of the individual executive's past and expected future
performance. Similarly, the Compensation Committee fixes the base salary of the
Chief Executive Officer based on its review of competitive compensation data
from companies in the Company's industry, the Chief Executive Officer's overall
compensation package, and the Compensation Committee's assessment of his past
performance and its expectation as to his future performance in leading the
Company.
Stock-based awards, principally in the form of stock options, represent a
portion of compensation for the executive officers, including the Chief
Executive Officer, and serve as the principal long-term incentive compensation
component. Stock options typically are granted at the fair market value on the
date of grant, and will only have value if the Company's stock price increases.
Grants of stock options generally
48
are based upon the level of the executive's position and an evaluation of the
executive's past and expected future performance. The Compensation Committee
believes that dependence on stock options for a portion of an executive's
compensation aligns such executive's interests with those of the Company's
shareholders, because the ultimate value of such compensation is linked directly
to stock price.
The Compensation Committee reviews annually the base salary it pays to Mr.
Belyew and may adjust it based on competitive compensation information available
to the Compensation Committee, his overall compensation package and the
Compensation Committee's assessment of his past experience and its expectation
as to his future contributions in leading the Company. In May, 2000, the
Compensation Committee reviewed the compensation of our Chief Executive Officer
and increased his annual base salary from $225,000 to $234,000. The increase in
Mr. Belyew's base salary was based on past performance. No stock options were
granted to Mr. Belyew in 2000.
The Compensation Committee evaluates the Company's compensation policies and
procedures with respect to executives on an on-going basis. Although the
Compensation Committee believes that current compensation policies have been
successful in aligning the financial interests of executive officers with those
of the Company's shareholders and with the Company's performance, it continues
to examine what modifications, if any, should be implemented to further link
executive compensation with both individual and the Company's performance.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits amounts that can be deducted for compensation paid to certain executives
to $1,000,000 unless certain requirements are met. No executive officer
currently receives compensation in excess of $1,000,000 and therefore there are
no compensation amounts that are nondeductible on this basis at present. The
Compensation Committee will continue to monitor the applicability of Section
162(m) to its compensation program.
COMPENSATION COMMITTEE
T. Wayne Davis
Derek E. Dewan
Ford G. Pearson
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings, in
whole or in part, the foregoing Compensation Committee Report on Executive
Compensation and the Shareholder Return Performance Graph shall not be
incorporated by reference into any such filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 15, 2001, certain information
regarding ownership of the Company's common stock on an "as converted" basis.
The information is presented for each person the Company knows to be a
beneficial owner of 5% or more of the Company's securities, each of the
Company's directors and executive officers and all of the Company's executive
officers and directors as a group.
Amount and Nature of Percentage of
Beneficial Ownership of Common Stock
Name of Beneficial Owner Common Stock (1) Owned(2)
-------------------------------------------------------------- ----------------------- ------------------
T. Wayne Davis................................................ 120,312,875 (3) 29.66%
Philip A. Belyew.............................................. 6,473,971 (4) 1.59%
49
Amount and Nature of Percentage of
Beneficial Ownership of Common Stock
Name of Beneficial Owner Common Stock (1) Owned(2)
-------------------------------------------------------------- ----------------------- ------------------
Mark DiLuzio.................................................. 7,732 (5) *
Wayne N. Nellums.............................................. 2,577 (5) *
James G. Salmon............................................... 1,224,250 (6) *
Derek E. Dewan................................................ 100,000 (7) *
Ford G. Pearson............................................... 1,199,000 (8) *
Barbara Fulmer................................................ 1,012,869 (9) 3.17%
GE Capital Corporation........................................ 141,258,846 (10) 34.83%
All executive officers and directors as a group (7 persons)... 128,163,455 31.51%
----------------------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to shares beneficially owned. Shares of common stock
issuable upon the conversion of options or warrants currently
exercisable, or exercisable within 60 days of August 15, 2001, are
deemed to be beneficially owned.
(2) On August 15, 2001, there were 31,959,674 shares of our common stock
issued and outstanding. We have also assumed that options to purchase
approximately 53,507,568 shares of our common stock at $.05 per share
issued to our lenders and to a certain lessor in connection with the
restructuring of our debt have been exercised, that 5,000,000 shares of
our Series A preferred stock and 2,970,000 shares of Series B preferred
stock have been converted into an aggregate of 320,065,847 shares of
our common stock. In addition, we have assumed that options that have
been issued to directors and executive officers individually and as a
group and vested as of October 18, 2001 (or within 60 days after August
15, 2001), have been converted into 1,175,000 shares of common stock.
(3) Consists of 6,934,731 shares owned by the ECD Trust, of which Mr. Davis
is Trustee; 1,577,614 shares of our common stock owned directly;
1,276,396 shares owned by the TWD Trust for ECD, of which Mr. Davis is
Trustee; 186,602 shares owned by the TWD Trust for DDL, of which Mr.
Davis is Trustee; 171,497 shares owned by the TWD Trust for TDD, of
which Mr. Davis is Trustee; 20,438 shares owned by the TWD Trust for
TWD, Jr., of which Mr. Davis is Trustee; 14,997 shares owned by Redwing
Properties, Inc., of which Mr. Davis is President; 4,912 shares owned
by Mr. Davis' wife, Mary O. Davis; and an aggregate of 50,688 shares of
our common stock held by Mr. Davis as custodian for Mr. Davis'
children, C. Rebecca Davis, Elizabeth Davis and Katherine C. Davis.
Additionally, consists of 70,000,000 shares of our common stock
issuable upon the conversion of the Series B preferred stock owned by
the ECD Trust, of which Mr. Davis is Trustee, 40,000,000 shares of our
common stock issuable on the conversion of the Series B preferred stock
issued as a placement fee to Mr. Davis, and 75,000 shares of our common
stock issuable on the exercise of presently exercisable options.
(4) Consists of 228,571 shares of the Company's common stock owned
directly, 5,000,000 shares of the Company's common stock issuable on
the conversion Series B preferred stock received in consideration of
indebtedness forgiveness, 345,400 shares issuable on
50
conversion of purchased Series B preferred stock and 900,000
shares of the Company's common stock issuable on the exercise of
presently exercisable options.
(5) Consists of shares of the Company's common stock owned directly.
(6) Consists of 25,250 shares of the Company's common stock owned
directly, 1,099,000 shares of the Company's stock issuable on
conversion of purchased Series B preferred stock and 100,000
shares of the Company's common stock issuable on the exercise of
presently exercisable options.
(7) Consists of shares of the Company's common stock issuable on the
exercise of presently exercisable options.
(8) Consists of 1,099,000 shares of the Company's common stock
issuable on conversion of purchased Series B preferred stock and
100,000 shares of the Company's common stock issuable on the
exercise of presently exercisable options.
(9) Mrs. Fulmer's address is 11050 Autumn Lane, Clermont, Florida
34711.
(10) Consists of 23,065,847 shares of the Company's common stock
issuable on the conversion of the Company's Series A Convertible
Preferred Stock following the offering, 37,500,000 shares of the
Company's common stock issuable on the conversion of past accrued
dividends on Series A preferred stock; 40,000,000 shares of the
Company's common stock issuable on conversion of the new GE
Capital Equity Investments, Inc. investment in Series B preferred
stock, 22,857,143 shares of the Company's common stock issuable
on conversion of the Series B preferred stock issued as placement
fee to GE Capital Equity Investments, Inc., and 17,835,856 shares
of the Company's common stock issuable on conversion of the
Company's Series B preferred stock issuable on the exercise of a
presently exercisable option granted to GE Leasing, Inc. The
address of GE Capital Corporation is 120 Long Ridge Road,
Stamford, Connecticut 06927.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization
On April 19, 2001, the Company sold $7.0 million of its Series B preferred stock
and restructured its outstanding bank debt, its outstanding equipment leases,
certain stock purchase obligations, $1.875 million in accrued dividends payable
to the holder of its Series A preferred stock and certain other indebtedness
(collectively, the "Reorganization").
Sales of Series B preferred stock
In connection with the Reorganization the Company also sold an aggregate of $7.0
million of Series B preferred stock. The ECD Trust, an entity related to T.
Wayne Davis, the Company's Chairman, purchased 700,000 of the Series B preferred
stock of the Company for an aggregate purchase price of $3,500,000. In
connection with this purchase, the Company issued to T. Wayne Davis 400,000
additional shares of the Company's Series B preferred stock as a placement fee
for no additional consideration. The amount of this placement fee was determined
by negotiation between the Company and T. Wayne Davis, and all other investors
who are purchasing shares in the offering (other than through the conversion of
debt or accrued dividends) received a pro rata placement fee.
GE Capital Equity Investments, Inc. purchased 400,000 shares of the Series B
preferred stock of the Company for an aggregate purchase price of $2,000,000. In
connection with this purchase, the Company issued to GE Capital Equity
Investments, Inc. 228,571 additional shares of its Series B preferred stock as a
placement fee for no additional consideration. Additionally, GE Capital Equity
Investments, Inc. ("GE") has been granted the right to nominate two members to
the Company's Board of Directors and a third member in the event the Company
defaults on its obligations to GE. In addition, the Company granted GE certain
approval rights regarding management changes within the Company, including the
right to approve the selection and removal of key executive officers.
51
Debt Conversion
In connection with the Reorganization, the Company converted approximately
$250,000 that the Company owed to its Chief Executive Officer into 50,000 shares
of its Series B preferred stock and converted approximately $225,000 that the
Company owed to the former owners of MDR Cartage, Inc. into 45,000 shares of its
Series B preferred stock. No shares were issued as placement fees in connection
with the conversion of indebtedness.
Redemption of Shares of Selling Shareholders in Acquisitions
In connection with certain 1997 acquisitions, the Company granted the selling
shareholders the right to require the Company to redeem a portion of the shares
received in exchange for selling their businesses to the Company.
On May 24, 2000, the holders of redemption rights for $3.1 million or 865,608
shares of the Company's common stock (the "Holders") exercised their redemption
rights. The Holders' redemption rights obligates the Company and the Chairman,
jointly, to purchase 865,608 shares of common stock from the Holders at a price
of $3.60 per share. The purchase price of $3.1 million was reduced to reflect
the return of 138,999 shares by one of the Holders, Carroll A. (Tony) Fulmer, to
the Company in consideration of the forgiveness of all principal and interest
accrued under his promissory note to the Company in the original principal
amount of $500,000. The remaining $2.6 million will be paid in twenty-nine
monthly installments of $100,000 each and one final payment of $83,481. Each
payment shall be allocated among the Holders and bear interest at 10.5%. The
obligations of the Chairman to purchase the stock from the Holders, to the
extent the Company does not do so over such period, has been limited to $1.8
million and shall be further reduced by the principal amount of each installment
payment by the Company after such payments have reduced the purchase price to
$1.8 million. Therefore, as of the date of this report, the Chairman's stock
purchase obligation has been reduced to $1.8 million, and will be further
reduced as each installment, or any prepayment, is paid by the Company after
such installments or prepayments have reduced the purchase price to $1.8
million.
In connection with the restructuring of this repurchase obligation, the Company
issued to the Holders a total of 300,000 shares of its Series B preferred stock
as a deferral fee for no additional consideration. The amount of this deferral
fee was determined by negotiation between the Company, the Chairman and the
Holders. Further, the Company has agreed not to place, nor permit its
subsidiaries to place, any additional mortgages other than those currently
outstanding or refinanced on the real property owned by Transit Group
Transportation, LLC in Groveland, Florida which was acquired by the Company in
connection with the merger with the Carroll Fulmer Group, Inc. Also in
connection with the Reorganization, the employment and or consulting agreements
of Cynthia F. Turner, Timothy A. Fulmer, Philip R. Fulmer, Carroll A. (Tony)
Fulmer, Barbara Fulmer and Carroll L. Fulmer have been amended to extend for
three years beyond the original expiration date (August 29, 2002) and to include
a five percent annual salary increase, effective January 1 of each year,
provided that the individual remains employed by the Company.
Transactions With Officers, Directors and Related Parties
On July 13, 1999 the Company made a loan to C. Tony Fulmer, son of Carroll
Fulmer, a former member of the Company's Board of Directors, in the amount of
$500,000. The note was a demand note and accrued interest at the rate of 8.0%
and was secured by 81,632 shares of the Company's common stock. The largest
aggregate amount of indebtedness outstanding in 2000 was $552,222. On April 19,
2001, in connection with the Reorganization, Tony Fulmer returned 138,999 shares
of common stock to the Company in consideration of the forgiveness of all
principal and interest accrued under this promissory note.
Philip A. Belyew, President and Chief Executive Officer, was indebted to the
Company in 2000. The largest aggregate amount of indebtedness outstanding in
2000 was $380,305. This indebtedness was
52
paid in full on September 8, 2000. This indebtedness accrued interest at a rate
of 8.0% and was due on demand.
The Company leases certain facilities and equipment from several of the former
owners of businesses the Company has acquired, including from Carroll Fulmer, a
former member of the Company's Board of Directors. During 2000, rental payments
under operating leases to related third parties totaled $1.4 million The terms
of the leases with related parties are, in the opinion of management, no less
favorable to the Company than could be obtained from unrelated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements, Financial Statement Schedules and Exhibits
a) The consolidated balance sheets as of December 31, 2000 and 1999 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), cash flows and financial statement schedule for each of the three
years in the period ended December 31, 2000 are filed as part of this report
under Item 8 as noted in the following index:
Page
(1) Financial Statements:
Report of Independent Accountants............................ 23
Consolidated Balance Sheets.................................. 24
Consolidated Statements of Operations........................ 25
Consolidated Statements of Cash Flows........................ 26
Consolidated Statements of Changes in Total Non Redeemable
Preferred Stock, Common Stock and Other Stockholders'
Equity...................................................... 27
Notes to Consolidated Financial Statements................... 28
(2) Financial Statement Schedules
All schedules have been omitted because they are not
applicable or because the required information is shown
in the financial statements or notes thereto.
(b) Exhibits
--------
3.1 Amended and Restated Articles of Incorporation (Incorporated
by reference from Exhibit 3.1 of the Company's Form 10-Q
filed on November 29, 2001)
3.2 Amended and Restated Bylaws (Incorporated by reference from
Exhibit 3.2 of the Company's Form 10-Q filed on November 29,
2001).
4.1 Specimen Stock Certificate (Incorporated by reference from
Exhibit 4.1 to Registrant's Form S-18, Registration No. 33-
30123A).
4.2 Option Agreement with General Electric Capital Corporation
(Incorporated by reference from Exhibit 4.1 of the Company's Form
10-Q filed on November 29, 2001).
4.3 Form of Option Agreement with Bank One N.A., AmSouth Bank, Branch
Banking and Trust, Bank of America, N.A., Compass Bank, National
Canada Finance LLC and Union Bank of California. (Incorporated by
reference from Exhibit 4.2 of the Company's Form 10-Q filed on
November 29, 2001).
4.4 Form of Warrant Agreement with Bank One N.A., AmSouth Bank,
Branch Banking and Trust, Bank of America, N.A., Compass Bank,
National Canada Finance LLC and Union Bank of California.
(Incorporated by reference from Exhibit 4.3 of the Company's Form
10-Q filed on November 29, 2001).
10.1 First Amendment to Purchase Agreement between Transit Group, Inc.
and GE Capital Equity Investments, Inc. dated as of April 19,
2001. (Incorporated by reference from Exhibit 10.1 to the Current
Report on Form 8-K filed on May 29, 2001).
53
10.2 Amendment and Joinder to Amended and Restated Registration Rights
Agreement dated as of April 19, 2001. (Incorporated by reference
from Exhibit 10.2 to the Current Report on Form 8-K filed on May
29, 2001).
10.3 Amendment to Stockholders Agreement dated as of April 19, 2001.
(Incorporated by reference from Exhibit 10.3 to the Current
Report on Form 8-K filed on May 29, 2001).
10.4 Stock Purchase Agreement by and among Transit Group, Inc.,
Cynthia F. Turner, Philip R. Fulmer, Timothy A. Fulmer, Barbara
A. Fulmer, Carroll A. Fulmer and T. Wayne Davis dated as of April
19, 2001. (Incorporated by reference from Exhibit 10.4 to the
Current Report on Form 8-K filed on May 29, 2001).
10.5 Amended and Restated Credit Agreement by and among Transit Group,
Inc., various financial institutions and Bank One, N.A., as
agent, dated as of April 19, 2001. (Incorporated by reference
from Exhibit 10.5 to the Current Report on Form 8-K filed on May
29, 2001).
10.6 Loan and Security Agreement by and among Congress Financial
Corporation (Southern), as Lender, and Transit Group, Inc.,
Transit Group Transportation, LLC, Carroll Fulmer and Company,
Inc., and Land Transportation, LLC, as Borrowers, dated April 19,
2001. (Incorporated by reference from Exhibit 10.6 to the Current
Report on Form 8-K filed on May 29, 2001).
10.7 Agreement Between Transit Group, Inc., T. Wayne Davis and the ECD
Trust dated as of April 19, 2001. (Incorporated by reference from
Exhibit 10.7 to the Current Report on Form 8-K filed on May 29,
2001).
10.8 1998 Stock Incentive Plan of Transit Group, Inc. (Incorporated by
reference from Exhibit 99.1 to Registrant's December 11, 1998 S-
8, Registration No. 333-68807).
10.9 1998 Employee Stock Purchase Plan of Transit Group, Inc.
(Incorporated by reference from Exhibit 99.2 to Registrant's
December 11, 1998 S-8, Registration No. 333-68807).
10.10 Lease Agreement governing the Company's terminal in Olive Branch,
Mississippi dated January 19, 1999 between the Company and
Horvath & Horvath, LLC (Incorporated by reference from Exhibit
10.42 to Registrant's Form 10-K dated March 31, 1999).
10.11 Lease Agreement governing the Company's terminal in Chesterton,
Indiana dated March 18, 1999 between the Company and Ameling
Properties, LLC. (Incorporated by reference from Exhibit 10.43 to
Registrant's Form 10-K dated March 31, 1999).
10.12 Acquisition Credit Agreement dated as of October 25, 1999 among
the Registrant, the Lenders named therein and Bank One, N.A.
(Incorporated by reference from Exhibit 2.1 to the Company's Form
8-K dated November 8, 1999).
10.13 Credit Agreement dated as of October 25, 1999, among the
Registrant, the Lenders named therein and Bank One, N.A.
(Incorporated by reference from Exhibit 2.2 to the Company's Form
8-K dated November 8, 1999).
10.14 Pledge and Security Agreement dated as of October 25, 1999, among
the Registrant, the subsidiaries of the Registrant listed therein
and Bank One, N.A. (Incorporated by reference from Exhibit 2.3 to
the Company's Form 8-K dated November 8, 1999).
54
10.15 Subsidiary Guaranty dated as of October 25, 1999 made by the
Registrant listed therein for the benefit of the Lenders
(Incorporated by reference from Exhibit 2.4 to the Company's Form
8-K dated November 8, 1999).
10.16 Purchase Agreement dated May 13, 1999 by and between Transit
Group, Inc., and GE Capital Equity Investments, Inc.
(Incorporated by reference from Exhibit 10.1 to the Company's
Form 8-K dated June 10, 1999)
10.17 Stockholders' Agreement (Incorporated by reference from Exhibit
10.3 to the Company's Form 8-K dated June 10, 1999)
10.18 Registration Rights Agreement (Incorporated by reference from
Exhibit 10.4 to the Company's Form 8-K dated June 10, 1999).
10.19 Amendment to 1998 Stock Incentive Plan (Incorporated by reference
from Exhibit 10.9 to the Company's Form 10-Q filed on
November 29, 2001).
99.1 Audit Committee Charter
(b) Reports on Form 8-K.
The Company filed a current 8-K on October 25, 2000 to report
that the Company had been delisted from the Nasdaq Small Cap
Market.
55
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.
TRANSIT GROUP, INC.
Date: November 29, 2001
By: /s/ Philip A. Belyew
-------------------------------
Philip A. Belyew,
Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ Philip A. Belyew Chief Executive Officer November 29, 2001
----------------------
Philip A. Belyew (principal executive officer)
and Director
/s/ T. Wayne Davis Chairman November 29, 2001
----------------------
T. Wayne Davis
/s/ Ford Pearson Director November 29, 2001
----------------------
Ford Pearson
/s/ Derek Dewan Director November 29, 2001
----------------------
Derek Dewan
/s/ Kenneth Ollwerther Chief Financial Officer November 29, 2001
----------------------
Kenneth Ollwerther (principal financial officer)
56