-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UKWG2UzhYxknE2ZPUjVFFGxjYk0t7yOalm1ycwBNr0hZ6fShneOEz4VPB1PKPWa+ nx28ljEhuWpdDJrqd6x+eg== 0001003297-99-000028.txt : 19990331 0001003297-99-000028.hdr.sgml : 19990331 ACCESSION NUMBER: 0001003297-99-000028 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRISM INC /DE/ CENTRAL INDEX KEY: 0000914480 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 133491658 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-23210 FILM NUMBER: 99579136 BUSINESS ADDRESS: STREET 1: 4174 JILES ROAD STREET 2: P O BOX 9000 CITY: KENNESAW STATE: GA ZIP: 30144 BUSINESS PHONE: 7707954621 MAIL ADDRESS: STREET 1: CITY CENTER TOWER 2 STE 1101 STREET 2: 301 COMMERCE STREET CITY: FORT WORTH STATE: TX ZIP: 76102-5384 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from _____________ to _______________ Commission file number 0-23210 TRISM, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3491658 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4174 Jiles Road, Kennesaw, Georgia 30144 (Address of principal executive offices) (Zip Code) (770) 795-4600 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.01 par value Nasdaq National Market Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price as quoted on NASDAQ on March 17, 1999 was $7,482,730. As of March 17, 1999, 5,702,137 shares of TRISM, Inc.'s common stock, par value $.01 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of TRISM, Inc.'s proxy statement, to be filed not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III. Page 1 of 44 Pages Exhibit Index located on page 40. TABLE OF CONTENTS ITEM PAGE PART I. 1. Business 3 2. Properties 7 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 PART II. 5. Market for the Registrant's Common Equity And Related Stockholder Matters 8 6. Selected Financial Data and Operating Statistics 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 8. Financial Statements and Supplementary Data 19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 38 PART III. 10. Directors and Executive Officers of the Registrant 39 11. Executive Compensation 39 12. Security Ownership of Certain Beneficial Owners and Management 39 13. Certain Relationships and Related Transactions 39 PART IV. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39 Exhibit Index 40 2 PART I. ITEM 1. Business Overview TRISM, Inc. (the "Company"), a Delaware corporation, entered the transportation business in January 1990 with the acquisition of Tri- State Motor Transit Co. The Company's operations include a group of carriers specializing in the transportation of heavy machinery and equipment and over-dimensional commodities (Heavy Haul), hazardous waste, explosives and radioactive materials (Secured Materials), building materials, lumber, steel and metal products (Commercial Flatbed), and a contract logistics provider (Logistics). The Company conducts these operations principally through Trism Specialized Carriers, Inc. ("TSC"), Tri-State Motor Transit Co. ("TSMT"), Diablo Systems, Inc. ("Diablo"), C.I. Whitten Transfer ("CIW"), Trism Transport Services, Inc. ("TTSI"), and Trism Logistics, Inc. ("TLI"). The Company completed strategic acquisitions through August 1996 in order to increase market share, expand the geographic scope of its operations, and obtain lane density in the heavy machinery, munitions, and hazardous waste sectors of its operations. As a result of continued losses in the Commercial Flatbed market during 1996, the Company elected to exit this market by closing down component operations of TTSI, and recorded a charge of $4.1 million against 1996 operating results to reflect the write-off of the net book value of goodwill associated with this acquisition. The Company consolidated remaining operations of the Commercial Flatbed market into Heavy Haul in October 1997. Heavy Haul TSC, the Company's largest segment, specializes in the transportation of over-sized and over-dimensional loads throughout the United States, Canada, and Mexico. The largest markets for Heavy Haul are manufacturers of large machinery and equipment, suppliers and contractors to industrial and public construction, importers of industrial durable goods and the U.S. Government. Also, the Company entered the Super Heavy Haul market in 1997 through its strategic alliance with Econofreight Group Limited, a U.K. subsidiary of Brambles Corporation, which generated approximately $4.2 million in operating revenues in 1998. The Super Heavy Haul market allows for the transportation of freight in excess of 80 tons up to 10,000 tons. The Heavy Haul segment data was restated to include the operating results of the Commercial Flatbed market, which included related revenues of $15 million and $34 million for years ended December 31, 1997 and 1996. The following table includes Heavy Haul's contribution of revenue, exclusive of intersegment elimination adjustments, for the three years ended December 31: 1998 1997 1996 Revenue (in thousands) $203,172 $208,479 $214,715 Percent of Company revenue 67% 64% 67% Secured Materials The Secured Materials segment is characterized by the toxic or explosive nature and special handling requirements of the cargo. The cargo typically consists of military munitions, commercial explosives, hazardous waste, and radioactive materials. The largest markets for Secured Materials are the United States government and various governmental agencies, waste generators, and environmental clean-up firms. TSMT, Diablo and CIW service customers in the munitions and explosives market and are collectively the largest transporters of Department of Defense munitions in the continental United States. TSMT and CIW operate throughout the continental United States whereas Diablo's market focus is primarily in the western regions of the United States. 3 Item 1. Business, Secured Materials, Continued Trism Environmental Services ("TES"), a division of TSMT, provides service to customers in the hazardous waste and radioactive materials market and is the largest transporter of hazardous waste materials in the United States. TES operates throughout the United States, but its primary market focus is east of the Mississippi. The operating companies within the Secured Materials group have operating authority in the entire continental United States and certain provinces of Canada. In addition, the group maintains trailer interchange agreements with certain Mexican carriers. The following table includes Secured Material's contribution of revenue, exclusive of intersegment elimination adjustments, for the three years ended December 31: 1998 1997 1996 Revenue (in thousands) $ 92,113 $104,893 $ 97,930 Percent of Company revenue 31% 32% 31% Logistics In March 1995, the Company acquired Kavanagh & Associates, Inc., renamed Trism Logistics, Inc. ("TLI") in 1997, a logistics firm specializing in the management of freight by truck (particularly in the hazardous waste market). TLI's client base includes engineering and construction companies, suppliers to the European Community, Fortune 500 companies and major utility companies. In September of 1998, TLI began operations to provide logistics services to the rail industry through its intermodal division. The following table includes TLI's contribution of revenue, exclusive of intersegment elimination adjustments, for the three years ended December 31: 1998 1997 1996 Revenue (in thousands) $ 7,178 $ 11,564 $ 6,090 Percent of Company revenue 2% 4% 2% Strategy The Company's business strategy is to offer high quality, specialized transportation services in specific markets of the trucking industry to service-sensitive customers. The key components of the Company's strategy are as follows: Market Leadership The Company has sought to enter niche trucking markets in which it can become the preeminent carrier. These markets generate higher revenues per mile than general freight carriage. There are substantial service and productivity advantages to having a large specialized equipment fleet including high route density and a large, diverse customer base. Nationwide Coordination of Operations The Company's coordinated nationwide operations, and careful compliance by the Company's drivers and field personnel, along with a synchronized network load plan are key elements in its strategy. In order to minimize down time and to reduce empty miles, the Company coordinates its nationwide operations by utilizing systems designed to match driver and equipment availability to customer and geographic demand. As part of this process, the Company has equipped substantially all of its tractors with satellite communications equipment that enables the Company's drivers and dispatchers to communicate with each other at any time regardless of where a tractor is in the continental United States. This system enables the Company to provide its customers with current information on the location and status of cargo while in transit. 4 Item 1. Business, Continued Strategy, Continued Specialized Operating Capabilities and Equipment The generally Company has the capability of handling all of an individual shipper's freight in the Company's niche markets. The Company's operating capabilities include a variety of specialized equipment, regulatory permits and compliance expertise, satellite communications and technology, specialized terminals including segregated munitions storage areas, and driver selectivity and training. The Company owns 29 types of trailers in order to meet the specialized needs of shippers. Because of the number and variety of trailers in the Company's fleet, the Company is able to accommodate large nationwide shippers' needs on a timely basis. The breadth of these equipment options is an integral part of the Company's position with its major customers. Seasonality The Company's operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarters ending in December and March are significantly lower than the quarters ending in June and September due to reduced shipments and higher operating costs as a percentage of revenues in the winter months. Customers The Company's largest customer is the United States government (principally the Department of Defense) which accounted for approximately 15 percent of consolidated revenues in 1998. The remainder of the Company's customer base is diversified in terms of customer concentration, industry and geography, none of which accounted for more than 5 percent of the Company's consolidated revenues. Employees At December 31, 1998, the Company had 2,504 employees of whom 1,766 were drivers. Like other trucking operations, the Company experiences a high turnover rate (approximately 99% for 1998) of its Company- employed drivers and contract operators. Risk Management and Insurance The primary risk areas in the Company's businesses are liability for bodily injury and property damage, workers' compensation, and cargo loss and damage. The Company maintains insurance against these risks, and is subject to liability for deductibles with regard to personal injury and property damage and self-insured retention with regard to workers' compensation under the insurance policies. The Company currently maintains liability insurance for bodily injury and property damage. The current deductible for bodily injury and property damage is $500,000 per occurrence plus the satisfaction of an additional $750,000 deductible per year for claims which exceed $500,000. The Company is a qualified workers' compensation self-insurer in the State of Missouri where most of its drivers are domiciled, with losses in excess of $500,000 insured by an excess workers' compensation policy. In all other states statutory workers' compensation insurance is maintained with a deductible of $500,000 loss limit per occurrence to the Company. The Company has issued standby letters of credit in the amount of $11.2 million and collateralized an additional $0.8 million in the form of restricted deposits at December 31, 1998, to secure its self-insured and deductible insurance programs. The Company also self-insures as to damage or loss to the property and equipment it owns or leases, subject to insurance coverage maintained in the event of a catastrophic loss in excess of $50,000 for property and $100,000 for equipment. Certain of the shipments transported by the Company are very valuable. The Company currently maintains cargo loss and damage insurance with a current deductible of $100,000 per occurrence. In addition to following Department of Transportation ("DOT") regulations requiring random drug testing and post-accident drug testing, the Company rigorously enforces its accident and incident reporting and follow-up standards. 5 Item 1. Business, Continued Safety The Company employs safety specialists and maintains safety programs designed to meet its specific needs. In addition, the Company employs specialists to perform compliance checks and to conduct safety tests throughout the Company's operations. The Company conducts a number of safety programs designed to promote compliance with rules and regulations and to reduce accidents and cargo claims. These programs include an ongoing Substance Abuse Prevention Program, driver safety meetings, distribution of safety bulletins to drivers, and participation in national safety associations. Fuel Availability and Cost The Company's fuel requirements are met by commercial fuel stops. The Company has entered into agreements with national truckstop chains that provide for discounts on fuel. The Company may, from time to time, enter into the forward purchases of fuel for delivery through its truckstop network for up to 40 percent of its monthly usage. The Company believes that a portion of any increase in fuel costs or fuel taxes generally would be recoverable from its customers in the form of higher rates although a time lag could occur in implementing and collecting these costs. Competition and Regulation The trucking industry is highly competitive. The Company competes with other truckload carriers, private carriage fleets and, to a lesser extent, railroads. Although the increased competition resulting from deregulation has created downward pressure on rates, the Company has mitigated this decline by setting rates on the basis of its quality of service and its ability to provide specialized services. The trucking industry has been substantially deregulated since the Motor Carrier Act of 1980. Although the Company is still subject to the regulatory powers of the DOT (which has assumed the trucking regulation responsibilities from the Interstate Commerce Commission), as are all interstate common carriers by motor vehicle, many of the previous regulatory barriers for entry into the trucking business have been eased. Further, as a result of deregulation, operating authorities for handling commodities in individual states are more easily obtained by new and existing carriers, and certain restrictions on transportation have been eased. The DOT sets safety and equipment standards, as well as hours of service regulations for drivers. Federal, state and local governments regulate the transportation of hazardous waste and hazardous materials. Generally, certain procedures must be followed, pre- notifications given, and permits obtained when transporting these materials. Environmental Matters The Company's operations as well as those of its competitors are subject to extensive federal, state and local environmental regulations. In order to comply with such regulations and to be consistent with the Company's corporate environmental policy, normal operating procedures include practices to protect the environment. Amounts expended relating to such practices are part of the normal day- to-day costs of the Company's business operations. 6 ITEM 2. Properties Facilities The Company owns executive and administrative offices in Kennesaw, Georgia and Joplin, Missouri, which are the Company's principal operational headquarters. These facilities provide sufficient space for the Company to coordinate its nationwide operations. As of December 31, 1998, the Company owned 14 terminals and leased 45 terminals. These terminals are strategically located in 28 states throughout the United States. From these terminals, the Company caters to service-sensitive customers transporting cargo in truckload quantities to single destinations throughout the continental United States and Canada. The Company arranges for shipments into Mexico primarily through agreements it maintains with Mexican trucking companies. Revenue Equipment and Maintenance The Company utilizes a wide range of specialized equipment designed to meet its customers' varied transportation requirements which distinguishes the Company from many other large truckload carriers. To meet its customers' specialized needs, the Company's trailer fleet consists of 29 types of trailers, including closed vans, flat beds, drop frames, double drops, extendibles, low-boy and dromedary trailers. The Company's policy is to replace tractors on a four to five year cycle. At December 31, 1998, the average age of the Company's tractor fleet was 2.7 years. The Company's policy is to replace trailers on a five to ten year cycle. At December 31, 1998, the average age of the Company's trailer fleet was 7.9 years. TRISM operated the following tractors and trailers at December 31: 1998 1997 1996 Tractors: Owned (1) 925 1,077 1,031 Leased (1) 787 788 982 Independent contractors 244 177 161 ----- ----- ----- Total 1,956 2,042 2,174 ===== ===== ===== Trailers: Owned (1) 4,161 4,438 4,504 Leased (1) 216 217 302 ----- ----- ----- Total 4,377 4,655 4,806 ===== ===== ===== (1) Operated by Company-employed drivers. ITEM 3. Legal Proceedings The information required by this item is included in Item 7 and Note 8 of the Notes to the Company's Consolidated Financial Statements. ITEM 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 1998, no matters were submitted to a vote of security holders. 7 PART II. ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock, believed to be owned by more than 400 beneficial stockholders as of December 31, 1998, is traded on the National Association of Securities Dealers Automated Quotation National Market System (NASDAQ) under the symbol "TRSM." The following table sets forth the high and low closing sales prices for the Company's common stock as reported by NASDAQ for 1998 and 1997. 1998 High Low Close First quarter 3 1/4 1 7/8 2 9/16 Second quarter 2 11/16 1 7/8 2 9/16 Third quarter 3 3/16 1 1 5/8 Fourth quarter 1 7/8 1 1 1997 High Low Close First quarter 4 3/8 2 3 1/8 Second quarter 4 1/2 2 1/4 4 1/2 Third quarter 5 1/2 3 1/4 3 9/16 Fourth quarter 4 1/4 2 1/4 3 1/4 The Company has never paid a cash dividend on its common stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay dividends. Future payment of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company as well as other factors deemed relevant by the Board of Directors. Furthermore, the Senior Subordinated Notes have convenants that restrict the payment of dividends. See Note 4 of the Notes to the Company's Consolidated Financial Statements. 8 ITEM 6. Selected Financial Data and Operating Statistics The following table sets forth selected consolidated financial data for the periods indicated and should be read in conjunction with the consolidated financial statements and related notes. The selected financial data for each of the five years for the period ended December 31, 1998 was derived from the Company's audited consolidated financial statements.
1998 1997 1996 1995 1994 (In thousands, except per share amounts) Selected financial data For the year: Revenues $ 291,631 309,880 310,033 268,444 225,191 Operating income (a) 6,274 6,915 5,082 19,593 19,401 (Loss) income before extraordinary items (9,008) (5,605) (6,598) 3,874 4,781 Extraordinary gain (loss), net of tax (b) 1,563 - - - (231) ---------- --------- -------- -------- -------- Net (loss) earnings $ (7,445) (5,605) (6,598) 3,874 4,550 ========== ========= ======== ======== ======== Basic (loss) earnings per share: (Loss) earnings before extraordinary items $ (1.58) (.98) (1.15) .67 .81 Extraordinary gain (loss) .28 - - - (.04) ---------- --------- -------- -------- -------- Basic (loss) earnings per share $ (1.30) (.98) (1.15) .67 .77 ========== ========= ======== ======== ======== Number of shares used in computation of (loss) earnings per share 5,714 5,737 5,735 5,759 5,638 At year end: Total assets $ 213,952 218,824 232,497 218,771 208,001 Long-term obligations $ 162,290 157,554 163,223 137,647 139,711 Stockholders' equity $ 15,799 23,145 28,750 35,107 32,206 Common shares outstanding 5,714 5,737 5,737 5,733 5,879 Net book value per share $ 2.77 4.03 5.01 6.12 5.48 Selected operating data For the year: Operating ratio (a) (c) 97.8% 97.8% 98.4% 92.7% 91.4% Revenue per loaded mile (d) $ 1.77 1.74 1.69 1.71 1.73 Revenue per total mile (d) $ 1.47 1.47 1.40 1.41 1.45 Load factor (e) 83.1% 84.2% 82.9% 82.4% 84.0% Daily revenue per tractor (f) $ 534 547 505 527 555 Average length of haul in miles (g) 926 880 819 900 953 Total loads (000's) 163 182 196 160 128 Total tractor miles (000's) 181,702 189,696 198,333 174,583 145,262
9 ITEM 6. Selected Financial Data and Operating Statistics, Continued 1998 1997 1996 1995 1994 Weighted average number of: Employees (h) Drivers 2,048 2,257 2,173 1,920 1,630 Mechanics 167 131 168 144 148 Other 618 695 758 688 622 Tractors (i) 2,014 2,065 2,220 1,893 1,522 Ratio of average tractors to non-driver employees 2.6 2.5 2.4 2.3 2.0 - --------------- (a)Includes restructuring charges of $3.2 million for the year ended December 31, 1997 and the write-off of the unamortized goodwill of $4.1 million associated with TTSI for the year ended December 31, 1996. (b)The Company recorded an extraordinary gain and loss related to the early extinguishment of debt during the years ended December 31, 1998 and 1994, respectively. (c)Operating ratio represents operating expenses as a percentage of revenues. (d)Freight revenues exclude brokerage and other revenues. (e)Load factor represents loaded miles as a percentage of total book miles. (f)Based on weighted average number of tractors during the period. (g)Calculated as the average distance from origin to the destination of the shipments. (h)Includes part-time employees. (i)Includes the monthly average of owned, leased and independent contractor units. - --------------- ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain statements in Items 1, 3, 6, 7 and 8 of this Form 10-K include information that is forward looking, such as the Company's opportunities to grow revenues and increase operational efficiency, its anticipated liquidity and capital requirements, and the results of legal proceedings. The matters referred to in forward-looking statements could be affected by the risks and uncertainties involved in the Company's business. 10 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued These risks and uncertainties include, but are not limited to, the effect of economic and market conditions, the expenses associated with and the availability of drivers and fuel, as well as certain other risks described above in this Item and in Item 1 in "Business". Subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Form 10-K. The following discussion and analysis should be read in conjunction with the Selected Consolidated Financial Data and the Company's consolidated financial statements and related notes. The following tables set forth certain financial information and operating data for the three years ended December 31:
1998 1997 Percentage of Revenue Basis: 1998 1997 1996 to 1997 to 1996 Variance Variance Operating Revenue: 100.0 100.0 100.0 - - Operating Expenses: Salaries, wages and fringe benefits 38.1 36.5 36.8 1.6 (0.3) Operating supplies and expenses 14.0 15.0 15.0 (1.0) - Operating taxes and licenses 9.2 8.9 9.3 0.3 (0.4) Contractor equipment 8.0 5.9 6.0 2.1 (0.1) Brokerage carrier expense 6.7 8.6 8.3 (1.9) 0.3 Depreciation and amortization 6.6 6.1 6.3 0.5 (0.2) General supplies and expenses 5.0 5.4 5.8 (0.4) (0.4) Revenue equipment rents 4.6 4.7 4.4 (0.1) 0.3 Claims and insurance 3.3 3.7 3.2 (0.4) 0.5 Communications and utilities 1.7 1.7 1.9 0.0 (0.2) Loss on disposition of assets 0.3 0.3 0.1 0.0 0.2 Restructuring and non-recurring expenses 0.3 1.0 - (0.7) 1.0 Write-down of goodwill - - 1.3 0.0 (1.3) Total operating expenses 97.8 97.8 98.4 - (0.6) Income from operations 2.2 2.2 1.6 - 0.6 Interest expense, net 4.8 4.6 4.6 0.2 - Other expense, net 0.3 0.2 0.2 0.1 - (Loss) income before income tax (2.9) (2.6) (3.2) (0.3) 0.6 benefit and extraordinary item Income tax (benefit) expense 0.2 (0.8) (1.1) 1.0 0.3 (Loss) income before extraordinary item (3.1) (1.8) (2.1) (1.3) 0.3 Extraordinary gain on extinguishment of debt, net of income taxes of $841 0.5 - - 0.5 - Net (loss) earnings (2.6) (1.8) (2.1) (0.8) 0.3
Pertinent financial and operating data is summarized in Selected Financial Data and Operating Statistics on page 9 of this document. 11 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Overview and Outlook for 1999 Operating revenue was approximately $291.6 million in 1998 compared to $309.9 million in 1997. Operating income for 1998 was approximately $6.3 million compared to $6.9 million in 1997. The net loss for 1998 was $7.4 million ($1.30 per share) compared to a net loss of $5.6 million ($.98 per share) in 1997. The results for 1998 include a gain on the extinguishment of debt of $1.6 million, non-recurring charges of $0.8 million, and a charge to fully reserve for future net operating loss carryforward benefits of $3.4 million. The 1997 operating results contain a restructuring charge of $3.2 million. The Company's performance in 1998 was limited by a more competitive freight market at Secured Materials, increased costs associated with attracting and retaining qualified drivers, lower asset productivity, and a lower percentage of loaded miles to total miles. The Company's initiatives for 1999 are directed at improving each of these factors while also focusing on achieving revenue growth in each of its specialized freight niches. Operating Revenue Operating revenue for 1998 decreased $18.2 million, or 5.9%, from 1997 to 1998 and decreased $153,000, or 0.1%, from 1996 to 1997. Revenue per total mile amounted to $1.47, $1.47 and $1.40 in 1998, 1997 and 1996, respectively. Total miles driven amounted to approximately 181.7 million miles in 1998, 189.7 million miles in 1997, and 198.3 million miles in 1996. Operating revenues between periods includes the following (in thousands): Segment 1998 1997 1996 Heavy Haul $ 203,172 208,479 214,715 Secured Materials 92,113 104,893 97,930 Logistics 7,178 11,564 6,090 Intersegment eliminations (10,832) (15,056) (8,702) ------------ -------- -------- $ 291,631 309,880 310,033 ============ ======== ======== 1998 Compared to 1997 Operating revenues declined by $18.2 million from 1997 to 1998. Heavy Haul's operating revenues were negatively impacted as a result of the Company's exit from the Commercial Flatbed market resulting in a decrease of approximately $15 million from 1997; however, this was partially offset from Heavy Haul's increased revenue from ongoing operations of approximately $9.7 million. Additionally, operating revenues declined at Secured Materials due to increased competitive market conditions in the military munitions market, a reduced number of available military munitions shipments, and fragmentation within the hazardous waste markets from a national market to a regional market. Consolidated revenues were also negatively impacted by a lower than expected ratio of active to total tractors caused by a more competitive driver market. Finally, Logistics revenues declined by $4.5 million due to a loss of contracts. The Company entered the Super Heavy Haul market in early 1997 through its strategic alliance with Econofreight Group Limited, a U.K. subsidiary of Brambles Corporation. Revenues for 1998 associated with Super Heavy Haul were $4.2 million. 1997 Compared to 1996 Operating revenues were adversely impacted due to a lower than expected ratio of active tractor capacity to total tractor capacity caused by a shortage of drivers, which left approximately 10% of the Company's tractor fleet idle in the third and fourth quarters of 1997. Operating revenues were also negatively impacted as a result of the Company's exit from the Commercial Flatbed market resulting in decreased operating revenues of approximately $19.2 million and increased reliance on intersegment revenue of approximately $2.6 million in 1997 offset by revenue gains in the Heavy Haul, Secured Materials and Logistics segments. 12 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Operating Income Operating income between the periods includes the following (in thousands): Segment 1998 1997 1996 Heavy Haul $ 6,254 4,762 6,135 Secured Materials 458 5,027 3,199 Logistics 314 353 (190) Restructuring charge (752) (3,227) - Write-down of goodwill - - (4,062) ------- ------ ------- $ 6,274 6,915 5,082 ======= ====== ======= Operating income decreased $0.6 million in 1998 as compared to 1997 and increased $1.8 million in 1997 as compared to 1996. The operating expense ratio was 97.8%, 97.8%, and 98.4% in 1998, 1997, and 1996, respectively. 1998 Compared to 1997 The decline in operating performance in 1998 was primarily a result of a more competitive and changing market at Secured Materials, increased costs of attracting and retaining qualified drivers, lower asset productivity and a lower percentage of loaded miles to total miles. These factors were partially offset in 1998 by elimination of Commercial Flatbed operating losses and a reduction in fuel, insurance and fixed freight operating costs. Heavy Haul's operating income decreased by approximately $1.0 million from 1997 to 1998 primarily resulting from low tractor productivity caused by tractors without drivers. Additionally, the percentage of loaded miles to total miles also declined from 1997 to 1998. Furthermore, operating income in 1997 includes an operating loss of approximately $2.5 million relating to the Commercial Flatbed market. Secured Materials operating income declined approximately $5.3 million from 1997 to 1998. The decline in profitability resulted from lower revenues in the military munitions and hazardous waste markets, reduced freight rates due to competitive pressures and lower tractor productivity. Logistics operating income remained relatively flat in 1998, despite a reduction in revenues from 1997. The Company reduced its fleet size from 2,042 in 1997 to 1,956 in 1998 to combat effects of a more competitive driver labor market. Accordingly, the Company recorded a provision for loss on sale of non- productive revenue equipment of $0.45 million in the third quarter of 1998. The Company has also increased its independent contractors from 177 in 1997 to 244 in 1998 to reduce the risk in the driver market. 1997 Compared to 1996 The improved operating results in 1997 for the Company were primarily driven by improved performance at Secured Materials and Logistics offset by lower results in Heavy Haul and the $3.2 million restructuring charge. Heavy Haul results were adversely impacted in 1997 as a result of absorbing the remaining operations of the Commercial Flatbed market in October 1997 and a general softening of the Heavy Haul market sector in the later part of the third and entire fourth quarter of 1997. The overall improvement in Secured Materials is primarily due to improved conditions in the munitions market, implementation of a commercial explosives market initiative, and improved pricing in the environmental services market as a result of the 1996 acquisition of the Special Commodities Division of J. B. Hunt Transport, Inc. Logistics operating income increased approximately $0.5 million from 1996 to 1997 primarily as a result of increased intersegment revenue related to the Secured Materials segment. 13 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Operating and Other Expenses Total operating expenses decreased $17.6 million from 1997 to 1998. Total operating expenses decreased $2.0 million from 1996 to 1997 after restructuring charges of $3.2 million. Operating expenses as a percentage of revenue were 97.8%, 97.8% and 98.4% in 1998, 1997, and 1996, respectively. The following expense categories increased or decreased significantly as a percentage of revenue between the periods indicated below: 1998 Compared to 1997 Salaries, wages and fringe benefits increased 1.6% from 1997 to 1998. The increase resulted from driver compensation increases implemented in 1998 to increase the Company's competitive position to attract and retain qualified drivers. Operating supplies and expenses decreased $5.8 million or 1.0%, primarily as result of lower fuel prices that averaged $.99 a gallon in 1998 as compared to $1.14 in 1997, resulting in cost savings of approximately $3.8 million in 1998. These savings were partially offset by increased tractor maintenance expenditures of approximately $1.2 million due to an increase in the age of the tractor fleet. Contractor equipment expenses increased by 2.1% from 1997 to 1998, attributable to an overall increase in the number of independent contractors, which increased from 177 in 1997 to 244 in 1998. Brokerage carrier expense decreased to approximately 82.6% of brokerage revenue in 1998 as compared to 84% of brokerage revenue in 1997. Brokerage revenues declined by $7.6 million from 1997 to 1998. Restructuring and non-recurring charges of approximately $0.8 million were recorded in 1998 as compared to $3.2 million in 1997. Interest expense and other expenses were essentially flat between the periods. Income tax expense for 1998 was $1.5 million due to establishing a valuation allowance relating to tax benefits associated with net operating loss carryforwards. In 1997 an income tax benefit was recorded of $2.5 million. 1997 Compared to 1996 Salaries, wages and fringe benefits decreased 0.3% from 1996 to 1997. The improvement resulted from a reduction in non-driver compensation as a result of the restructuring effort offset partially by driver compensation increases implemented in March 1997. Operating supplies and expenses were relatively flat between 1996 and 1997. However, fuel prices in 1997 averaged $1.13 a gallon compared to $1.19 in 1996 resulting in a cost savings of approximately $3 million in 1997 offset by increased maintenance expenditures of approximately $2.3 million due to the increasing age of the tractor fleet. General supplies and expenses decreased $1.2 million or 0.4% due to a reduction in driver motel and travel expenditures of approximately $0.6 million and reduced charges for building and equipment rental expenditures of $0.4 million primarily relating to the Company's restructuring efforts. Goodwill charges decreased $4.1 million in 1997 as the Company recorded a provision for the write-down of TTSI goodwill in 1996. Restructuring charges of approximately $3.2 million were recorded in 1997. Interest expense and other expenses were essentially flat between the periods. Income tax benefit for 1997 was $2.5 million compared to a benefit of $3.3 million in 1996 resulting in an effective tax rate of 30.3% and 33.3% in 1997 and 1996, respectively. 14 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Liquidity and Capital Resources Overview of Company's Net Cash Flow Position in 1998 and Outlook for 1999 In 1998, the Company's overall net cash position was positively impacted by improvement in the accounts receivable cycle and cost containment strategies. In 1999, the Company anticipates continued improvement in the accounts receivable cycle over 1998 and the continued use of capital lease arrangements to finance revenue equipment replacements. The Company intends to meet its on-going capital requirements, scheduled principal payments and working capital needs from cash flow from operations, availability under its working capital line and proceeds from the sale of equipment. The Company also has additional borrowing capacity supported by unencumbered tangible assets. However, if losses continue, the Company's liquidity could be negatively impacted, and its ability to attract capital could be limited. Operating Activities Net cash provided by operating activities was $15.6 million in 1998 compared to $27.8 million in 1997. The decrease is primarily due to lower income from operations, a decrease in accounts payable, and reduced gross collection amounts on accounts receivable due to lower sales. The accounts receivable turnover improved to 47 days in 1998 compared to 52 days in 1997. Investing Activities Net cash provided by investing activities was $7.7 million in 1998 compared to $8.6 million in 1997. The increase in sale proceeds from assets of $5.6 million in 1998 was offset by the decrease attributed to the proceeds of $7.3 million under certain sale-leaseback arrangements in 1997. The Company financed approximately $34.8 million of capital expenditures with capital leases in 1998. Financing Activities Net cash used in financing activities was $27.5 million in 1998 compared to $31.6 million in 1997. The decrease in cash from financing activities was partially offset by borrowings of $3.8 million under the Company's revolving credit line in 1998 versus net repayments under the credit line of $18.0 million in 1997. Furthermore, the Company repaid long-term debt of approximately $32.3 million in 1998 compared to $15.7 million in 1997. On July 15, 1997, the Company refinanced its revolving credit facility ("Facility") with a $45 million credit line (the "Revolver"). The proceeds of the Revolver were used to retire the Facility loan and are available for the Company's working capital needs. The Revolver matures July 15, 2000, contains provisions for a letter of credit subline of $15 million, bears interest at the Prime rate plus .25% or LIBOR plus 2.25%, and is collateralized by accounts receivable. On February 23, 1999, the Company amended the Facility to include a term loan in the amount of $2.8 million and utilized certain unencumbered trailers as collateral. The Revolver also includes certain covenants applicable once funds available for borrowing less aggregate principal amount outstanding ("Availability") under the Revolver falls below $8 million for 10 consecutive business days. Availability under the Revolver was approximately $9.0 million at December 31, 1998, net of a reduction for outstanding letters of credit of approximately $11.2 million. 15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Liquidity and Capital Resources, Continued Capital Requirements The Company estimates 1999 net capital expenditures of approximately $20 million primarily related to the replacement of tractors and trailers. The Company estimates net proceeds from the sale of the replaced equipment to amount to approximately $1.9 million and believes it will be able to finance its needs during 1999. However, if losses continue, the Company's ability to attract capital could be limited, causing the Company to reduce its capital expenditures. In addition, residual obligations of approximately $4.0 million, primarily relating to certain capital lease obligations, will mature in 1999, and the Company will have the option to either purchase the revenue equipment for the residual amount, sell the equipment and repay the residual, or return the equipment to the lessor at the end of the lease term. Maturity of the Senior Subordinated Notes The Company has $86.2 million of Senior Subordinated Notes (the "Notes") outstanding as of December 31, 1998, which mature December 15, 2000. The Executive Committee of the Board of Directors and key management (the "Committee") have been mandated to evaluate the various options available to refinance the Notes and select the appropriate strategy to successfully execute a recapitalization plan. Corporate Restructuring and Non-Recurring Expenses In June 1998, the Company recorded a pre-tax charge of $0.4 million for a separation and consulting agreement with a former officer of the Company. Furthermore, in September 1998, the Company recorded a pre-tax severance provision of $0.35 million pertaining to the reduction of certain administrative personnel. In February 1997, the Company announced an organizational restructuring to consolidate certain sales, operations, and administrative functions, and reengineer business processes to reduce overhead and increase operational efficiency. The Company believed that the primary benefit of the restructuring would be reduced and/or contained expenditures for non-driver personnel and certain terminal costs that would improve the Company's future operating results, liquidity, and capital resources. During 1997, the Company recorded total charges of $3.2 million associated with the organizational restructuring. Major Customers Operating revenues derived from U.S. Governmental Agencies were approximately $43.9 million, $49.7 million and $52.5 million for the years ended December 31, 1998, 1997, and 1996, respectively, which represents 15 percent, 16 percent and 17 percent of total operating revenues for 1998, 1997, and 1996, respectively. There was no other single customer that exceeded 10 percent of operating revenues during this same period. Contingencies Legal Proceedings Under the Comprehensive Environmental Responses, Compensation and Liability Act ("CERCLA") and similar state laws, a transporter of hazardous substances may be liable for the costs of responding to the release or threatened release of hazardous substances from disposal sites if such transporter selected the site for disposal. Because it is the Company's practice not to select the sites where hazardous substances and wastes will be disposed, the Company does not believe it will be subject to material liability under CERCLA and similar laws. Although the Company has been identified as a "potentially responsible party" (PRP) at two sites, solely because of its activities as a transporter of hazardous substances, the Company does not believe it will be subject to material liabilities at such sites. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Contingencies, continued The Company is a party to certain legal proceedings incidental to its business, primarily involving claims for personal injury or property damage arising from the transportation of freight. The Company does not believe that these legal proceedings, or any other claims or threatened claims of which it is aware, are likely to materially and adversely affect the Company's financial condition. With regard to personal injury, property damage, workers' compensation claims, and cargo claims, the Company is and has been covered by insurance. Such matters may include claims for punitive damages. It is an open question in some jurisdictions in which the Company does business as to whether or not punitive damages awards are covered by insurance. Inflation and Fuel Costs Inflation can be expected to have an impact on the Company's earnings; however, the effect of inflation has been minimal over the past three years. An extended period of inflation or increase in fuel costs would adversely affect the Company's results of operations without a corresponding freight rate increase from customers. The Company uses forward purchase commitments to reduce its exposure to fluctuations in fuel prices by entering into short-term fuel price agreements for the actual delivery of fuel. These agreements, which settle monthly, fix the price of fuel for approximately 5.6 million gallons in 1999, including approximately 2.6 million gallons relating to the first quarter of 1999. The Company recognizes expenses or benefits on these agreements in the period in which the charge occurs. 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 fuel forward purchase commitments. Interest Rate Risk: The fair value of the Company's cash and short-term investment portfolio at December 31, 1998 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 expenses from changes in interest rates related to the senior subordinated notes or 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, was estimated to be $119 million at December 31, 1998, and was below the carrying value by $43 million. A hypothetical 10% increase in the interest rates on the Company's revolving credit facility long-term debt for a duration of one year would not have a material impact in 1999. Commodity Price Risk: The Company uses forward purchase commitments to reduce its 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. A hypothetical incremental decrease in fuel prices of 10% on the existing forward purchase commitments for the duration of 1999 would increase fuel expense by $0.6 million. 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Year 2000 Position Statement The Company has evaluated its internal date-sensitive systems and equipment for Year 2000 compliance. The assessment and testing phase of the Year 2000 project is complete and included both information technology equipment and non-information technology equipment. Based on its assessment and testing, the Company determined that it's critical software, hardware and information technology equipment was in compliance with Year 2000 requirements. However, at December 31, 1998, the Company was approximately 95% complete in the modification or replacement of the non-information technology equipment requiring remediation. The Company expects such remediation to be completed by August 1999. The Company does not believe the effect of the Year 2000 is likely to have a material adverse impact. The total estimated cost of the Year 2000 project was not material and is being funded by operating cash flows. The Company has also communicated with key suppliers and customers to determine their Year 2000 compliance and the extent to which the Company is vulnerable to any third-party Year 2000 issues. This program will be ongoing, and the Company's efforts with respect to specific problems identified will depend on its assessment of the risk. Most key suppliers and customers who have replied to the Company's inquiries indicated they expect to be Year 2000 compliant on a timely basis. There can be no assurance that there will not be an adverse effect on the Company if third parties do not make the necessary modifications to their systems in a timely manner. However, management believes that ongoing communication with and assessment of these third parties will minimize these risks. Where needed, the Company will establish contingency plans based on actual testing results and assessment of outside risks. The costs of the Year 2000 issue and completion dates are based on management's best estimates which are derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. The above statement in its entirety is designated a Year 2000 readiness disclosure under the Year 2000 Information and Readiness Disclosure Act. Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivatives and hedging. It requires that all derivatives are recognized as either assets or liabilities at fair value and establishes specific criteria for the use of hedge accounting. The Company's required adoption date is January 1, 2000. SFAS 133 is not to be applied retroactively to financial statements of prior periods. The Company expects no material adverse effect on consolidated results of operations, financial position, cash flows or stockholders' equity upon adoption of SFAS 133. Item 7A. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk" on page 17. 18 ITEM 8. Financial Statements and Supplementary Data TRISM, Inc. Consolidated Balance Sheets As of December 31, 1998 and 1997 (In thousands)
1998 1997 ASSETS Current assets: Cash and cash equivalents $ 2,029 6,271 Restricted cash and insurance deposits 847 1,010 Trade accounts receivable, net of allowance for doubtful accounts of $1,063 and $2,070 35,837 42,701 Other accounts receivable 1,551 1,375 ----------- ---------- Total accounts receivable 37,388 44,076 Materials and supplies 1,389 1,643 Prepaid expenses 18,795 18,418 Deferred income taxes 3,901 3,789 ----------- ---------- Total current assets 64,349 75,207 ----------- ---------- Property and equipment, at cost 193,953 184,232 Less: Accumulated depreciation and amortization (64,775) (62,428) ----------- ---------- Net property and equipment 129,178 121,804 Intangibles and other, net of accumulated amortization of $7,257 and $5,821 19,624 20,806 Other assets 801 1,007 ----------- ---------- Total assets $ 213,952 218,824 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,206 11,859 Bank overdraft 5,642 4,796 Accrued expenses and insurance reserves 12,412 13,733 Current maturities of long-term debt: Principal payments 13,857 13,025 Residual obligations on equipment debt 4,014 8,696 ----------- ---------- Total current liabilities 43,131 52,109 ----------- ---------- Long-term debt, less current maturities 144,419 135,833 Insurance reserves 6,702 5,423 Deferred income taxes 3,901 2,314 ----------- ---------- Total liabilities 198,153 195,679 ----------- ---------- Commitments and contingent liabilities Stockholders' equity: Common stock; $.01 par; 10,000 shares authorized; issued 5,903 shares in 1998 and 1997 59 59 Additional paid-in capital 37,229 37,327 Loans to stockholders (83) (368) Accumulated deficit (19,769) (12,324) Treasury stock, at cost, 201 and 166 shares (1,637) (1,549) ----------- ---------- Total stockholders' equity 15,799 23,145 ----------- ---------- Total liabilities and stockholders' equity $ 213,952 218,824 =========== ========== The accompanying notes are an integral part of the audited financial statements.
19 TRISM, Inc. Consolidated Statements of Operations For the years ended December 31, 1998, 1997, and 1996 (In thousands, except per share amounts)
1998 1997 1996 Revenues $ 291,631 309,880 310,033 ------------ ---------- ---------- Operating expenses: Salaries, wages and fringe benefits 111,223 113,011 113,903 Operating supplies and expenses 40,753 46,522 46,469 Operating taxes and licenses 26,808 27,638 28,785 Contractor equipment 23,223 18,279 18,636 Brokerage carrier expense 19,559 26,614 25,732 Depreciation and amortization 19,516 18,895 19,568 General supplies and expenses 14,511 16,870 18,075 Revenue equipment rents 13,429 14,570 13,665 Claims and insurance 9,582 11,389 9,962 Communications and utilities 5,044 5,154 5,857 Loss on disposition of assets 957 796 237 Restructuring and non-recurring expenses 752 3,227 - Write-down of goodwill - - 4,062 ------------ ---------- ---------- Total operating expenses 285,357 302,965 304,951 Operating income 6,274 6,915 5,082 Interest expense, net 13,944 14,187 14,216 Other expense, net 704 780 764 ------------ ---------- ---------- Loss before income tax benefit and (8,374) (8,052) (9,898) extraordinary item Income tax expense (benefit) 634 (2,447) (3,300) ------------ ---------- ---------- Loss before extraordinary item (9,008) (5,605) (6,598) Extraordinary gain on extinguishment of debt, net of income taxes of $841 1,563 - - ------------ ---------- ---------- Net loss $ (7,445) (5,605) (6,598) ============ ========== ========== Basic loss per share: Loss before extraordinary item $ (1.58) (.98) (1.15) Extraordinary gain .28 - - ------------ ---------- ---------- Net loss $ (1.30) (.98) (1.15) ============ ========== ========== Diluted loss per share: Loss before extraordinary item $ (1.58) (.98) (1.15) Extraordinary gain .28 - - ------------ ---------- ---------- Net loss $ (1.30) (.98) (1.15) ============ ========== ========== Weighted average number of shares used in computation of basic and diluted loss per share 5,714 5,737 5,735 ============ ========== ========== The accompanying notes are an integral part of the audited financial statements.
20 TRISM, Inc. Consolidated Statements of Cash Flows For the years ended December 31, 1998, 1997, and 1996 (In thousands)
1998 1997 1996 Cash flows from operating activities: Net loss $ (7,445) (5,605) (6,598) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 20,272 19,595 20,224 Write-down of goodwill - - 4,062 Loss on disposition of assets 957 796 237 Deferred income taxes 1,475 (2,496) (3,914) Provision for losses on accounts receivable 879 1,388 1,574 Restructuring charge, net 59 266 - Deferred (loss) gain on sale-leaseback, net (258) 409 - Extraordinary gain, net (1,563) - - Changes in assets and liabilities: Accounts receivable 5,894 12,039 (14,746) Prepaid expenses (377) 293 (2,429) Accounts payable (4,653) 1,068 (3,224) Accrued expenses and insurance reserves 157 (525) 315 Other 202 575 406 ----------- -------- -------- Net cash provided by (used in) operating activities 15,599 27,803 (4,093) ----------- -------- -------- Cash flows from investing activities: Proceeds from sale of assets 11,734 6,174 8,057 Purchases of property and equipment (4,143) (5,622) (15,526) Proceeds from sale-leaseback - 7,334 - Acquisitions, net of cash acquired - - (7,053) Other investing activities 83 724 316 ----------- -------- -------- Net cash provided by (used in) investing activities 7,674 8,610 (14,206) ----------- -------- -------- Cash flows from financing activities: Net (repayment) proceeds under revolving credit agreement 3,800 (18,018) 15,369 Repayment of long-term debt and capital lease obligations (22,759) (13,210) (10,719) Repurchase of senior subordinated notes (9,500) - - Repayment of note payable - (2,500) - Proceeds from issuance of long-term debt - 2,383 15,247 Payment for loan acquisition costs - (494) (60) Increase (decrease) in bank overdrafts 846 229 (954) Issuance of common stock, stock options and warrants - - 241 Purchase of treasury stock (88) - - Repayment of stockholder loan 187 - - ----------- -------- -------- Net cash (used in) provided by financing activities (27,514) (31,610) 19,124 ----------- -------- -------- Increase (decrease) in cash and cash equivalents (4,242) 4,803 825 Cash and cash equivalents, beginning of year 6,271 1,468 643 ----------- -------- -------- Cash and cash equivalents, end of year $ 2,029 6,271 1,468 =========== ======== ======== Supplemental cash flow information: Cash paid during the period for: Interest ($229 capitalized in 1998) $ 15,307 14,739 14,480 Capital lease equipment purchases and borrowings $ 34,758 25,384 3,225 The accompanying notes are an integral part of the audited financial statements.
21 TRISM, Inc. Consolidated Statements of Changes in Stockholders' Equity For the years ended December 31, 1998, 1997, and 1996 (In thousands, except warrant and share amounts)
Additional Common Paid-in Loans to Accumulated Treasury Stockholders' Stock Capital Stockholders Deficit Stock Equity December 31, 1995 $ 59 37,086 (368) (121) (1,549) 35,107 Exercise of 4,200 warrants - 28 - - - 28 Warrants issued - 213 - - - 213 Net loss - - - (6,598) - (6,598) ------- ------- ------- -------- -------- -------- December 31, 1996 59 37,327 (368) (6,719) (1,549) 28,750 Net loss - - - (5,605) - (5,605) ------- ------- ------- -------- -------- -------- December 31, 1997 59 37,327 (368) (12,324) (1,549) 23,145 Repayment of loan to stockholders - (98) 285 - - 187 Purchase of 35,000 shares - - - - (88) (88) Net loss (7,445) (7,445) ------- ------- ------- -------- -------- -------- December 31, 1998 $ 59 37,229 (83) (19,769) (1,637) 15,799 ======= ======= ======= ======== ======== ======== The accompanying notes are an integral part of the audited financial statements.
22 TRISM, Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation and Nature of Operations The consolidated financial statements include the accounts of Trism, Inc. (the "Company") and its wholly owned subsidiaries. Significant intercompany transactions and balances have been eliminated. The Company's operations include a group of carriers specializing in the transportation of heavy machinery and equipment (Heavy Haul), hazardous waste, explosives and radioactive materials (Secured Materials), building materials, lumber, steel and metal products (Commercial Flatbed), and a contract logistics provider (Logistics). The Company conducts these operations principally through Trism Specialized Carriers, Inc. ("TSC"), Tri-State Motor Transit Co. ("TSMT"), Diablo Systems, Inc. ("Diablo"), C.I. Whitten Transfer ("CIW"), Trism Transport Services, Inc. ("TTSI"), and Trism Logistics, Inc. ("TLI"). As a result of continued losses in the Commercial Flatbed market during 1996, the Company elected to exit the commercial flatbed market by closing down component operations of TTSI and record a charge of $4.1 million against 1996 operating results to reflect the write-off of the net book value of goodwill associated with this acquisition. The Company consolidated remaining operations of the Commercial Flatbed market into Heavy Haul in October 1997. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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. Estimates are used when accounting for the allowance for doubtful accounts, long-lived assets, insurance reserves, income tax and contingencies. Actual results could differ from those estimates. Revenue Recognition Substantially all freight revenue and related costs are recognized when products are picked-up for shipment. This method approximates the method deemed preferable by the Financial Accounting Standards Board Emerging Issues Task Force whereby revenues are 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 to known amounts of cash and present minimal risk changes in value because of changes in interest rates to be cash equivalents. Prepaid Expenses Prepaid expenses primarily consist of the cost of new and replacement tires ("Prepaid Tires") that are amortized into operating results on a straight-line basis over 24 months. Prepaid expenses also includes prepaid insurance, taxes, licenses and other expenses ("Other Prepaid Expenses") that are amortized into operating results on a straight- line basis over the estimated useful life ranging between 12 and 24 months. Prepaid Tires and Other Prepaid Expenses amounted to approximately $11.5 million and $7.3 million in 1998 and $11.9 million and $6.7 million in 1997, respectively. 23 1. Summary of Significant Accounting Policies, Continued Property, Equipment and Depreciation Property and equipment are stated at cost, less accumulated depreciation and amortization calculated on a straight-line basis over the estimated useful lives of the respective assets. The cost of additions, major replacements, improvements, and interest on construction and certain revenue equipment are capitalized, while maintenance and repairs are charged to expense when incurred. The cost of assets sold or retired, net of accumulated depreciation or amortization, are removed from the accounts at the date of disposition, and any resulting gain or loss is reflected in operations. The Company continually evaluates the carrying value of its assets for events or changes in circumstances, which indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The cost components of property and equipment and related useful lives are as follows: (Dollars in thousands) Estimated 1998 1997 Useful Lives Land $ 10,644 10,666 - Structures and improvements 14,119 14,204 18 - 30 Revenue equipment 146,110 139,405 4 - 10 Other equipment 23,078 19,957 3 - 5 --------- ------- Property and equipment, at cost $ 193,953 184,232 ========= ======= Depreciation expense amounted to $18.8 million, $18.2 million, and $18.8 million in 1998, 1997, and 1996, respectively. Intangibles and Other Intangible assets include goodwill, which represents cost in excess of net assets of businesses acquired, and certain non-compete and customer list expenditures related to acquisitions. Goodwill and related acquisition expenditures are being amortized on a straight- line basis over periods ranging from 3 to 40 years and amounted to approximately $18.4 million and $18.7 million as of December 31, 1998 and 1997. The Company continually reviews goodwill and other intangibles to assess recoverability from estimated future results of operations and cash flows at the aggregate business unit level. As a result of this review and continued losses incurred in the Commercial Flatbed division, the Company recorded a provision in the amount of $4.1 million in 1996 to write-off goodwill associated with the TTSI acquisition. Intangibles and other also include deferred financing fee costs, which are being amortized on a straight-line basis over the term of the loan, and amounted to $1.4 million and $1.4 million as of December 31, 1998 and 1997. Insurance Reserves Insurance reserves amounted to approximately $12.4 million and $13.2 million as of December 31, 1998 and 1997, and reflect the estimated cost of claims for cargo loss and damage, bodily injury and property damage, workers' compensation and employee and welfare program claims not covered by insurance. The insurance liability provision is based on claims incurred and on estimates of both unasserted and unsettled claims which are assessed based on management's evaluation of the nature and severity of individual claims and on the Company's past claims experience. 24 1. Summary of Significant Accounting Policies, Continued Earnings (Loss) Per Share Basic earnings (loss) per share excludes dilution and is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding. Common shares outstanding include issued shares less shares held in treasury. 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 income by the sum of the weighted average number of common shares outstanding and dilutive common stock equivalents at the end of each reporting period. Common stock equivalents are excluded from the diluted calculation if a net loss was incurred for the period, as these transactions are anti-dilutive. Accordingly, the calculations for basic and diluted earnings (loss) per share are identical, because none of the Company's potentially dilutive instruments, i.e. stock options, were dilutive for any period presented. The computation of basic and diluted earnings (loss) per share is shown in the table below:
For the years ended December 31, (Dollars in thousands except per share amounts) 1998 1997 1996 Loss before extraordinary item $ (9,008) (5,605) (6,598) Extraordinary gain on extinguishment of debt, net of tax provision of $841 1,563 - - ------------ ---------- ---------- Net loss $ (7,445) (5,605) (6,598) ============ ========== ========== Weighted average number of shares Basic and Diluted: Average common shares outstanding 5,714,137 5,737,137 5,735,175 ------------ ---------- ---------- Basic and Diluted earnings (loss) per share: Loss before extraordinary item (1.58) (.98) (1.15) Extraordinary gain .28 - - ------------ ---------- ---------- Net loss $ (1.30) (.98) (1.15) ============ ========== ==========
25 1. Summary of Significant Accounting Policies, Continued Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize expense over the vesting period of the fair value of all stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB No. 25 and provide pro forma disclosure provisions of SFAS No. 123. Accounting Pronouncements Effective January 1, 1998, the company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. The adoption of SFAS No. 130 has no material impact on the Company's consolidated results of operations, financial position or cash flows. Comprehensive income equals net income plus other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses which are reflected in stockholders' equity but excluded from net income. The Company has no components of comprehensive income at December 31, 1998, 1997 or 1996. As of December 31, 1998 the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosure about Pensions and Other Post Retirement Benefits." These standards have no material impact on the Company's consolidated results of operations, financial position or cash flows. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products, services, and geographic areas. See Note 10 of the Notes to the Company's Consolidated Financial Statements. SFAS No. 132 revises disclosures about pension and other post retirement benefit plans. As the Company did not have any of these plans as of December 31, 1998 and 1997, no disclosure is necessary. Reclassifications Certain prior year data has been reclassified to conform to 1998 presentation. These reclassifications had no effect on previously reported net (loss), stockholders' equity or net cash flows. 26 2. Acquisitions In August 1996, the Company acquired substantially all of the assets of the Special Commodities Division of J.B. Hunt Transport, Inc. ("Hunt"). For financial statement purposes the acquisition was accounted for as a purchase and, accordingly, Hunt's results are included in the consolidated financial statements since the date of the acquisition. The aggregate purchase price was approximately $7.4 million, which includes the costs associated with the acquisition. The purchase price was financed with $4.9 million of equipment debt on certain unencumbered assets of the Company and a $2.5 million note payable to Hunt and has been allocated to the assets of the Company based upon their respective fair market values. The components of intangible assets included in the allocation of the purchase price were goodwill of $5.3 million and a non-compete covenant of $0.2 million which are being amortized on a straight-line basis of 40 and 5 years, respectively. The Company also granted options to Hunt for the purchase of 300,000 shares of the Company's stock at $6.50 per share, with a term of five years. The options are not transferable by Hunt and are immediately exercisable. The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Hunt had occurred as of the beginning of fiscal year 1996: Proforma (Unaudited) (Dollars in thousands except per share amounts) Revenues $ 337,733 Net (loss) income $ (7,198) Basic and diluted (loss) income per share $ (1.26) The proforma consolidated results do not purport to be indicative of the results either that would have occurred had the acquisitions been in effect for the period presented or that will be obtained in the future. 3. Corporate Restructuring and Non-Recurring Expenses In June 1998, the Company recorded a pre-tax charge of $0.4 million for a separation and consulting agreement with a former officer of the Company. Furthermore, in September 1998, the Company recorded a pre-tax severance provision of $0.35 million pertaining to the reduction of certain administrative personnel. In February 1997, the Company announced an organizational restructuring to consolidate certain sales, operations, and administrative functions and reengineer business processes to reduce overhead and increase operational efficiency. During 1997, the Company recorded total charges of $3.2 million associated with the organizational restructuring. 27 4. Indebtedness and Lease Commitments Indebtedness Long-term debt includes the following (in thousands): 1998 1997 Senior subordinated notes maturing in 2000, with interest at 10.75 %. $ 86,230 95,730 Obligations collateralized by equipment maturing through 2005 with interest rates ranging from 7.1% to 8.7%. 9,659 21,275 Capital lease obligations collateralized by equipment maturing through 2005, with interest rates ranging from 6.2% to 9.8%. 59,106 37,054 Revolving credit facility maturing in 2000, with interest at the prime rate plus .25% or LIBOR plus 2.25 %, collateralized by accounts receivable. 7,295 3,495 ------------ -------- 162,290 157,554 Less current maturities 17,871 21,721 ------------ -------- $ 144,419 135,833 ============ ======== Senior Subordinated Notes The Senior Subordinated Notes ("Notes") bear interest at 10.75 % payable on June 15th and December 15th of each year through December 15, 2000. The Notes are redeemable at the option of the Company, in whole or in part, on or after December 15, 1998, at a redemption price of 105% through December 1999 and 102.5 % thereafter. Through December 31, 1998, the Company has repurchased $13.8 million of the Notes. The Notes are subordinated in right of payment to all existing and future indebtedness of the Company. The indenture contains covenants that, subject to certain exceptions and qualifications, limit the ability of the Company and its subsidiaries to incur indebtedness, pay dividends, engage in transactions with stockholders and affiliates, issue preferred stock of its subsidiaries, create liens, sell assets, engage in mergers or consolidations; and limit the ability of the subsidiaries to guarantee indebtedness of the Company. Furthermore, the indenture contains change of control provisions, which may require the Company to repurchase the Notes at an amount equal to 101% plus accrued and unpaid interest to the date of the repurchase. 28 4. Indebtedness and Lease Commitments, Continued Revolving Credit Facility On July 15, 1997, the Company refinanced its revolving credit facility ("Facility") with a $45 million credit line (the "Revolver"). The proceeds of the Revolver were used to retire the Facility loan and are available for the Company's working capital needs. The Revolver matures July 15, 2000 and contains provisions for a letter of credit subline of $15 million, bears interest at the Prime rate plus .25% or LIBOR plus 2.25%, and is collateralized by accounts receivable. The Revolver also includes covenants applicable once Availability under the Revolver falls below $8 million for 10 consecutive business days. Availability under the Revolver was approximately $ 9.0 million at December 31, 1998, net of a reduction for outstanding letters of credit of approximately $11.2 million. The scheduled maturities of long-term debt outstanding at December 31, 1998, are summarized as follows:
Residual Obligations On Senior (Dollars in Principal Equipment Subordinated thousands) Payments Debt Revolver Debt Total 1999 $ 13,857 4,014 - - 17,871 2000 11,853 3,994 7,295 86,230 109,372 2001 9,285 4,946 - - 14,231 2002 4,100 10,866 - - 14,966 2003 786 2,531 - - 3,317 Thereafter 719 1,814 - - 2,533 ----------- ------- ------- -------- --------- $ 40,600 28,165 7,295 86,230 162,290
Net interest expense and interest payments paid in cash are as follows: (Dollars in thousands) 1998 1997 1996 Net interest on debt and capital leases $ 15,316 14,810 14,948 Capitalized interest (229) (165) (444) Net interest expense 15,087 14,645 14,504 ---------- ------- ------- Interest paid in cash $ 15,307 14,739 14,480 29 4. Indebtedness and Lease Commitments, Continued Leases The Company leases certain revenue and equipment through long-term noncancellable leases. Commitments for minimum rentals under the lease agreements at the end of 1998 are as follows: Capital Operating (Dollars in thousands) Leases Leases 1999 $ 17,224 7,226 2000 15,501 1,776 2001 14,668 2002 15,887 2003 3,567 Thereafter 2,628 --------- ------- Total minimum lease payments $ 69,475 9,002 Less amount representing interest 10,369 --------- ------- Present value of net minimum lease payments, including current maturities of $13,319 $ 59,106 Property and equipment in 1998 and 1997 include the following amounts for capitalized leases: (Dollars in thousands) 1998 1997 Revenue equipment $ 71,114 57,881 Other equipment 1,336 2,040 --------- -------- 72,450 59,921 Less accumulated depreciation 20,113 19,402 --------- -------- $ 52,337 40,519 The Company acquired equipment by incurring capital lease obligations of $34.8 million in 1998 and $25.4 million in 1997. Rent expense for all operating leases were approximately $13.4 million, $15.6 million, and $15.2 million in 1998, 1997 and 1996, respectively. 30 5. Income Taxes The Company has provided for income tax (benefit) expense as follows: (Dollars in thousands) 1998 1997 1996 Current: Federal $ - - 514 State 92 49 99 92 49 613 Deferred: Federal 1,306 (2,303) (3,524) State 77 (193) (389) 1,383 (2,496) (3,913) Income tax (benefit) expense $ 1,475 (2,447) (3,300) The Company has available net operating loss carryforwards totaling approximately $43 million that expire if not used in the years 2005 to 2010. As a result of the public offering, an ownership change for federal tax purposes occurred that limits approximately $2.7 million of the net operating loss carryforwards available to offset future taxable income. The Company also has available general business tax credit carryforwards of approximately $0.5 million which will expire through 2001. Components of the net deferred income tax asset (liability) at December 31, 1998 and 1997, are as follows: (Dollars in thousands) 1998 1997 Current deferred income taxes: Accrued expenses, reserves and other $ 4,051 3,932 Prepaid expenses (150) (143) 3,901 3,789 Noncurrent deferred income taxes: Net operating loss and tax credit carryforwards 16,501 13,348 Insurance reserves, long term 2,473 3,678 Depreciation and capital leases (18,371) (18,271) Valuation allowance (4,504) (1,069) (3,901) (2,314) Net deferred tax asset (liability) $ - 1,475 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 the fourth quarter of 1998, the Company determined that a full valuation allowance against the net deferred tax asset should be recorded. The valuation allowance for deferred tax assets as of December 31, 1998 and 1997 was $4,504,000 and $1,069,000. The net change in the total valuation allowance in 1998 was an increase of $3,435,000. 31 5. Income Taxes, Continued The provision for income taxes is different than the amount computed using the applicable statutory federal income tax rate with the differences summarized below: (Dollars in thousands) 1998 1997 1996 Federal statutory income tax rate of 34% $(2,847) (2,737) (3,365) Valuation allowance adjustments 3,926 - - Nondeductible travel and entertainment 77 86 138 Fines and penalties 65 59 50 Amortization and other 111 224 134 Prior year state income tax deficiencies 92 49 - State income taxes, net of federal tax benefit 51 (128) (257) Income tax (benefit) expense $ 1,475 (2,447) (3,300) Income taxes paid in cash amounted to approximately $92,000, $49,000, and $101,000 in 1998, 1997 and 1996, respectively. 6. Stock Option Plan and Warrants The Company has a stock option plan under which the Company's officers, directors and key employees may be granted options to purchase up to 725,000 shares of Company common stock at not less than 100% of the market price on the day the option is granted. The term of the options granted to either officers or key employees or directors may not exceed 10 years and 5 years, respectively. In 1996, the Company obtained Board approval to change the exercise price of all outstanding options granted before 1996 to $6.50 per share. Stock option activity during the periods indicated are as follows: Weighted Average Exercise Number of Number of Price Per Shares Shares Share Exercisable Balance at December 31, 1995 592,400 $ 6.50 274,289 Forfeited / Expired (97,500) 6.50 Granted 65,000 6.27 Balance at December 31, 1996 559,900 6.47 334,219 Forfeited / Expired (252,900) 6.50 Granted 12,500 6.50 Balance at December 31, 1997 319,500 6.45 258,694 Forfeited / Expired (163,000) 6.50 Granted - - Balance at December 31, 1998 156,500 6.40 154,278 At December 31, 1998, the weighted-average price and remaining contractual life of total outstanding options were $6.40 and 2.3 years, respectively. Outstanding options vest ratably over a period of 3 years and totaled 154,278, 258,694, and 334,219 at December 31, 1998, 1997, and 1996, respectively. The weighted average exercise price of the vested options at December 31, 1998 was $6.42. 32 6. Stock Option Plan and Warrants, Continued The Company applied APB Opinion No. 25 in accounting for its stock options, and accordingly no compensation cost has been recognized for stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net (loss) earnings would have been adjusted to the proforma amounts indicated below: (In thousands, except per share amounts) 1998 1997 1996 Net (loss) earnings As reported $(7,445) (5,605) (6,598) Proforma (7,445) (5,801) (6,793) Basic and diluted (loss) earnings per share As reported (1.30) (.98) (1.15) Proforma $ (1.30) (1.01) (1.19) The above proforma schedule reflects options only granted from 1996 through 1998. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the proforma net (loss) earnings accounts presented above because compensation cost is reflected over the options' vesting period of 3 years, and compensation cost for options granted prior to January 1, 1995 is not considered. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1998 - expected volatility of 67%; risk free interest rate of 5.0%; expected life of 5 years; and, a no dividend yield assumption; 1997 and 1996 - expected volatility of 67%; risk free interest rate of 6.5%; expected life of 5 years; and, a no dividend yield assumption. The per share weighted-average fair value of stock options granted during 1997 and 1996 was $2.32 and $2.86, respectively. There were no options granted in 1998. In August 1996, in connection with the acquisition of Hunt, the Company granted options to Hunt for the purchase of 300,000 shares of stock at $6.50 per share with a term of five years. As of December 31, 1998, the Company has 146,398 warrants outstanding for the purchase of common stock at an exercise price of $6.50 per share that expire in September 2001. 7. 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 who have completed one year of service as of a quarterly enrollment date. 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 may also make an additional contribution to the Profit Sharing Plan each year at the discretion of the Board of Directors. The Company's 401(k) matching contributions were approximately $259,000, $256,000 and $201,000 in 1998, 1997, and 1996 respectively. 8. Commitments and Contingent Liabilities Legal Proceedings Under the Comprehensive Environmental Responses, Compensation and Liability Act ("CERCLA") and similar state laws, a transporter of hazardous substances may be liable for the costs of responding to the release or threatened release of hazardous substances from disposal sites if such transporter selected the site for disposal. Because it is the Company's practice not to select the sites where hazardous substances and wastes will be disposed, the Company does not believe it will be subject to material liability under CERCLA and similar laws. 33 8. Commitments and Contingent Liabilities, Continued Legal Proceedings, Continued Although the Company has been identified as a "potentially responsible party" (PRP) at two sites, solely because of its activities as a transporter of hazardous substances, the Company does not believe it will be subject to material liabilities at such sites. The Company is a party to certain legal proceedings incidental to its business, primarily involving claims for bodily injury or property damage arising from the transportation of freight. The Company does not believe that these legal proceedings, or any other claims or threatened claims of which it is aware, are likely to materially and adversely affect the Company's financial condition. With regard to personal injury, property damage, workers' compensation claims, and cargo claims, the Company is and has been covered by insurance. Such matters may include claims for punitive damages. It is an open question in some jurisdictions in which the Company does business as to whether or not punitive damages awards are covered by insurance. In addition to matters referred to above, the Company is a party to certain additional lawsuits, none of which is believed to involve a significant risk of materially and adversely affecting the Company's financial condition. Insurance The Company is subject to liability for the deductible portion as to policies of insurance, both past and present with regard to bodily injury and property damage. The current per occurrence deductible is $500,000, subject to satisfaction of an additional aggregate annual deductible of $750,000. The Company is a qualified workers' compensation self-insurer in the State of Missouri where most ofits drivers are domiciled, with losses in excess of $500,000 insured by an excess workers' compensation policy. In all other states statutory workers' compensation insurance is maintained with a deductible of $500,000 loss limit per occurrence to the Company. The estimated liability for insured claims was based on past loss experience, current trends, and an adjustment for abnormal claims experience related to the recent acquisitions and other factors. Standby letters of credit in the amount of $11.2 million and deposits totaling $0.8 million and $1.0 million have been furnished to insurance carriers as security for the estimated cost of self-insured claims and for premium payments as of December 31, 1998 and 1997. Financial Instruments Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash equivalents and receivables. The Company limits the amount of credit exposure to any one customer and places its temporary cash into investments of high credit quality. Concentrations of credit risk with respect to receivables are limited due to their dispersion across various customers and geographies. The estimated fair values of cash and cash equivalents, notes receivable, and accrued interest approximate their carrying amounts. The estimated fair values and carrying amounts of long-term debt borrowings were as follows (dollars in thousands): 1998 1997 Fair Value $ 119,175 149,885 Carrying amount $ 162,290 157,544 The fair value of the foregoing financial instruments were primarily determined from quoted market prices and discounted cash flows using an estimated fair market value interest/discount rate. 34 8. Commitments and Contingent Liabilities, Continued Inflation and Fuel Costs Inflation can be expected to have an impact on the Company's earnings; however, the effect of inflation has been minimal over the past three years. An extended period of inflation or increase in fuel costs would adversely affect the Company's results of operations without a corresponding freight rate increase from customers. The Company uses forward purchase commitments to reduce its exposure to fluctuations in fuel prices by entering into short-term fuel price agreements for the actual delivery of fuel. These agreements, which settle monthly, fix the price of fuel for approximately 5.6 million gallons in 1999, including approximately 2.6 million gallons relating to the first quarter of 1999. The Company recognizes an expense or benefit on these agreements in the period in which the fuel is used. Major Customers Operating revenues derived from U.S. Governmental Agencies were approximately $43.9 million, $49.7 million and $52.5 million for the years ended December 31, 1998, 1997, and 1996, respectively, which represents 15 percent, 16 percent and 17 percent of total operating revenues for 1998, 1997, and 1996, respectively. There was no other single customer that exceeded 10 percent of operating revenues during this same period. 9. Extraordinary items During 1998 the Company retired, at a discount, $9.5 million of the 10.75% senior subordinated debentures due in 2000. The transactions resulted in an extraordinary gain of $1.6 million ($.28 per share), net of income tax of $0.8 million. 10. Segment and Related Information The Company identifies operating segments based on management responsibility and marketing strategies. The Company has three reportable segments: Heavy Haul, Secured Materials and Logistics. Heavy Haul This segment consists of TSC, the Company's largest operating segment, specializing in the transportation of over-sized and over-dimensional loads throughout the United States, Canada, and Mexico. The largest markets for Heavy Haul are manufacturers of large machinery and equipment, suppliers and contractors to industrial and public construction, importers of industrial durable goods and the U.S. Government. Also, the Company entered the Super Heavy Haul market in 1997 through its strategic alliance with Econofreight Group Limited, a U.K. subsidiary of Brambles Corporation. The Super Heavy Haul market allows for the transportation of freight in excess of 160,000 pounds up to 10,000 tons. Secured Materials The Secured Materials segment is characterized by the toxic or explosive nature and special handling requirements of the cargo. The cargo typically consists of military munitions, commercial explosives, hazardous waste, and radioactive materials. The largest markets for Secured Materials are the United States government and various governmental agencies, waste generators, and environmental clean-up firms. TSMT, Diablo and CIW service customers in the munitions and explosives market and are collectively the largest transporters of Department of Defense munitions in the continental United States. TSMT and CIW operate throughout the continental United States with Diablo's market focus primarily in the western regions of the United States. Trism Environmental Services ("TES"), a division of TSMT, provides service to customers in the hazardous waste and radioactive materials market and is the largest transporter of hazardous waste materials in the United States. TES operates throughout the United States, but its primary market focus is east of the Mississippi. The operating companies within the Secured Materials group have operating authority in the entire continental United States and certain provinces of Canada. In addition, the group maintains trailer interchange agreements with certain Mexican carriers. 35 10. Segment and Related Information, Continued Logistics The Logistics segment specializes in the management of freight by truck (particularly in the hazardous waste market). TLI's client base includes engineering and construction companies, suppliers to the European Community, Fortune 500 companies and major utility companies. In September of 1998, TLI began operations to provide logistics services to the rail industry through its intermodal division. The accounting policies of the operating segments are the same as those described in Note 1 of the Notes to the Company's Consolidated Financial Statements. Intersegment revenues primarily consist of loads brokered from the Heavy Haul segment to the Secured Materials segment. Such services are priced at approximately the same basis as services to external customers. Certain administrative and other costs are allocated among the segments utilizing various allocation factors that include revenues, number of loads and tractors, and other estimates. The Company evaluates the performance of its operating segments based on income before income taxes, non-operating items and interest income and expense. A summary of segment information is presented below (in thousands): Operating Revenue 1998 1997 1996 Heavy Haul $ 203,172 208,479 214,715 Secured Materials 92,113 104,893 97,930 Logistics 7,178 11,564 6,090 ------------ --------- --------- Sub-total: 302,463 324,936 318,735 Intersegment eliminations (10,832) (15,056) (8,702) ------------ --------- --------- Consolidated $ 291,631 309,880 310,033 ============ ========= ========= Operating Income 1998 1997 1996 Heavy Haul $ 6,254 4,762 6,135 Secured Materials 458 5,027 3,199 Logistics 314 353 (190) ------------ --------- --------- Sub-total: 7,026 10,142 9,144 Restructuring charge (752) (3,227) - Write-down of goodwill - - (4,062) ------------ --------- --------- Consolidated $ 6,274 6,915 5,082 ============ ========= ========= Interest expense, net (13,944) (14,187) (14,216) Other expense, net (704) (780) (764) ------------ --------- --------- Loss before income taxes and extraordinary item $ (8,374) (8,052) (9,898) ============ ========= ========= Total Long-term Assets 1998 1997 1996 Heavy Haul $ 88,209 74,618 73,299 Secured Materials 48,666 55,208 60,476 Logistics 371 387 374 ------------ --------- --------- Sub-total: 137,246 130,213 134,149 Other (includes corporate) 12,357 13,404 11,889 ------------ --------- --------- Consolidated $ 149,603 143,617 146,038 ============ ========= ========= Depreciation and Amortization 1998 1997 1996 Heavy Haul $ 11,449 11,155 11,935 Secured Materials 6,055 6,149 6,025 Logistics 16 11 10 ------------ --------- --------- Sub-total: 17,520 17,315 17,970 Other (includes corporate) 1,996 1,580 1,598 ------------ --------- --------- Consolidated $ 19,516 18,895 19,568 ============ ========= ========= 36 Report of Independent Accountants To the Board of Directors and Stockholders of TRISM, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14 (a) (1) present fairly, in all material respects, the financial position of TRISM, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14 (a) (2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management: our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia February 5, 1999 37 Supplementary Data - Quarterly financial data (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter (In thousands, except per share amounts) 1998: Revenues $ 72,129 77,193 75,170 67,139 Operating income (loss) 736 4,066 1,619 (147) Income (loss) before extraordinary item (1,947) 205 (1,330) (5,936) Net income (loss) (1,947) 205 233 (5,936) Earnings (loss) per share before extraordinary item (.34) .04 (.24) (1.04) Earnings (loss) per share (.34) .04 .04 (1.04) Number of shares used in computation of earnings (loss) per common share 5,737 5,714 5,702 5,702 1997: Revenues $ 77,733 81,340 78,472 72,335 Operating income (loss) (1,052) 5,118 3,672 (823) Net income (loss) (3,406) 897 146 (3,242) Earnings (loss) per share (.59) .16 .03 (.58) Number of shares used in computation of earnings (loss) per common share 5,737 5,737 5,737 5,737 1996: Revenues $ 73,040 79,228 80,166 77,599 Operating income 250 3,573 4,857 (3,598) Net income (loss) (2,198) 507 614 (5,521) Earnings (loss) per share (.38) .09 .11 (.97) Number of shares used in computation of earnings (loss) per common share 5,734 5,734 5,734 5,738
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE 38 PART III ITEM 10. Directors and Executive Officers of the Registrant A definitive proxy statement of TRISM, Inc. will be filed not later than 120 days after the end of the fiscal year with the Securities and Exchange Commission. The information regarding directors will be included in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference. The information with respect to the executive officers of the Company required by this item will be included in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. Executive Compensation The information required by this item will be included in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item will be included in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions The information required by this item will be included in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by reference. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The consolidated balance sheets as of December 31, 1998 and 1997 and the related consolidated statements of operations, changes in stockholders' equity, cash flows and financial statement schedule for each of the three years in the period ended December 31, 1998 are filed as part of this report: (1) Financial Statements *** Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Accountants ***The financial statements of each of the Company's subsidiaries are omitted because all of the Company's subsidiaries guarantee the Company's outstanding 10 3/4% Senior Subordinated Notes due 2000 on a full, unconditional, and joint and several basis. (2) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other schedules for the Company are omitted because they are not required or not applicable. The required information is included in the financial statements or notes thereto. 39 ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, Continued Exhibit Index The following exhibits are filed as part of this report. Exhibit Number Description * 3.1 Certificate of Incorporation, as amended through January 21, 1993, of TRISM, Inc. * 3.2 By-laws of TRISM, Inc. * 4.1 Form of Indenture * 4.2 Specimen Certificate for the Common Stock, par value $.01 per share, of TRISM, Inc. 10.4 Amendment to the revolving line of credit facility with CIT. 21.1 Subsidiaries 27 Financial Data Schedule * Exhibit is incorporated by reference to the Company's Registration Statement on Form S-1, Registration No. 33- 71222, initially filed with the Securities and Exchange Commission on November 4, 1993, as amended. Reports on Form 8-K During the fourth quarter of 1998, there were no reports filed on Form 8-K. 40 S I G N A T U R E S Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRISM, INC. s/Edward L. McCormick Edward L. McCormick Director, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 13, 1999 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title s/ Edward L. McCormick Director, President and Chief Edward L. McCormick Executive Officer s/E. Virgil Conway Director, Chairman of the Board E. Virgil Conway s/Julian H. Gingold Director Julian H. Gingold s/James F. Higgins Director James F. Higgins s/William M. Legg Director William M. Legg s/James G. Overley Senior Vice President of Finance and Treasurer James G. Overley (Chief Financial Officer) s/John L. Ray Director John L. Ray 41 SCHEDULE II TRISM, INC. VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS -------------------------- (1) (2) CHARGED BALANCE AT CHARGED TO TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 1998: Allowance for doubtful accounts $ 2,069,718 879,055 - 1,885,315 (A) 1,063,458 1997: Allowance for doubtful accounts $ 2,396,621 1,387,975 - 1,714,878 (A) 2,069,718 1996: Allowance for doubtful accounts $ 1,584,386 1,573,500 - 761,265 (A) 2,396,621 (A) Represents net write-offs of uncollectible accounts.
42 EX-21.1 2 Exhibit 21.1 TRISM, INC. Subsidiaries of TRISM, Inc. Trism Secured Transportation, Inc. Delaware Tri-State Motor Transit Co. Delaware Aero Body and Truck Equipment Company, Inc., Delaware Tri-State Transportation Service, Inc. Missouri Diablo Systems Incorporated d/b/a/ Diablo Transportation, Inc. California Emerald Leasing, Inc. Nevada McGil Special Services, Inc. Delaware Trism Eastern, Inc. d/b/a/ C.I. Whitten Transfer Delaware Trism Heavy Haul, Inc. Delaware Trism Specialized Carriers, Inc. Georgia Trism Special Services, Inc. Georgia E.L. Powell & Sons Trucking Co., Inc. Oklahoma Trism Transport, Inc. Delaware Trism Transport Services, Inc. Utah EFB, Inc. Delaware TRISM Logistics, Inc. New Jersey Trism Equipment, Inc. Delaware TRISM Maintenance Services, Inc. Delaware Transportation Recovery Systems, Inc. Delaware 43 EX-10.4 3 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is made and entered into as of February 23, 1999, by and among TRISM, INC. and certain of its subsidiaries (collectively referred to herein as the "Borrowers"), the lenders a party to the agreement from time to time (collectively referred to herein as the "Lenders"), and THE CIT GROUP/BUSINESS CREDIT, INC., in both its capacity as the Agent and a Lender ("CIT"). For the purpose of conforming the same to the intention of the parties and for other value received, it is hereby agreed that certain Loan and Security Agreement, dated July 14, 1997 (the "Agreement"), between Borrowers, Lenders and CIT, as the same has been amended from time to time, shall be amended and modified in the following particulars: 1. Capitalized terms, as used herein, shall have the meaning set forth in the Agreement, unless the context otherwise requires. 2. Section 1.1 of the Agreement is hereby amended as follows: 1. The following new definition of "Amendment No. 3" is hereby added in the correct alphabetical order thereto: "Amendment No. 3" shall mean and refer to that certain Third to Loan and Security Agreement, dated February 23, 1999, among Lenders, Agent and Borrowers. 2. The definition of "Collateral" is hereby amended to include the new subsection and paranthetical "(d1) the Vehicles," after subsection (d) thereof and before subsection (e) thereof. 3. The definition of "Collateral" is hereby further amended by deleting from the parenthetical contained in subsection (e) thereof the word "trailers". 4. The definition of "Loans" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Loan(s)" means any Revolving Credit Loan or the Term Loan, as well as such loans collectively, as the context requires. 5. The definition of "Note" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Note" means either of a Revolving Credit Note or a Term Note, individually, and "Notes" mean all such Notes, collectively. 6. The definition of "Security Documents" is hereby amended by adding the following new subsection (g) to the end thereof: "and (g) the certificates of titles for the Vehicles, with the first-priority lien of Agent properly noted thereon." 7. The following new definitions of "Term Loan", "Term Loan Facility", and "Term Note(s)" are hereby added in the correct alphabetical order thereto: "Term Loan" means the term loan made to Borrowers by Lenders pursuant to Article 2A hereof in an amount not to exceed the Term Loan Facility. "Term Loan Facility" means an amount equal to $2,750,000.00. "Term Note(s)" means the Term Notes made by Borrowers to the order of each Lender evidencing the Borrowers' joint and several obligation to pay the aggregate unpaid principal amount, together with any accrued but unpaid interest and charges thereon, of the Term Loan made to them by Lenders. 8. The definition of "Total Facilities" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Total Facilities" means the aggregate of the Revolving Credit Facility and the Term Loan Facility. 9. The following new definition of "Treasury Rate" is added in the correct alphabetical order thereto: "Treasury Rate" means a fixed rate of interest determined as of the date of the Term Loan equal to the yield on a United States Treasury obligation of a constant maturity rate maturing closest in time but prior to the date which is three (3) years following the date of the Term Loan. 10. The following new definition of "Vehicles" is added in the correct alphabetical order thereto: 2 "Vehicles" mean the trailers and other vehicles listed on Exhibit B to Amendment No. 3. 3. The Agreement is hereby amended by adding the following new Article 2A thereto following the end of Article 2 thereof: Article 2A Term Loan Facility Section 2A.1 Term Loan. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, each Lender agrees, severally, but not jointly, to make a Term Loan to the Borrowers, in an amount equal to such Lender's Commitment Percentage of the Term Loan Facility. Section 2A.2 Manner of Borrower and Disbursing Term Loan. Upon satisfaction of the applicable conditions set forth in Amendment No. 3, each Lender shall make such Lender's Commitment Percentage of the Term Loan Facility available to the Borrowers on the day of Amendment No. 3 in same day funds in accordance with the instructions set forth in the letter from the Borrowers to the Agent referred to in Amendment No. 3. Borrowers shall use the proceeds of the Term Loan as working capital in the ordinary course of their business. Section 2A.3 Repayment of Term Loan. The outstanding principal balance of the Term Loan shall be due and payable in (i) fifty-nine (59) consecutive monthly installments, each in an amount equal to $45,833.33, commencing on the first (1st) day of the first (1st) month following the date of the Term Notes and continuing on the first (1st) day of each and every Fiscal Month thereafter through and including January 1, 2004, and (ii) one (1) final installment in an amount equal to the total remaining outstanding principal balance of the Term Loan, together with all accrued but unpaid interest and charges thereon, which installment shall be due and payable on February 1, 2004. Any portion of the Term Loan repaid may not be reborrowed. Prior to an Event of Default, interest shall accrue on the Term Loan at a fixed rate equal to the Treasury Rate plus three and one-quarter percent (3.25%) per annum. Following an Event of Default, interest shall accrue on the Term Loan at a rate equal to then applicable rate under this Section 2A.3 plus the Default Margin. Section 2A.4 Term Note. The Term Loan and the joint and several obligation of the Borrowers to repay such Loan shall be evidenced by Term Notes payable to the order of each Lender. Such Notes shall be 3 dated the date of Amendment No. 3 and shall be duly and validly executed and delivered by the Borrowers. Section 2A.5 Prepayment. In the event this Agreement is terminated by Agent or any Borrower either (i) pursuant to the terms hereof or (ii) upon the occurrence of an Event of Default hereunder, the Term Loan shall become due and payable in full on the effective date of such termination, notwithstanding any provision to the contrary in the Term Note or this Agreement. Section 2A.6. Mandatory Prepayment. In the event (i) the amount of the aggregate orderly liquidation value of the Vehicles (as determined by an appraisal received by Agent pursuant to the terms of Section 8.15 hereof) is at any time less than fifty-five percent (55%) of the outstanding principal balance of the Term Loan and (ii) Agent makes demand therefor, Borrowers hereby agree to make a mandatory prepayment to Lenders in an amount equal to the difference between fifty-five percent (55%) of the outstanding principal balance of the Term Loan and such aggregate orderly liquidation value of the Vehicles. 4. Section 8.11 of the Agreement is hereby amended by adding the following new subsection (e) thereto following the end of subsection (d) thereof: (e) Vehicles. Borrowers shall deliver to Agent not later than five (5) Business Days after the last Business Day of each Fiscal Month, a report indicating the exact location of each and every Vehicle located outside of the continental United States as of the last day of such Fiscal Month. Such reports shall be provided more frequently by Borrowers to Agent upon the request of Agent. 5. Article 8 of the Agreement is hereby amended by adding the following new Section 8.14 thereto: Section 8.14. Covenants Regarding Vehicles. Borrowers shall maintain the Vehicles in good order and repair, except for ordinary wear and tear in the ordinary course of business. In addition, Borrowers shall maintain insurance on the Vehicles, in such amounts and with such companies as may be acceptable to Agent, and shall maintain Agent, on behalf of the Lenders, as loss-payee on all such insurance. In the event a loss related to a Vehicle or Vehicles occurs, all proceeds of insurance shall promptly be paid to Agent, for the ratable benefit of Lenders and such sums shall be applied to reduce the principal balance of the Term Loan. 4 Borrowers agree not to sell, lease or otherwise dispose of any Vehicle or Vehicles without the prior written consent of Agent. 6. Article 8 of the Agreement is hereby further amended by adding the following new Section 8.15 thereto: SECTION 8.15. Appraisals of Vehicles. Borrowers hereby agree that Agent may, at Borrowers' cost and expense, undertake or have undertaken (whether in-house or through an appraiser satisfactory to Agent in its sole discretion) an appraisal of the Vehicles, which appraisal shall be in form and substance satisfactory to Agent in its sole discretion. Such appraisals shall be conducted at least once every six (6) calendar months and more frequently if Agent so requests. 7. As the contract requires and in all Loan Documents, the terms "Revolving Credit Loans" and "Revolving Credit Facility" shall be deemed to mean and include the Term Loan and Term Loan Facility. 8. Conditions Precedent. The effectiveness of this Amendment is subject to the following conditions precedent: (a) Delivery of Documents. Borrowers shall have delivered to Agent, on behalf of Lenders, (i) executed counterpart originals of this Amendment, (ii) executed originals of the Term Notes, substantially in the form attached hereto as Exhibit A, (iii) an Acknowledgment and Consent of each Guarantor, in form and substance satisfactory to Agent, in its sole discretion, (iv) the certificate of title for each Vehicle with the first priority lien of Agent properly noted thereon, and (v) such other documentation as Agent may reasonably require in connection herewith, including without limitation, (A) Officer's and Secretary's Certificates for each Borrower, in form and substance satisfactory to Agent in its sole discretion, (B) an opinion of Borrower's counsel related to the perfection of Agent's lien in and to each Vehicle, (C) Certificates of Insurance listing Agent as loss-payee on insurance (which insurance shall be in amounts and issued by companies acceptable to Agent) covering the Vehicles, and (D) good standing certificates for Borrower in each jurisdiction requested by Agent. (b) Accuracy of Representations and Warranties. All of the representations and warranties made or deemed to be made in this Amendment and under the Loan Documents shall be true and correct as of the date of this Amendment. 5 9. From and after the date hereof, the Agreement shall be deemed to mean the Agreement, as amended hereby. 10. Each Borrower hereby reaffirms each of the agreements, covenants, and undertakings set forth in the Agreement and each and every other agreement, instrument and document executed in connection therewith or pursuant thereto as if such Borrower were making said agreements, covenants and undertakings on the date hereof. 11. This Amendment represents a modification only and is not, and should not be construed as, a novation. 12. Except as hereinabove set forth, the Agreement shall remain otherwise unmodified and in full force and effect, and all other documents, instruments and agreements executed in connection therewith or pursuant thereto shall remain in full force and effect. 6 IN WITNESS WHEREOF, the parties hereto have executed this Amendment under hand and seal as of the date first above written. BORROWERS: TRISM, INC. By:______________________________________ Title:__________________________________ TRISM SECURED TRANSPORTATION, INC. By:_____________________________________ Title:__________________________________ TRI-STATE MOTOR TRANSIT CO. By:_____________________________________ Title:__________________________________ AERO BODY AND TRUCK EQUIPMENT, INC. By:_____________________________________ Title:__________________________________ 7 TRI-STATE TRANSPORTATION SERVICES, INC. By:_____________________________________ Title:__________________________________ DIABLO SYSTEMS INCORPORATED d/b/a DIABLO TRANSPORTATION, INC. By:_____________________________________ Title:__________________________________ EMERALD LEASING, INC. By:_____________________________________ Title:__________________________________ McGIL SPECIAL SERVICES, INC. By:_____________________________________ Title:__________________________________ TRISM EASTERN, INC. d/b/a C.I. WHITTEN TRANSFER By:_____________________________________ Title:__________________________________ 8 TRISM HEAVY HAUL, INC. By:_____________________________________ Title:__________________________________ TRISM SPECIALIZED CARRIERS, INC. By:_____________________________________ Title:__________________________________ TRISM SPECIAL SERVICES, INC. By:_____________________________________ Title:__________________________________ E.L. POWELL & SONS TRUCKING CO., INC. By:_____________________________________ Title:__________________________________ TRISM TRANSPORT, INC. By:_____________________________________ Title:__________________________________ 9 TRISM TRANSPORT SERVICES, INC. By:_____________________________________ Title:__________________________________ TRISM LOGISTICS, INC. By:_____________________________________ Title:__________________________________ 10 LENDERS: Commitment Percentage: 44.44% THE CIT GROUP/BUSINESS CREDIT, INC. By:_____________________________________ Title:__________________________________ Commitment Percentage: 33.33% FLEET CAPITAL CORPORATION By:_____________________________________ Title:__________________________________ Commitment Percentage: 22.22% FINOVA CAPITAL CORPORATION By:_____________________________________ Title:__________________________________ AGENT: THE CIT GROUP/BUSINESS CREDIT, INC. By:_____________________________________ Title:__________________________________ 11 EXHIBIT A FORM OF TERM NOTE $_______________ [totalling $2,750,000.00] February 23, 1999 FOR VALUE RECEIVED, the undersigned, TRISM, INC., a Delaware corporation, TRISM SECURED TRANSPORTATION, INC., a Delaware corporation, TRI-STATE MOTOR TRANSIT CO., a Delaware corporation, AERO BODY AND TRUCK EQUIPMENT COMPANY, INC., a Delaware corporation, TRI- STATE TRANSPORTATION SERVICES, INC., a Missouri corporation, DIABLO SYSTEMS INCORPORATED, INC., a California corporation, EMERALD LEASING, INC., a Nevada corporation, McGIL SPECIAL SERVICES, INC., a Delaware corporation, TRISM EASTERN, INC. d/b/a C.I. WHITTEN TRANSFER, a Delaware corporation, TRISM HEAVY HAUL, INC., a Delaware corporation, TRISM SPECIALIZED CARRIERS, INC., a Georgia corporation, TRISM SPECIAL SERVICES, INC., a Georgia corporation, E.L. POWELL & SONS TRUCKING CO., INC., an Oklahoma corporation, TRISM TRANSPORT, INC., a Delaware corporation, TRISM TRANSPORT SERVICES, INC., a Utah corporation, and TRISM LOGISTICS, INC., a New Jersey corporation (each of the foregoing herein a "Borrower" and collectively the "Borrowers"), HEREBY JOINTLY AND SEVERALLY PROMISE TO PAY to the order of _____________________, a ________________________ corporation ("Lender"), or its assigns at Lender's offices in Atlanta, Georgia, or at such other place as the holder of this Term Note (the "Term Note") may designate from time to time in writing, in lawful money funds, the amount of ______________________________ ($___________________). All capitalized terms, unless otherwise define herein, shall have the respective meanings assigned to such terms in the Loan Agreement (as defined below). This Term Note is issued pursuant to that certain Loan and Security Agreement, dated July 14, 1997, among Borrower, the financial institutions party thereto from time to time and Lender, as agent and lender thereunder (as the same has been amended from time to time, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Documents provided for therein, to which Loan Agreement reference is hereby made for a statement of all of the terms and conditions under which the loan evidenced hereby is made. Borrowers, jointly and severally, promise to pay the principal amount of the indebtedness evidenced hereby, together with all accrued but unpaid interest and charges thereon, on the dates specified in the Loan Agreement. Borrowers, jointly and severally, promise to pay interest from the date hereof until such principal amount is paid in full at such interest rates and at such times as are specified in the Loan Agreement. If any payment of this Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of an Event of Default, this Term Note may, as provided in the Loan Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrowers. No delay or failure on the part of Lender in the exercise of any right or remedy hereunder, under the Loan Agreement or any other Loan Document or at law or in equity, shall operate as a waiver thereof, and no single or partial exercise by Lender of any right or remedy hereunder, under the Loan Agreement or any other Loan Document or at law or in equity shall preclude or estop another or further exercise thereof or the exercise of any other right or remedy. Time is of the essence of this Term Note and, in case this Term Note is collected by law or through an attorney at law, or under advice therefrom, Borrowers agree to pay all costs of collection, including reasonable attorneys' fees if collected by or through an attorney. THIS TERM NOTE HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT ATLANTA, GEORGIA AND SHALL BE INTERPRETED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF GEORGIA. BORROWERS: TRISM, INC. By:_____________________________________ Title:__________________________________ TRISM SECURED TRANSPORTATION, INC. By:_____________________________________ Title:__________________________________ 2 TRI-STATE MOTOR TRANSIT CO. By:_____________________________________ Title:__________________________________ AERO BODY AND TRUCK EQUIPMENT, INC. By:_____________________________________ Title:__________________________________ TRI-STATE TRANSPORTATION SERVICES, INC. By:_____________________________________ Title:__________________________________ DIABLO SYSTEMS INCORPORATED d/b/a DIABLO TRANSPORTATION, INC. By:_____________________________________ Title:__________________________________ EMERALD LEASING, INC. By:_____________________________________ Title:__________________________________ McGIL SPECIAL SERVICES, INC. By:_____________________________________ Title:__________________________________ 3 TRISM EASTERN, INC. d/b/a C.I. WHITTEN TRANSFER By:_____________________________________ Title:__________________________________ TRISM HEAVY HAUL, INC. By:_____________________________________ Title:__________________________________ TRISM SPECIALIZED CARRIERS, INC. By:_____________________________________ Title:__________________________________ TRISM SPECIAL SERVICES, INC. By:_____________________________________ Title:__________________________________ E.L. POWELL & SONS TRUCKING CO., INC. By:_____________________________________ Title:__________________________________ TRISM TRANSPORT, INC. By:_____________________________________ Title:__________________________________ 4 TRISM TRANSPORT SERVICES, INC. By:_____________________________________ Title:__________________________________ TRISM LOGISTICS, INC. By:_____________________________________ Title:__________________________________ 5 EXHIBIT B LIST OF VEHICLES See Attached. ACKNOWLEDGMENT AND CONSENT Each of the undersigned hereby acknowledges and consents to the foregoing Third Amendment to Loan and Security Agreement. IN WITNESS WHEREOF, each of the undersigned has executed this Acknowledgment and Consent under seal as of this _____ day of February, 1999. GUARANTORS: TRISM MAINTENANCE SERVICES, INC. By:______________________________________ Title:___________________________________ EFB, INC. By:______________________________________ Title:___________________________________ TRANSPORTATION RECOVERY SYSTEMS, INC. By:_____________________________________ Title:__________________________________ TRISM EQUIPMENT, INC. By:_____________________________________ Title:__________________________________ TRISM BENEFITS, INC. By:_____________________________________ Title:__________________________________ EX-27 4
5 1,000 YEAR DEC-31-1998 DEC-31-1998 2,029 0 37,388 1,063 1,389 64,349 193,953 64,775 213,952 43,131 86,230 0 0 59 15,740 213,952 291,631 291,631 285,357 285,357 704 0 13,944 (8,374) 634 (9,008) 0 1,563 0 (7,445) (1.30) (1.30)
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