Page 1 of 13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10105
MATLACK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0310173
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Rollins Plaza, Wilmington, Delaware 19803
(Address of principal executive offices)
(Zip Code)
(302) 426-2700
(Registrant's telephone number, including area code)
(Former name of registrant)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No _____
The number of shares of the registrant's common stock outstanding
as of December 31, 2000 was 8,814,434.
FORM 10-Q Page 2 of 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
In Thousands, Except Per Share Amounts
Unaudited
Quarter Ended
December 31,
2000 1999
Revenues $ 39,251 $ 49,731
Expenses
Operating 36,977 43,022
Depreciation and amortization 2,076 2,074
Selling and administrative 5,188 4,680
Other income, net (58) (69)
44,183 49,707
Operating (loss) earnings (4,932) 24
Interest expense 1,505 1,309
Loss from continuing operations before
income tax benefit (6,437) (1,285)
Income tax benefit - (441)
Loss from continuing operations (6,437) (844)
Earnings from discontinued operation 4 453
Net loss $ (6,433) $ (391)
Basic and diluted loss per share
from continuing operations $ (.73) $ (.09)
Basic and diluted earnings per share
from discontinued operation $ - $ .05
Basic and diluted net loss per share $ (.73) $ (.04)
Basic and diluted average
common shares outstanding 8,814 8,814
Dividends paid per share None None
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 3 of 13
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
Unaudited
December 31, September 30,
ASSETS 2000 2000
Current assets
Cash $ 3,672 $ 4,060
Accounts receivable, net of allowance for
doubtful accounts: December-$5,935;
September-$5,805 19,999 24,328
Inventories 3,948 4,035
Other current assets 1,699 1,658
Refundable income taxes 83 86
Net realizable value of discontinued
operation 399 12,388
Total current assets 29,800 46,555
Property and equipment, at cost, net
of accumulated depreciation:
December-$114,278; September-$113,953 52,179 53,900
Property held for sale 3,355 3,355
Other assets 1,525 1,527
Total assets $ 86,859 $105,337
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 12,581 $ 11,600
Accrued liabilities 18,841 19,515
Current maturities of long-term debt 46,871 56,972
Total current liabilities 78,293 88,087
Long-term debt - 2,303
Self-insurance reserves 5,390 5,390
Environmental reserves 6,305 6,253
Other liabilities 696 696
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity (deficit):
Common stock, $1 par value, 24,000,000
shares authorized; issued and outstanding:
December-8,814,434 and
September-8,814,434 8,814 8,814
Capital in excess of par value 10,620 10,620
Accumulated deficit (23,259) (16,826)
Total shareholders' equity (deficit) (3,825) 2,608
Total liabilities and shareholders'
equity (deficit) $ 86,859 $105,337
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
FORM 10-Q Page 4 of 13
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
Unaudited
Quarter Ended
December 31,
2000 1999
Cash flows from operating activities:
Net loss $ (6,433) $ (391)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,076 2,561
Provision for bad debts 141 194
Net gain on sale of property and equipment (55) (120)
Changes in assets and liabilities:
Accounts receivable 4,834 (5,793)
Inventories and other assets (34) (556)
Accounts payable and accrued liabilities 359 (7,663)
Current and deferred income taxes 3 (143)
Other, net - 677
Net cash provided by (used in) operating
activities 891 (11,234)
Cash flows from investing activities:
Purchase of property and equipment (596) (1,946)
Proceeds from the sale of property and
equipment 396 3,736
Proceeds from disposition of leasing
segment assets, net 11,325 -
Net cash provided by investing activities 11,125 1,790
Cash flows from financing activities:
Proceeds of long-term debt - 18,900
Repayment of long-term debt (12,404) (11,658)
Net cash (used in) provided by financing
activities (12,404) 7,242
Net decrease in cash (388) (2,202)
Cash at beginning of period 4,060 2,837
Cash at end of period $ 3,672 $ 635
Supplemental and noncash information:
Interest paid $ 1,476 $ 1,312
Income taxes recovered $ (3) $ -
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 5 of 13
MATLACK SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter ended December 31,
2000 are not necessarily indicative of the results that may be expected
for the year ended September 30, 2001. These statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000.
In November 2000, the Company sold substantially all of the assets of
its leasing business segment (see Note "Discontinued Operation").
Accordingly, the results of operations of the leasing segment have been
reported as a discontinued operation and previously reported financial
statements have been restated.
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Accordingly, the financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result should the Company be unable to continue as
a going concern. There are a number of factors and conditions that
raise substantial doubt about the Company's ability to continue as a
going concern for a reasonable period of time, including:
- The Company continues to incur net losses and declining revenues.
- At December 31, 2000 the Company had an accumulated deficit of
$23,259,000.
- At December 31, 2000 there was a working capital deficit of
$48,493,000 primarily due to the classification of all outstanding
debt as current
- By letter dated March 28, 2001 the banks declared an event of
default and accelerated the amount due under the Company's existing
revolving credit agreement.
- The group of banks sponsoring the existing revolving credit
agreement has not committed to and may not provide additional long-
term financing.
- The Company expects minimal cash flows from operations to continue
into the immediate future and may require additional sources of
funding to continue operations if cash flows are negative.
- The Company has not had any success to date with respect to
securing alternative funding from other banks or financial
institutions.
FORM 10-Q Page 6 of 13
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. The filings have been
consolidated for the purpose of joint administration as Case No. 01-
1114 (MFW). The Company is continuing to operate its business as
debtor-in-possession.
On March 30, 2001, a stipulation and interim order permitting the
Company to use cash collateral until April 25, 2001 was entered into by
the Company and its bank lenders. Accordingly, the Company and the bank
lenders are negotiating concerning a debtor-in-possession financing
agreement.
The Company's ability to continue as a going concern is primarily
dependent upon, among other things:
- Securing and maintaining a debtor-in-possession financing
agreement, including compliance with the terms and restrictions of
such an agreement while a plan of reorganization is developed.
- Confirmation of a plan of reorganization under the Bankruptcy Code.
- Achieving profitable operations after such a confirmation.
- Securing an alternative form or source of financing on a long-term
basis.
- Generating sufficient cash from operations to meet the Company's
obligations.
The Company is continuing its efforts to dispose of non-core assets and
streamline operations commensurate with projected levels of demand.
Where appropriate, this includes, among other things, the termination
of employees and the cancellation of, or election not to renew,
existing contracts for services and materials.
In the event that the Company is unable to secure adequate debtor-in-
possession financing or obtain confirmation of a plan of reorganization
under the Bankruptcy Code, it is likely that the Company will be forced
to proceed with a liquidation. No adjustments have been made to reflect
the December 31, 2000 consolidated financial statements on the
liquidation basis of accounting.
Earnings Per Share
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted average
shares used in computing basic and diluted earnings per share (EPS) are
as follows (in thousands):
Three Months Ended
December 31,
2000 1999
Basic EPS 8,814 8,814
Effect of options - (1) - (1)
Diluted EPS 8,814 8,814
(1) The effect of options was not considered as it would have been
anti-dilutive.
FORM 10-Q Page 7 of 13
No adjustments to net earnings available to common stockholders were
required during the periods presented.
Discontinued Operation
In November 2000, Matlack Leasing Corporation sold substantially all of
its assets for $12,000,000. These assets consisted principally of
International Standards Organization (ISO) tank containers, tank
trailers, customer leases and a container lease management agreement.
As a result of this transaction, the leasing segment has been reported
as a discontinued operation and previously reported financial
statements have been restated.
The statement of operations for the quarter ended December 31, 2000
reflects the results of the leasing segment as a discontinued operation
through the date of the sale on November 22, 2000. The balance sheet
for the quarter ended December 31, 2000 includes as "Net realizable
value of discontinued operation" accounts receivable not sold in
connection with the disposition of the segment and proceeds due to the
Company that are being held in escrow pending the settlement of certain
matters addressed in the sales agreement. Summarized financial
information for the discontinued operation is as follows:
Quarter Ended December 31,
2000 (a) 1999
Revenues $ 448 $ 2,159
Operating earnings 47 858
Interest expense 40 108
Income taxes 3 297
Earnings from discontinued operation $ 4 $ 453
(a) Represents activity through the date of sale on November 22, 2000.
As of As of
December 31, September 30,
2000 2000
Current assets $ 399 $ 1,382
Property and equipment - 10,978
Other assets - 28
Net realizable value of discontinued
operation $ 399 $12,388
FORM 10-Q Page 8 of 13
Long-Term Debt
The Company maintains a revolving credit agreement ("Agreement") with
a group of banks of which $44,113,000 was outstanding at December 31,
2000. The borrowing limit under the Agreement has been limited to the
amount outstanding since it was amended on October 9, 2000. The
Agreement is secured by substantially all unpledged equipment, all
accounts receivable and certain real estate. Interest rates on
borrowings under the Agreement were 10.5% at December 31, 2000.
Since the October 9, 2000 amendment, there have been several events of
default, as defined in the Agreement, including the violation of
several financial covenants. When the Agreement expired on February 15,
2001, the banks did not exercise their right to call the entire
outstanding balance and discussions began for the negotiation of
another amendment and forbearance agreement.
On March 8, 2001, the Company and the banks signed a forbearance and
fifth amendment to the Agreement. As a provision of this amendment,
the banks agreed to forbear from exercising their rights and remedies
available as a result of the existing events of default discussed
above. In addition, the term of the Agreement was extended to April 2,
2001 with interest accruing on all principal amounts outstanding at the
default rate, which is defined as 2% above the rate then applicable to
each loan or portion thereof.
By letter dated March 28,2001, the banks declared an event of default
and accelerated the amounts due the banks under the Agreement at which
time approximately $43,596,000 in principal was outstanding in addition
to $7,000,000 in undrawn letters of credit. These obligations were
included as pre-petition liabilities in connection with the bankruptcy
filings.
The Company is currently negotiating a debtor-in-possession credit
facility with its bank lenders in order to provide a minimum level of
interim financing to maintain operations while the development of a
plan of reorganization and related bankruptcy proceedings progress.
In addition to the Agreement, the Company had $2,758,000 of other
financing obligations outstanding at December 31, 2000. The interest
rates on these obligations range from 7.65% to 8.13%.
Amounts outstanding under the Agreement as well as all other financing
obligations have been classified as current on the Consolidated Balance
Sheet as of December 31, 2000.
Income Tax Valuation Allowance
Management has deemed it necessary to provide a 100% valuation
allowance against the Company's net deferred tax asset due to the high
level of uncertainty surrounding the future realization of tax benefits
from the Company's continuing net operating losses and other deferred
tax assets. Accordingly, the Consolidated Statement of Operations
reflects no income tax benefit for the quarter ended December 31, 2000.
FORM 10-Q Page 9 of 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. The filings have been
consolidated for the purpose of joint administration as Case No. 01-
1114 (MFW). The Company is continuing to operate its business as
debtor-in-possession.
On March 30, 2001, a stipulation and interim order permitting the
Company to use cash collateral until April 25, 2001 was entered into by
the Company and its bank lenders. Accordingly, the Company and the bank
lenders are negotiating concerning a debtor-in-possession financing
agreement.
Despite a net loss of $6,433,000, including $2,076,000 of depreciation
and amortization, the Company's operations provided $891,000 of
positive cash flow. Efforts to reduce costs and extend the payables
cycle resulted in a significant conservation of cash. In addition,
aggressive efforts to collect accounts receivables had a substantial
impact and represented an improvement over the prior year and previous
quarters.
In November 2000, the Company sold substantially all of the assets of
its leasing business for $12,000,000. Approximately $10,872,000 of the
total proceeds was remitted directly to the banks providing the
Company's revolving credit agreement and other financing sources in
connection with a mandatory prepayment provision in the revolving
credit agreement as amended on October 9, 2000. The remaining proceeds
and the net cash provided by operations, as well as $396,000 in
proceeds from the sale of other property and equipment, were utilized
to pay down an additional $1,532,000 in debt and fund a modest capital
expenditures program of $596,000.
Reference is made to the Notes to the Consolidated Financial
Statements, "Basis of Presentation" for a discussion of the
implications and assumptions of the Company's ability to continue as a
going concern and "Long-Term Debt" for a discussion of the status of
the Company's existing financing arrangements.
Results of Operations: Quarter Ended December 31, 2000 vs. Quarter
Ended December 31, 1999
Revenues for the quarter ended December 31, 2000 decreased by
$10,480,000 (21.1%) to $39,251,000 compared with $49,731,000 during the
same quarter last year. The decline is primarily attributable to the
weak demand in the domestic chemical industry and the continued adverse
impact on the bulk transportation industry. Accordingly, the
competition for the lower volume of available loads remains fierce and
there is pressure to maintain price stability.
FORM 10-Q Page 10 of 13
Operating expenses decreased by $6,045,000 (14.1%) to $36,977,000
compared with $43,022,000 during the prior year quarter. The decline
in operating expenses is also attributed to reduced demand and the
corresponding decrease in the number of loads. Accordingly, there were
declines in most of the major components of operating expenses
including maintenance expense and terminal expense. The most
significant declines were attributable to lower driver and leased
operator compensation as well as lower purchased transportation
reflecting the decrease in demand for services and fewer loads carried.
Fuel costs were relatively flat compared with the prior year reflecting
notable increases in prices of all petroleum products despite fewer
miles driven. As a percentage of revenue, operating expenses were
94.2% in 2000 and 86.5% in 1999.
Depreciation and amortization expense was flat compared with the prior
year and was 5.3% and 4.2% as a percent of revenue in 2000 and 1999,
respectively.
Selling and administrative expenses increased by $508,000 (10.9%) to
$5,188,000 compared with $4,680,000 in the prior year quarter. The
increase is primarily attributable to higher fees for professional
services including legal and financial consulting fees of $358,000
associated with the Company's efforts to explore strategic alternatives
and refinancing of the revolving credit agreement. Also included are
$369,000 of consulting fees and related expenses attributable to the
implementation of enterprise-wide transportation management software.
Absent these charges, selling and administrative expenses declined by
$219,000 or 4.7% reflecting Company-wide efforts to contain costs.
Interest expense increased by $196,000 (15.0%) primarily as a result of
higher interest rates associated with the revolving credit agreement.
The increase resulted despite lower average outstanding borrowings as
significant portions of debt were paid down primarily as a result of
asset dispositions including substantially all of the assets of the
Company's leasing business segment, which was sold in November 2000.
The quarter ended December 31, 2000 does not reflect an income tax
benefit compared with $441,000 or 34.3% in the prior year quarter. The
significant reduction reflects the provision of a 100% valuation
allowance against the Company's net deferred tax asset. The valuation
reserve is considered necessary by management due to the high level of
uncertainty surrounding the future realization of tax benefits from the
Company's net operating losses and other deferred tax assets.
Earnings from discontinued operation decreased $449,000 reflecting the
exit from the leasing business segment effective with the sale of
substantially all of the assets of the leasing segment in November
2000.
Net loss for the quarter was $6,433,000 or $.73 per diluted share
compared with a net loss of $391,000 or $.04 per diluted share in the
prior year quarter.
FORM 10-Q Page 11 of 13
FORWARD-LOOKING STATEMENTS
The Company may make certain forward-looking statements in this Form
10-Q within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, relating to the Company's financial condition,
profitability, liquidity, resources, business outlook, proposed
acquisitions or divestitures, market forces, corporate strategies,
consumer preferences, contractual commitments, legal matters, capital
requirements and other matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking
statements. To comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual
results and experience to differ substantially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When words and expressions such as: "believes,"
"expects," "anticipates," "estimates," "plans," "intends,"
"objectives," "goals," "aims," "projects," "forecasts," "possible,"
"seeks," "may," "could," "should," "might," "likely," "enable," or
similar words or expressions are used in this Form 10-Q, as well as
statements containing phrases such as: "in the Company's view," "there
can be no assurance," "although no assurance can be given," or "there
is no way to anticipate with certainty," forward-looking statements are
being made in all of these instances.
Various risks and uncertainties may affect the operations, performance,
development and results of the Company's business and could cause
future outcomes to differ materially from those set forth in forward-
looking statements, including the following factors: the Company's
ability to develop a plan of reorganization for successful
confirmation; the Company's ability to continue as a going concern; the
Company's ability to refinance its existing indebtedness; potential
increases in interest rates; general economic conditions; competitive
factors and pricing pressures; shifts in market demand; the performance
and needs of industries served by the Company; equipment utilization;
management's success in developing and introducing new services and
lines of business; potential increases in labor costs; potential
increases in equipment, maintenance and fuel costs; uncertainties of
litigation; the Company's ability to finance its future business
requirements through outside sources or internally generated funds; the
availability of adequate levels of insurance; success or timing of
completion of ongoing or anticipated capital or maintenance projects;
management retention and development; changes in Federal, State and
local laws and regulations, including environmental regulations; as
well as the risks, uncertainties and other factors described from time
to time in the Company's SEC filings and reports.
The Company undertakes no obligation to update publicly or revise any
forward-looking statements as a result of future developments, events
or conditions. New risk factors emerge from time to time and it is not
possible for the Company to predict all such risk factors, nor can the
Company assess the impact of all such risk factors on its business or
the extent to which any factor, or combination of factors, may cause
actual results to differ significantly from those forecast in any
forward-looking statements. Given these risks and uncertainties,
investors should not overly rely or attach undue weight to the
FORM 10-Q Page 12 of 13
Company's forward-looking statements as an indication of its actual
future results.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. The filings have been
consolidated for the purposes of joint administration as Case No. 01-
1114 (MFW). The cases have been styled as IN RE : MATLACK SYSTEMS,
INC., et al.
There are various claims and legal actions pending against the Company
that are insured under the Company's public liability and workers'
compensation policies relating to incidents arising out of the
Company's bulk trucking, cleaning and intermodal businesses. In the
opinion of management, the reserves established for these claims and
actions are adequate. However, the ultimate resolution of these claims
and actions may be material.
There are various other non-insured claims and legal actions pending
against the Company relating to employment or contract issues. In the
opinion of management, the likelihood that the ultimate resolution of
these claims and actions will be material is remote.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
Reference is made to Notes to the Consolidated Financial Statements,
"Basis of Presentation" and "Long-Term Debt" as well as Part I, Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operation - Liquidity and Capital Resources and Part II, Item 1.
Legal Proceedings for a discussion of the Company's voluntary petition
seeking protection under Chapter 11 of the United States Bankruptcy
Code. Accordingly, no principal or interest payments will be made on
financing obligations incurred by the Company prior to March 29, 2001
until a plan of reorganization has been confirmed by the Bankruptcy
Court providing the necessary terms of any such payments.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Forbearance and Fifth Amendment dated February 15, 2001
between Matlack (DE), Inc. et al and certain banking
institutions named therein with First Union National Bank as
agent.
FORM 10-Q Page 13 of 13
(b) Reports on Form 8-K
(1) On December 6, 2000, a report on Form 8-K was filed that
reported the following:
Under Item 2. Acquisition or Disposition of Assets
(a) The Company reported that Matlack Leasing
Corporation sold substantially all of its assets.
(2) On March 30, 2001, a report on Form 8-K was filed that
reported the following:
Under Item 3. Bankruptcy or Receivership
(a) The Company reported that Matlack Systems, Inc. and
all of its wholly owned subsidiaries filed a voluntary
petition seeking protection under Chapter 11 of the United
States Bankruptcy Code.
SIGNATURES
Pursuant to the requirements 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.
DATE: April 18, 2001 MATLACK SYSTEMS, INC.
(Registrant)
/s/ Michael B. Kinnard
Michael B. Kinnard
President and Chief Executive Officer
/s/ Patrick J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer