_________________________________________________________________
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
For the fiscal year ended September 30, 1997 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 1-10105
MATLACK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0310173
(State of Incorporation) (I.R.S. Employer Identification Number)
ONE ROLLINS PLAZA, WILMINGTON, DELAWARE 19803
(Address of principal executive offices)
Registrant's telephone number including area code (302) 426-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which
registered
Common Stock, $1 Par Value NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X 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 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. / /
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $67,947,000 as of October 31, 1997.
The number of shares of registrant's common stock outstanding as
of October 31, 1997 was 8,785,762.
The following documents are incorporated by reference:
Part of this form into which
Document incorporated
Proxy Statement in connection with
Annual Meeting of Shareholders to be
held January 29, 1998 III
PART I
ITEM 1. BUSINESS.
The Registrant, Matlack Systems, Inc., together with its
subsidiaries (herein collectively referred to as the "Company" unless
the context indicates otherwise) is a specialized logistics and
transportation company that provides transportation of bulk commodities
in tank trailers and tank containers to the nation's leading chemical
and dry bulk shippers. Concomitantly, the Company provides intermodal
transportation services, trailer leasing, international bulk
transportation, tank, intermediate bulk and ISO container cleaning
services, logistics management services and dedicated contract carriage
services to the chemical industry. The Company operates approximately
1,100 tractors and 2,800 trailers out of approximately 100 facilities
located in 37 states and four Canadian provinces. During fiscal 1997,
the Company passed its seventh quality audit by American Bureau of
Shipping Quality Evaluations, Inc. with all locations and logistics
services being ISO 9002 certified. There have been no significant
changes in the business operations of the Company since September 30,
1996.
The Company, through its operating subsidiaries, provides the
transportation and logistics services described below. Many of the
adjunct services provided complement the Company's bulk transportation
services. Matlack, Inc. ("Matlack"), the Company's major operating
subsidiary, is one of the nation's largest bulk trucking companies
providing liquid and dry bulk transportation primarily to the chemical
industry throughout North America.
In terms of revenues, Matlack is one of the largest companies in the
country engaged in highway transportation of bulk commodities primarily
in tank trailers. Matlack is one of the few nationwide interstate tank
truck carriers authorized to transport chemicals and other dry and
liquid products in bulk. Matlack also operates on an intrastate basis
in 37 states.
During fiscal years 1994 and 1995, the Company replaced a
significant portion of its tractor fleet by acquiring, either through
lease or purchase, 900 Mack 1995 conventional tractors. All of these
tractors were equipped with anti-lock brakes and "electronic engines"
which enabled the feeding of real-time operating information via
satellite communications. This fleet replacement program lowered fuel,
maintenance and insurance expenses while providing the Company with
additional service capability and flexibility. In fiscal 1996, the
Company balanced the size of its tractor fleet to more closely match
the then current market conditions. During fiscal 1997, the Company
acquired by lease 133 tractors. As a result of the fleet replacement
program and the acquisition of additional power units, as described
above, the average age of the Company's power fleet is approximately
2.5 years.
Capital expenditures made by the Company for the acquisition of new
and used trailers during fiscal 1997, 1996 and 1995 were $9,952,000
(366 units), $2,767,000 (118 units) and $9,349,000 (217 units),
respectively. The number of trailers available for use in the
Company's operations at the end of fiscal years 1997, 1996 and 1995
were 2,800, 2,600 and 2,700, respectively. A tank trailer typical of
those used by the Company in its operations measures 43 feet in length,
8.5 feet in width and 12 feet in height. Tank holding capacity
normally ranges between 5,000 and 7,000 gallons with a payload capacity
of up to 55,000 pounds. The Company also utilizes vans in its
operations. Typical specifications for a van trailer are 48 feet in
length, 8.5 feet in width and 13 feet in height. The Company's
trailers have an average age of 10.3 years and a useful life expectancy
of 20 years.
The Company believes that it maintains its fleet of tractors and
trailers in above average condition for the industry. Maintenance of
revenue equipment is performed by 76 mechanics employed by the Company.
In addition, the Company utilizes outside repair facilities for certain
of its tank repairs. In fiscal 1997, the Company expended
approximately $7,700,000 for fleet maintenance. This amount included
mechanics compensation and the costs associated with both internal and
external repairs of revenue equipment.
Matlack is subject to regulation by the U.S. Department of
Transportation and various state regulatory agencies. As a common and
contract carrier by motor vehicle, Matlack holds certificates of public
convenience and necessity issued by the regulatory agencies. These
certificates define the commodities that the holder is authorized to
transport and the points of origin and destination for carriers of such
commodities. In Canada, the Company has terminals in Toronto and
Sarnia, Ontario; Montreal, Quebec; Vancouver, British Columbia and
Leduc, Alberta and it holds operating licenses under which it may
transport various commodities into and out of certain Canadian
Provinces via specific border entry points from the United States. To
the best of its knowledge, Matlack is in compliance with federal
regulations and those of the various state and provincial regulatory
agencies where it operates.
The business of the Company is generally not subject to seasonal
variations, however, highway transportation activities can be adversely
affected depending on the severity of the weather in the various
sections of the country during the winter months. No customer accounts
for more than 7% of the Company's consolidated revenues.
For the most part, Matlack's competition consists of those bulk
carriers having operating authority in the relevant jurisdictions.
Competition is based primarily on service, rates and convenience.
Competition in the bulk trucking industry formerly was restricted and
was based primarily on a carrier's ability to obtain certificates of
public convenience and necessity to transport defined commodities in
specific geographic areas. Since the passage of the Motor Carrier Act
of 1980, many bulk carriers have obtained authority to serve expanded
geographic areas on an interstate basis, which, together with excess
capacity, has resulted in the intensification of price competition.
To the extent that competition is based on service and convenience,
the number and location of Matlack's terminals, together with its
ability to clean tank trailers (through Brite-Sol Services, Inc.)
places Matlack in a favorable position to increase its business.
Management believes that Matlack's fleet of trailers is one of the
largest and most diversified in the tank truck industry. Matlack's
network of strategically located terminal facilities is, in
management's opinion, one of the largest and the best in the industry.
Matlack's largest competitors in the tank truck industry, based upon
a comparison of gross revenues, are Trimac Limited, MTL Inc. and
Chemical Leaman Tank Lines, Inc. In addition, there are approximately
190 other recognized competitors operating in the various regions where
Matlack has operating authority.
The Company believes that its contractual arrangements and business
policies are adequate in securing rate increases to recover rising
costs and expenses to the extent permitted by competitive
circumstances, which remain intense. Unusual increases in fuel costs
can generally be offset by fuel surcharges to customers. Accordingly,
while inflation has had some impact on the Company's operations during
the last three fiscal years, competition within the industry has been
a major factor in establishing the rates that the Company can charge
for its services.
The Company also provides truck transportation services through
Safeway Chemical Transportation, Inc. This subsidiary provides
truckload van services utilizing specialized trailers to transport
packaged chemicals and waste. In addition, through Matlack Leasing
Corporation, the Company leases tank trailers, tank containers and
other specialized equipment primarily to the chemical industry and its
suppliers. This subsidiary may also provide customers with equipment
design assistance.
Through Matlack Bulk Intermodal Services, Inc., the Company enables
customer product delivery by combining the economy of bulk rail and the
flexibility of bulk truck transportation. This service is provided
through a nationwide system of 30 rail transfer facilities.
Brite-Sol Services, Inc. operates 36 facilities nationwide that
provide full-service cleaning, both internal and external, of tank
trucks, vans, tank containers, intermediate bulk containers, ISO tank
containers and other containers and vehicles. This subsidiary also
provides hose and pump cleaning and tank and container maintenance and
repairs. The Company's tank cleaning facilities are ISO 9002 certified
and operate in compliance with all applicable federal and state EPA and
OSHA requirements. Cleaning procedures utilize systematized work
processes to assure continued compliance with all environmental
regulations. Customized cleaning programs are frequently established
to meet specific customer requirements. After cleaning, valves are
vacuum tested to reduce chances of leaking and related possible product
release. Waste water is pre-treated to ensure environmental safety and
to reduce levels of waste. Container cleaning procedures also ensure
the proper handling and disposal of heels and effluents. Further, the
Company's cleaning network is operated by a team of experienced tank
cleaning professionals and is supported by centrally located technical
staff to ensure maintenance of the highest level of quality required by
ISO 9002 standards.
The Company also provides logistics management consulting services
through CPI Logistics, Inc. In addition, the Company markets dedicated
fleet operation services through Specialized Dedicated Fleets, Inc. and
through Matlack International, Inc. the Company provides international
land and sea transportation services primarily utilizing tank
containers.
In the normal course of its business, Matlack is subject to numerous
state and federal environmental laws and regulations and also is
exposed to the cost and risk of transporting and handling materials and
wastes characterized as hazardous by various regulatory agencies.
Matlack has received notices from the United States Environmental
Protection Agency ("EPA") or a comparable state agency indicating that
it has been named at 21 sites as a potentially responsible party
("PRP") with respect to the cleanup of hazardous wastes at such waste
disposal sites. At a majority of these sites, the Company has resolved
its liability by settling with one or more of the governmental agencies
or PRP groups involved. As is typical in such settlements, certain
claims, such as those relating to natural resource damages or site
cleanup cost overruns, could still be made in later years.
The Company maintains sudden and accidental pollution insurance
coverage providing protection against claims which may arise from
accidents involving spills or contamination. In addition, the Company
has purchased an Environmental Impairment Liability insurance policy
that provides coverage and protection for non-sudden pollution claims.
With regard to public liability and workers' compensation claims,
the Company retains a specific portion of insurable risks. Retention
levels are currently $500,000. Reserves are established for claims
incurred plus an estimate for claims incurred but not reported.
Reserve requirements are evaluated and established utilizing historical
trends, the Company's experience, claim severity and other factors.
A total of 1,059 persons were employed by the Company at September
30, 1997. Operating personnel, essentially all of which were covered
under various collective bargaining agreements, included 503 drivers,
76 mechanics and 100 tank cleaners. In addition to the operating
personnel employed by the Company, the services of leased operators are
utilized to supplement driver requirements necessary to meet customer
service needs. The Company's 380 support personnel included
dispatchers and individuals serving in clerical, administrative and
executive capacities. The Company believes that its relationships with
its employees are excellent.
ITEM 2. PROPERTIES.
The Company maintains its headquarters in space leased from Rollins
Properties, Inc., a wholly-owned subsidiary of Rollins Truck Leasing
Corp., at 2200 Concord Pike, Wilmington, Delaware. The Company's
principal properties consist of land and buildings used in its bulk
trucking, cleaning and intermodal service business. Matlack owns or
leases approximately 100 truck terminals in 37 states and five
terminals in four Canadian provinces.
ITEM 3. LEGAL PROCEEDINGS.
There are various ordinary routine claims and legal actions pending
against the Company. With regard to claims relating to hazardous waste
sites at which the Company has been named a PRP, the Company maintains
an Environmental Legal Liability insurance policy that provides
coverage and protection against such claims. In the opinion of
management, based on the advice of counsel, it is only remotely likely
that the ultimate resolution of these claims and actions will be
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
For the fiscal years ended September 30, 1997 and 1996, the range
of share prices for the Common Stock on the New York Stock Exchange is
as follows:
1997 1996
Fiscal Quarter High Low High Low
First $7 1/2 $6 1/4 $10 1/2 $8 1/4
Second 7 1/4 6 1/8 $ 9 3/4 $7 7/8
Third 8 1/2 5 13/16 $ 9 3/8 $8
Fourth 8 5/8 7 1/4 $ 8 3/8 $7 3/8
No dividends have been paid since the Company became publicly held in
January of 1989.
At September 30, 1997, there were 1,639 holders of record of the Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
Year Ended September 30, 1997 1996 1995 1994 1993
Revenues $231,709 $224,866 $236,257 $217,880 $204,809
Earnings (loss) before
income taxes (benefit) $ 3,698 $ (1,703)(1) $ 11,211 $ 10,516 $ 8,054
Net earnings (loss) $ 1,886 $ (1,477)(1) $ 6,601 $ 6,182 $ 4,414(2)
Earnings (loss) per share $ .21 $ (.17)(1) $ .74 $ .69 $ .50(2)
At September 30,
Total assets $142,262 $128,127 $131,974 $122,526 $105,363
Long-term indebtedness $ 42,778 $ 29,878 $ 32,970 $ 24,800 $ 20,360
Shareholders' equity $ 57,557 $ 55,676 $ 57,532 $ 50,726 $ 44,297
(1) Includes a special charge of $4,000 ($2,432 after tax benefit or $.28 per share).
(2) Reduced by additional deferred income tax provision of $169 ($.02 per share) to reflect
the increase in the federal income tax rate from 34% to 35%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Company's operations require periodic investment in
equipment and facilities. Capital expenditures are typically funded by
the cash flows from operations, which were $8.7 million in 1997, $11.2
million in 1996 and $14.6 million in 1995 and, when required, loans
from various financial institutions. The 1997 net capital spending of
$22.7 million, up from $7.6 million in 1996, included expenditures in
September 1997 of $5.5 million for the purchase of certain assets of a
former bulk trucking company and $4.3 million for the purchase of a
lease portfolio of specialty tank trailers. The large increase in
capital spending in the fourth quarter of 1997 increased indebtedness
during the quarter by approximately $8.5 million. Total indebtedness
at September 30, 1997 was $49.6 million compared with $36.1 million at
the end of the previous year. Based on the relationship with current
lenders, the Company expects to continue to be able to obtain required
financing at market rates and under satisfactory terms and conditions.
At September 30, 1997, the Company had commitments of $1.7
million to purchase transportation equipment. As necessary, additional
funds are available to the Company from its unsecured revolving credit
facility and from other financial institutions who have expressed an
interest in providing equipment financing. The revolving credit
agreement with two banks provides for an aggregate commitment of $40.0
million to meet equipment financing needs and letter of credit
requirements. The agreement expires on March 31, 1998, but may be
renewed on a year-to-year basis thereafter upon agreement of the
parties thereto. At September 30, 1997, a total of $.6 million was
available under the revolving credit facility.
In the normal course of its business, Matlack is subject to
numerous state and federal environmental laws and regulations and also
is exposed to the cost and risk of transporting and handling materials
and wastes characterized as hazardous by various regulatory agencies.
Matlack has received notices from the United States Environmental
Protection Agency ("EPA") and others indicating that it is a
"potentially responsible party" with respect to the cleanup of
hazardous wastes at several waste disposal sites. Matlack has been
named as a defendant in several lawsuits brought under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for recovery of costs associated with the cleanup of waste
disposal sites. In addition, Matlack has responded to various
governmental requests, principally those of the EPA pursuant to CERCLA,
for information with respect to possible disposition of waste materials
attributable to it at various waste disposal sites. Based on
information currently available, the Company's management believes its
ultimate liability at these sites will not have a material adverse
effect upon the Company.
Results of Operations
Fiscal Year 1997 vs. 1996
Revenues for 1997 increased by $6.8 million (3.0%) to $231.7
million from the $224.9 million reported in 1996. For the year, total
revenue miles of the Company's bulk trucking business increased by 6.0%
while the number of loads carried remained essentially flat. Revenues
from the Company's non-bulk trucking operations increased by 12.8%.
Fourth quarter revenue growth represented 83.7% of the total
year's revenue increase. Overall, revenues for the fourth quarter of
1997 increased by $5.7 million to $59.7 million from $54.0 million
reported for the fourth quarter of 1996. The number of loads carried
during the fourth quarter increased by 4.8% compared with the same
quarter last year. This increase resulted from a more favorable
supply/demand balance within the bulk trucking industry. For the
fourth quarter, the Company's overall revenue increase of 10.5%
resulted principally from an increase in volume of 5.0% with the
remainder being attributed to a favorable mix.
Operating expenses increased by $4.1 million (2.2%) reflecting
the increase in revenues. Operating expenses were 83.6% of revenues in
1997 and 84.3% of revenues in 1996. For the fourth quarter of 1997,
operating expenses were 81.1% of revenues compared with 85.1% of
revenues in the fourth quarter of 1996. The percentage improvement for
both the year and the fourth quarter resulted from the increase in
revenues discussed above and the closure of several marginal terminals
in early 1997. Fuel costs increased by $2.0 million during 1997
reflecting the increased level of business and higher fuel prices.
Outside repairs and parts expense increased by $1.5 million reflecting
the higher level of business. Driver and mechanic compensation
increased during the year by $1.2 million. The above noted operating
expense increases and other operating expense increases, which amounted
to $.8 million, were offset by a reduction in insurance expenses of
$1.5 million.
Depreciation expense increased by $1.2 million (10.0%) to $13.1
million in 1997 compared with $11.9 million in 1996. The installation
of the Qualcomm satellite communication systems in the tractors
resulted in increased depreciation of approximately $.7 million.
Completion and start-up of an integrated information system throughout
the Company accounted for the other $.5 million of the depreciation
increase. The acquisition of certain assets in September 1997, as
described above, had no impact upon depreciation during the current
year.
Selling and administrative expenses remained essentially
unchanged between 1997 and 1996. As a percentage of revenue, these
expenses were 7.8% and 8.1% in 1997 and 1996, respectively. The
stabilization of these expenses resulted from cost containment efforts
and the elimination of a regionalized management structure related to
the Company's operations.
The effective income tax rate in 1997 was 49.0%. The rate of
income tax benefit in 1996 was 13.3%. The high effective income tax
rate and the low effective rate of benefit was caused by the impact
that non-deductible expenses had upon the tax computations.
The Company's net earnings for the year were $1.9 million or
$.21 per share compared with a net loss of $1.5 million or a loss of
$.17 per share in 1996. The improvement in net earnings resulted from
the increased level of business particularly in the fourth quarter of
the year. Operating earnings as a percentage of revenues improved to
3.0% in 1997 from 2.3% (exclusive of the special charge of $4.0
million) in 1996.
Fiscal Year 1996 vs. 1995
Revenues for 1996 decreased by $11.4 million (4.8%) to $224.9
million from the $236.3 million reported in 1995. Total revenue miles
decreased by 5.7% in 1996 while the number of loads carried decreased
by 7.0% compared with the prior year. The Company's ancillary service
revenues increased during the current year but were not sufficient to
offset the decline experienced in domestic bulk trucking revenues.
Operating expenses decreased by $3.4 million (1.8%) reflecting
the decrease in revenues and a significant reduction in the Company's
utilization of leased operators. Operating expenses were 84.3% of
revenues in 1996 and 81.7% of revenues in 1995.
During the fourth quarter of 1996, the Company recorded a
special charge of $4.0 million ($2.4 million after tax benefit or $.28
per share). The charge included costs associated with a reduction in
the tractor fleet reflecting the weak business conditions of the bulk
trucking industry, provision for closing certain terminals, the
operation of which was no longer cost-effective and related costs of
$1.4 million. Also included in the charge was $1.9 million related to
reserves for medical, disability, workers' compensation and other
insurance claims which continue to be evaluated and $.7 million for
third party claims.
Depreciation expense increased by $1.8 million (17.8%)
principally due to the increase in capital expenditures associated with
the Company's tractor replacement program and several major new
facilities completed in 1995.
Selling and administrative expenses decreased by $.5 million
(2.7%) reflecting the lower level of business. These expenses were
8.1% and 7.9% of revenue in 1996 and 1995, respectively.
Interest expense decreased by $.3 million (9.4%) due to a
reduction of borrowings and lower interest rates during 1996.
The rate of income tax benefit in 1996 was 13.3%. The low
effective rate of benefit was caused by the impact that non-deductible
expenses had upon the tax computations. The effective income tax rate
in 1995 was 41.1%.
The Company's net loss for the year was $1.5 million or $.17
per share compared with net earnings of $6.6 million or $.74 per share
in 1995. Exclusive of the special charge, the Company reported net
earnings of $1.0 million or $.11 per share.
Impact of Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." This statement, which is effective in
fiscal 1998, simplifies the standards for computing earnings per share
("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. The Company has determined that SFAS 128
will not have a material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The adoption of this
standard on October 1, 1998, will not impact results of operations or
financial condition.
Forward-Looking Statements
The Company may make forward-looking statements relating to
anticipated financial performance, business prospects, acquisitions or
divestitures, new products, market forces, commitments, and other
matters. The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements. In order 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 materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. Forward-looking
statements typically contain words such as "anticipates", "believes",
"estimates", "expects", "forecasts", "predicts", or "projects", or
variations of these words, suggesting that future outcomes are
uncertain.
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:
general economic conditions, competitive factors and pricing pressures,
shift 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, the
Independent Auditors' Report and the financial statement schedules
included in this report are shown on the Index to the Consolidated
Financial Statements and Schedules.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this
Item 10 is incorporated by reference from the Company's Proxy Statement
to be filed pursuant to Regulation 14A for the Annual Meeting of
Shareholders to be held on January 29, 1998.
Executive Officers of the Registrant. As of October 31, 1997,
the Executive Officers of the registrant were:
Name Position Age Term of Office
Patrick J. Bagley Vice President-Finance and 50 7/88 to date
Treasurer and Director
Michael B. Kinnard Vice President-General Counsel 39 6/94 to date
and Secretary
John W. Rollins, Jr. Chairman of the Board 55 7/88 to date
G. J. Trippitelli President and Chief Executive 54 7/88 to date
Officer and Director
Eugene C. Bonacci Senior Vice President and 57 10/96 to date
Chief Operating Officer
Eugene C. Bonacci was employed by the Company in 1982 as Vice
President of Operations. In 1996, he became Senior Vice President and
Chief Operating Officer.
Michael B. Kinnard has been Vice President-General Counsel and
Secretary to the Company since 1994. Mr. Kinnard also serves as Vice
President-General Counsel and Secretary to Rollins Truck Leasing Corp.
and Vice President-General Counsel to Dover Downs Entertainment, Inc.
Prior to 1995, Mr. Kinnard was a partner in the law firm of Baker,
Worthington, Crossley, Stansberry & Woolf (now known as Baker,
Donelson, Bearman & Caldwell).
The Company's Executive Officers are elected for the ensuing
year and until their successors are elected.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by
reference from the Company's Proxy Statement to be filed pursuant to
Regulation 14A for the Annual Meeting of Shareholders to be held on
January 29, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information called for by this Item 12 is incorporated by
reference from the Company's Proxy Statement to be filed pursuant to
Regulation 14A for the Annual Meeting of Shareholders to be held on
January 29, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended September 30, 1997, the following
officers and/or directors of the Company were also officers and/or
directors of Laidlaw Environmental Services, Inc. (formerly Rollins
Environmental Services, Inc.); Patrick J. Bagley, Michael B. Kinnard,
William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and
Henry B. Tippie.
The following officers and/or directors of the Company were
also officers and/or directors of Rollins Truck Leasing Corp.; Patrick
J. Bagley, Michael B. Kinnard, William B. Philipbar, Jr., John W.
Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins
owns directly and of record 11.7% of the outstanding shares of Common
Stock of Rollins Truck Leasing Corp. at October 31, 1997.
The description of transactions between the Company and Laidlaw
Environmental Services, Inc. and between the Company and Rollins Truck
Leasing Corp. appears under the caption "Transactions with Related
Parties" of this 1997 Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements - See accompanying Index to Consolidated
Financial Statements and Schedules.
(2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements and Schedules.
(3) Exhibits:
(3) (a) Articles of Incorporation and By-Laws of Matlack
Systems, Inc. as filed with Registration Statement No.
33-23524 dated August 5, 1988 are incorporated herein
by reference.
(3) (b) By-Laws of Matlack Systems, Inc. as last amended on
January 30, 1997.
(4) (a) Credit Agreements and Amendments, see Exhibit 10.
(b) Rights Agreement dated as of June 14, 1989 as filed as
an Exhibit to Registration Statement on Form 8-A filed
by Registrant on June 15, 1989 is incorporated herein
by reference.
(10) (a) Master Credit Agreement dated as of March 27, 1996
between Matlack (DE), Inc. et al, Bank of America
Illinois and First Union National Bank, as filed with
the Company's report on Form 10-K dated November 27,
1996, is incorporated herein by reference.
(b) Credit Agreement dated as of March 27, 1996 between
Matlack (DE), Inc. et al and Bank of America Illinois,
as filed with the Company's report on Form 10-K dated
November 27, 1996, is incorporated herein by
reference.
(c) Credit Agreement dated as of May 22, 1996 between
Matlack (DE), Inc. et al and First Union National
Bank, as filed with the Company's report on Form 10-K
dated November 27, 1996, is incorporated herein by
reference.
(d) First Amendment dated August 9, 1996 to the Master
Credit Agreement between Matlack (DE), Inc. et al,
Bank of America Illinois and First Union National Bank
dated March 27, 1996, as filed with the Company's
report on Form 10-K dated November 27, 1996, is
incorporated herein by reference.
(e) Second Amendment dated February 7, 1997 to the Master
Credit Agreement between Matlack (DE), Inc. et al, and
Bank of America Illinois and First Union National Bank
dated March 27, 1996.
(f) Third Amendment dated September 2, 1997 to the Master
Credit Agreement between Matlack (DE), Inc. et al, and
Bank of America National Trust and Savings Association
successor by merger to Bank America Illinois and First
Union National Bank dated March 27, 1996.
(g) First Amendment dated February 7, 1997 to the Credit
Agreement between Matlack (DE), Inc. et al, and Bank
of America Illinois dated March 27, 1996.
(h) Second Amendment dated September 2, 1997 to the Credit
Agreement between Matlack (DE), Inc. et al, and Bank
of America National Trust and Savings Association
successor by merger to Bank of America Illinois dated
March 27, 1996.
(i) First Amendment dated August 29, 1997 to the Credit
Agreement between Matlack (DE), Inc. et al, and First
Union National Bank dated March 27, 1996.
(j) Second Amendment dated November 14, 1997 to the Credit
Agreement between Matlack (DE), Inc. et al, and First
Union National Bank dated March 27, 1996.
(k) Matlack Systems, Inc. 1988 Stock Option Plan as filed
with Registration Statement No. 33-23524 dated August
5, 1988 is incorporated herein by reference.
(l) Matlack Systems, Inc. 1995 Stock Option Plan, as filed
with the Company's Proxy Statement for the Annual
Meeting of Shareholders held on January 25, 1996, is
incorporated hereby by reference.
(21) Matlack Systems, Inc. Subsidiaries at September 30, 1997.
(27) Matlack Systems, Inc. Financial Data Schedule at September
30, 1997.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Matlack Systems, Inc. during the
last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DATED: December 2, 1997 Matlack Systems, Inc.
(Registrant)
BY: /s/ G. J. Trippitelli
G. J. Trippitelli
President and Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
/s/ Patrick J. Bagley Director,
Patrick J. Bagley Vice President-Finance December 2, 1997
and Treasurer
Chief Financial Officer
Chief Accounting Officer
/s/ John W. Rollins, Jr. Director, December 2, 1997
John W. Rollins, Jr. Chairman of the Board
/s/ John W. Rollins Director December 2, 1997
John W. Rollins
/s/ Henry B. Tippie Chairman of the Executive December 2, 1997
Henry B. Tippie Committee and Director
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated
Independent Auditors' Report on Financial Statements and
Financial Statement Schedules
Consolidated Statement of Earnings for the years ended
September 30, 1997, 1996 and 1995
Consolidated Balance Sheet at September 30, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended
September 30, 1997, 1996 and 1995
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules
Matlack Systems, Inc. (Parent)
Schedule I - Condensed Financial Information
Balance Sheet at September 30, 1997 and 1996
Statement of Earnings for the years ended
September 30, 1997, 1996 and 1995
Statement of Cash Flows for the years ended
September 30, 1997, 1996 and 1995
Note to the Financial Statements
Matlack Systems, Inc. and Subsidiaries Consolidated
Schedule II - Valuation and Qualifying Accounts for the years
ended September 30, 1997, 1996 and 1995
Any financial statement schedules otherwise required have been
omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.
Independent Auditors' Report
The Shareholders and Board of Directors
Matlack Systems, Inc.
We have audited the consolidated financial statements of Matlack
Systems, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Matlack Systems, Inc. and subsidiaries as of September 30, 1997 and
1996, and the results of their operations and their cash flows for each
of the years in the three-year period ended September 30, 1997, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
October 28, 1997
CONSOLIDATED STATEMENT OF EARNINGS
Year Ended September 30,
1997 1996 1995
Revenues $231,709,000 $224,866,000 $236,257,000
Expenses
Operating 193,784,000 189,653,000 193,131,000
Special charge - 4,000,000 -
Depreciation 13,106,000 11,917,000 10,079,000
Selling and
administrative 18,155,000 18,197,000 18,708,000
Other income (218,000) (101,000) (110,000)
224,827,000 223,666,000 221,808,000
Operating earnings 6,882,000 1,200,000 14,449,000
Interest expense 3,184,000 2,903,000 3,238,000
Earnings (loss) before
income taxes (benefit) 3,698,000 (1,703,000) 11,211,000
Income taxes (benefit) 1,812,000 (226,000) 4,610,000
Net earnings (loss) $ 1,886,000 $ (1,477,000) $ 6,601,000
Earnings (loss) per share $ .21 $ (.17) $ .74
Common shares and equivalents
outstanding 8,856,000 8,812,000 8,907,000
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED BALANCE SHEET
September 30,
1997 1996
ASSETS
Current assets
Cash $ 2,524,000 $ 3,019,000
Accounts receivable, net of allowance
for doubtful accounts:
1997-$583,000; 1996-$414,000 30,417,000 24,282,000
Inventories 5,895,000 5,439,000
Other current assets 3,036,000 2,907,000
Refundable income taxes - 1,114,000
Deferred income taxes 1,066,000 1,885,000
Total current assets 42,938,000 38,646,000
Property and equipment, net 99,106,000 89,267,000
Other assets 218,000 214,000
Total assets $142,262,000 $128,127,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,320,000 $ 10,047,000
Accrued liabilities 9,583,000 10,174,000
Income taxes payable 590,000 -
Current maturities of long-term debt 6,831,000 6,213,000
Total current liabilities 25,324,000 26,434,000
Long-term debt 42,778,000 29,878,000
Insurance reserves 3,176,000 1,716,000
Other liabilities 1,860,000 2,023,000
Deferred income taxes 11,567,000 12,400,000
Commitments and contingencies
(see Notes to the
Consolidated Financial Statements)
Shareholders' equity:
Common stock, $1.00 par value
Outstanding: 1997-8,778,149 shares;
1996-8,762,116 shares 8,778,000 8,762,000
Additional paid-in capital 10,532,000 10,553,000
Retained earnings 38,247,000 36,361,000
Total shareholders' equity 57,557,000 55,676,000
Total liabilities and shareholders'
equity $142,262,000 $128,127,000
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30,
1997 1996 1995
Cash flows from operating activities
Net earnings (loss) $ 1,886,000 $(1,477,000) $ 6,601,000
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities:
Special charge - 4,000,000 -
Depreciation and
amortization 13,127,000 11,921,000 10,079,000
Net gain on sale of
equipment (217,000) (102,000) (110,000)
Changes in assets and
liabilities:
Accounts receivable (6,135,000) 406,000 2,697,000
Inventories and other
assets (589,000) 841,000 849,000
Accounts payable and
accrued liabilities (2,318,000) (2,317,000) (6,970,000)
Current and deferred
income taxes 1,690,000 (615,000) 2,174,000
Other, net 1,297,000 (1,424,000) (750,000)
Net cash provided by
operating activities 8,741,000 11,233,000 14,570,000
Cash flows from investing activities
Purchase of property
and equipment (24,024,000) (7,895,000) (28,474,000)
Proceeds from the
sale of equipment 1,275,000 263,000 2,822,000
Net cash used in
investing activities (22,749,000) (7,632,000) (25,652,000)
Cash flows from financing activities
Proceeds of
long-term debt 64,599,000 37,960,000 41,002,000
Repayment of
long-term debt (51,081,000) (41,008,000) (32,319,000)
Exercise of stock options 71,000 46,000 205,000
Common stock acquired and
retired (76,000) (425,000) -
Net cash provided by
(used in) financing
activities 13,513,000 (3,427,000) 8,888,000
Net (decrease) increase
in cash (495,000) 174,000 (2,194,000)
Cash beginning of period 3,019,000 2,845,000 5,039,000
Cash end of period $ 2,524,000 $ 3,019,000 $ 2,845,000
Supplemental information
Interest paid $ 3,242,000 $ 2,861,000 $ 3,233,000
Income taxes paid $ 122,000 $ 389,000 $ 2,436,000
The Notes to the Consolidated Financial Statements are an integral
part of these statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Organization and Accounting Policies
Organization - Matlack Systems, Inc., together with its subsidiaries,
is a specialized logistics and transportation company that provides
transportation of bulk commodities in tank trailers and tank containers
to the nation's leading chemical and dry bulk shippers. In addition to
specialized trucking, the Company provides intermodal transportation
services, trailer leasing, dedicated contract carriage services,
international bulk transportation, tank cleaning services and logistics
management services to the chemical industry.
Consolidation - The consolidated financial statements include the
accounts of all subsidiaries with appropriate elimination of
intercompany transactions and balances.
Revenue recognition - The Company recognizes revenue when shipments
are delivered.
Earnings per share - Earnings per share are computed assuming the
conversion of all potentially dilutive securities, namely options to
purchase shares of the Company's stock.
Inventories - Inventories of transportation equipment parts and
supplies are valued at the lower of first-in, first-out cost or market.
Tires on vehicles, including new or recapped replacement tires, are
valued at cost and are written off over the expected aggregate useful
life which approximates two to three years.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is provided on a straight-line basis net of salvage or
residual values. Gain or loss on the sale or retirement of property
and equipment is included in other income in the Consolidated Statement
of Earnings. Repairs and maintenance are expensed as incurred.
Improvements that extend the original life of the assets are
capitalized and depreciated over the remaining lives of the assets.
Claims and insurance reserves - The Company retains a specific
portion of insurable risks with regard to public liability and workers'
compensation claims. Retention levels are currently $500,000.
Reserves are established for claims incurred plus an estimate for
claims incurred but not reported. Reserve requirements are evaluated
and established utilizing historical trends, the Company's experience,
claim severity and other factors. Claims estimated to be paid within
one year have been classified in accrued liabilities with the balance
reflected as non-current insurance reserves.
Use of estimates - The preparation of 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 financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair values of financial instruments - The carrying amounts reported
in the balance sheet for current assets and current liabilities
approximate their fair value at September 30, 1997.
Stock-based compensation - The Company adopted the provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," on October 1, 1996.
SFAS No. 123 defines a fair-value based method of accounting for stock-
based compensation plans, however, it allows the continued use of the
intrinsic value method under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees." The
Company has elected to continue to use the intrinsic value method.
Impairment of long-lived assets - Periodically, the Company evaluates
whether the remaining useful life of long-lived assets requires
revision and assesses the recoverability of remaining unamortized
balances. Should factors indicate that an asset should be evaluated
for possible impairment, an estimate of the asset's cash flow is
utilized in evaluating fair value. Should an impairment be determined,
the impaired asset's value would be adjusted and a charge to operations
would be recognized. To date, no impairment losses have been
recognized.
Special Charge
During the fourth quarter of 1996, the Company recorded a special
charge of $4,000,000 ($2,432,000 after tax benefit or $.28 per share).
The charge included costs associated with a reduction in the tractor
fleet reflecting the weak business conditions of the bulk trucking
industry, provision for closing certain terminals, the operation of
which was no longer cost-effective, and related costs of $1,350,000.
Also included in the charge was $1,900,000 related to reserves for
medical, disability, workers' compensation and other insurance claims
which continue to be evaluated and $750,000 for third party claims.
Property and Equipment
The Company's property and equipment accounts are as follows:
Useful
September 30, 1997 1996 Lives
Land $ 13,865,000 $ 13,861,000
Transportation equipment 144,619,000 137,434,000 4 to 12 years
Transportation service
facilities 68,838,000 63,830,000 5 to 40 years
Less accumulated depreciation (128,216,000) (125,858,000)
$ 99,106,000 $ 89,267,000
The Company had commitments for the purchase of transportation
equipment of $1,718,000 at September 30, 1997.
Long-Term Debt
Long-term debt is as follows:
September 30,
1997 1996
Revolving credit agreement -
$40,000,000 line $31,800,000 $17,700,000
Equipment financing obligations due
banks and other financial institutions
with equipment pledged as security at
interest rates ranging from 6.5% to
8.0%, payable in installments to 2005 16,455,000 16,170,000
Real estate mortgage obligations, at
interest rates ranging from 6.0% to
8.0%, with land and buildings with a
carrying value of $5,061,000 pledged
as collateral, payable in installments
over various periods to 2001 1,354,000 2,221,000
Less amounts due within one year (6,831,000) (6,213,000)
$42,778,000 $29,878,000
The revolving credit agreement is unsecured but, at the option of
the banks, amounts outstanding under the agreement may be secured with
unpledged equipment and accounts receivable. Interest rates on
borrowings under the agreement averaged 7.7% at September 30, 1997.
The agreement requires the maintenance of certain financial ratios,
restricts the payment of dividends and regulates payments to affiliated
companies. The credit agreement expires on March 31, 1998 but may be
renewed on a year-to-year basis thereafter upon agreement of the
parties thereto. Termination of the agreement would result in the
repayment of the outstanding loan balance over a period of 48 months in
equal monthly installments. Otherwise, no repayments are required
unless the financing value of the equipment and accounts receivable
falls below the outstanding principal balance of the loan.
The aggregate amounts of maturities for all indebtedness during the
next five fiscal years are as follows: 1998-$6,831,000; 1999-
$5,998,000; 2000-$1,901,000; 2001-$1,056,000 and 2002-$1,011,000.
Based upon borrowing rates available to the Company for long-term
debt with similar terms and maturities, the carrying amounts
approximate the fair value of such financial instruments.
Accrued Liabilities
Accrued liabilities are as follows:
September 30,
1997 1996
Employee compensation $ 5,128,000 $ 3,722,000
Insurance reserves 1,223,000 2,577,000
Taxes other than income 1,450,000 1,394,000
Other 1,782,000 2,481,000
$ 9,583,000 $10,174,000
Shareholders' Equity
Changes in the components of shareholders' equity are as follows:
$1 Par Value Additional Total
Common Paid-in Retained Shareholders'
Stock Capital Earnings Equity
Balance at September 30, 1994 $8,757,000 $10,732,000 $31,237,000 $50,726,000
Net earnings 6,601,000 6,601,000
Exercise of stock options 43,000 162,000 205,000
Balance at September 30, 1995 8,800,000 10,894,000 37,838,000 57,532,000
Net loss (1,477,000) (1,477,000)
Exercise of stock options 17,000 29,000 46,000
Common stock acquired and retired (55,000) (370,000) (425,000)
Balance at September 30, 1996 8,762,000 10,553,000 36,361,000 55,676,000
Net earnings 1,886,000 1,886,000
Exercise of stock options 26,000 45,000 71,000
Common stock acquired and retired (10,000) (66,000) (76,000)
Balance at September 30, 1997 $8,778,000 $10,532,000 $38,247,000 $57,557,000
The Company is authorized to issue 24,000,000 shares of $1 Par Value Common Stock and
1,000,000 shares of $1 Par Value Preferred Stock. The terms and conditions of each issue of
preferred shares will be determined by the Board of Directors. No preferred shares have been
issued.
Each share of common stock includes one common stock purchase right ("Right") which is non-
exercisable until certain defined events occur, including tender offers or the acquisition by a
person or group of affiliated or associated persons of 20% of the Company's common stock. Upon
the occurrence of certain defined events, the Right entitles the holder to purchase additional
stock of the Company or stock of an acquiring company at a 50% discount. The Right expires on
June 30, 1999 unless earlier redeemed by the Company at a price of $.0067 per Right.
Under the terms of the revolving credit agreement, the Company's major subsidiary may not
make equity distributions to the Company in an amount which exceeds $4,000,000 plus 25% of its
aggregate net earnings after September 30, 1995. Net assets of this subsidiary not restricted
under the agreement totaled $4,000,000 at September 30, 1997.
Stock Option Plans
Under the Company's stock option plans, options to purchase common stock of the Company
may be granted to officers and key employees at not less than 100% of the fair market value at
the date of grant. Generally, options granted vest ratably over a six-year period and have a
maximum life of eight years.
The Company accounts for these plans under APB No. 25. Accordingly, no compensation cost
has been recognized. Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's pro forma net earnings for 1997 and pro forma net loss for 1996 would have
been $1,612,000 ($.18 per share) and $1,577,000 ($.18 loss per share), respectively. Because the
SFAS 123 method of accounting has not been applied to options granted prior to October 1, 1995,
the resulting pro forma compensation cost may not be representative of that to be expected in
future years.
As of September 30, stock option activity under the Company's plans is as follows:
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 644,427 $8.19 491,018 $7.97 424,128 $7.11
Granted 206,400 6.38 181,200 8.25 124,900 9.74
Exercised (26,033) 2.74 (17,066) 2.71 (43,724) 4.68
Expired or canceled (19,200) 8.89 (10,725) 7.93 (14,286) 8.22
Outstanding at
September 30 805,594 $7.10 644,427 $8.19 491,018 $7.97
Exercisable at
September 30 309,271 $6.89 227,638 $7.49 136,265 $7.22
The weighted average fair value of options granted during 1997 and 1996 was $2.54 and $3.73,
respectively. The fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions for both 1997 and
1996: risk-free interest rate of 6.0%; dividend yield of 0%; expected volatility of .29 and a
weighted average expected life of the option of 4.9 years in 1997 and 7 years in 1996.
The following table summarizes information regarding stock options
outstanding and exercisable at September 30, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$2.42-$3.00 51,015 1.1 yrs. $2.80 45,516 $2.85
$6.38-$9.25 754,579 5.5 yrs. $7.39 263,755 $7.59
In June 1997, the Company modified the terms with regard to 363,979
outstanding options, with exercise prices ranging from $8.92 to $11.33,
by amending the exercise price per share to $7.50, the then current
market value.
At September 30, 1997, a total of 186,879 shares of common stock were
available for future grants.
Lease Commitments
The Company leases certain of its transportation service and
administrative facilities, office space and transportation equipment.
These leases are classified as operating leases and expire on various
dates during the next nine years. Minimum future payments required
under operating leases having non-cancelable terms in excess of one
year as of September 30 are considered in the lease commitments.
Total rent expense incurred under operating leases for the fiscal
years ended September 30, 1997, 1996 and 1995 amounted to $12,917,000,
$14,643,000 and $13,732,000, respectively.
Minimum future payments are as follows:
Year Ending September 30,
1998 $ 9,338,000
1999 8,050,000
2000 5,460,000
2001 2,202,000
2002 559,000
Later years 178,000
Total minimum payments required $25,787,000
Income Taxes
The tax provisions (benefit) for the three years ended September 30,
1997 are comprised as follows:
Year Ended September 30,
1997 1996 1995
Current: Federal $1,078,000 $(223,000) $2,270,000
State 472,000 77,000 556,000
Deferred: Federal 328,000 (68,000) 1,469,000
State (66,000) (12,000) 315,000
Total income taxes
(benefit) $1,812,000 $(226,000) $4,610,000
A reconciliation of the tax provisions (benefit) for the three years
ended September 30, 1997 with amounts calculated by applying the
statutory federal income tax rate for those years to earnings (loss)
before income taxes (benefit) is as follows:
Year Ended September 30,
1997 1996 1995
Federal tax $1,294,000 $(596,000) $3,924,000
State taxes, net of
federal benefit 264,000 43,000 567,000
Non-deductible business
expenses 286,000 294,000 298,000
Other (32,000) 33,000 (179,000)
Total income taxes (benefit) $1,812,000 $(226,000) $4,610,000
The tax effect of temporary differences which comprise the current
and non-current deferred income tax amounts shown on the balance sheet
are as follows:
September 30,
1997 1996
Depreciation $12,822,000 $12,808,000
Expenses deductible when paid (1,973,000) (2,334,000)
Other (348,000) 41,000
Deferred income taxes, net $10,501,000 $10,515,000
Pension Plans
The Company maintains a noncontributory pension plan for eligible
employees not covered by pension plans under collective bargaining
agreements. Pension costs for this plan are funded in accordance with
the provisions of the Internal Revenue Code. The Company also
maintains a nonqualified, noncontributory defined benefit pension plan
for certain employees to restore pension benefits reduced by federal
income tax regulations. The cost associated with the plan is
determined using the same actuarial methods and assumptions as those
used for the Company's qualified pension plan.
The components of net periodic pension cost are as follows:
Year Ended September 30,
1997 1996 1995
Service cost $ 558,000 $ 545,000 $ 510,000
Interest cost 698,000 686,000 591,000
Return on plan assets (2,495,000) (1,004,000) (1,309,000)
Net amortization and deferral 1,584,000 280,000 772,000
Net periodic pension cost $ 345,000 $ 507,000 $ 564,000
The following table sets forth the funded status and the amount
recognized in the Company's balance sheet for the plans:
September 30,
1997 1996
Actuarial present value of accumulated
benefit obligation:
Vested $ 8,216,000 $7,733,000
Non-vested 436,000 271,000
$ 8,652,000 $8,004,000
Projected benefit obligation $10,150,000 $9,651,000
Plan assets at market value 11,889,000 9,239,000
Projected benefit obligation
(under) in excess of plan assets (1,739,000) 412,000
Unrecognized gain 3,219,000 1,141,000
Unrecognized prior service cost (94,000) (104,000)
Unrecognized overfunding at adoption 48,000 65,000
Accrued pension liability $ 1,434,000 $1,514,000
The discount rate, the rate of assumed compensation increase and the
expected long-term rate of return on assets for 1997, 1996 and 1995
were 8.0%, 5.0% and 9.0%, respectively.
At September 30, 1997, the assets of the pension plans were invested
70% in equity securities and 18% in fixed income securities and the
balance in other short-term interest bearing accounts.
Effective October 1, 1994, the Company established a defined
contribution 401(k) plan which permits participation by substantially
all employees not represented under a collective bargaining agreement.
The Company expensed payments to multi-employer pension plans
required by collective bargaining agreements of $3,367,000 in 1997,
$3,248,000 in 1996 and $3,082,000 in 1995. The actuarial present value
of accumulated plan benefits and net assets available for benefits to
employees under these plans are not available.
Transactions with Related Parties
Certain directors and officers of the Company are also directors and
officers of Rollins Truck Leasing Corp.
The Company purchased materials, administrative services, insurance
and rented office space from Rollins Truck Leasing Corp., its
subsidiaries and affiliates. The aggregate cost of these materials,
services and rents, which have been included in operating expenses or
selling and administrative expenses, as appropriate, in the
Consolidated Statement of Earnings, was $3,600,000 in 1997, $3,542,000
in 1996 and $3,286,000 in 1995.
In connection with a note payable to Rollins Truck Leasing Corp.
(which was repaid in March of 1995), the Company incurred interest
expense that was paid to Rollins Truck Leasing Corp. of $272,000 in
1995.
Certain directors of the Company are also directors of Laidlaw
Environmental Services, Inc. (formerly Rollins Environmental Services,
Inc.) which, prior to May 16, 1997, was a related party.
The Company provided transportation services to Laidlaw
Environmental Services, Inc. and realized revenues therefrom of
$5,203,000 for the period through May 15, 1997, $13,916,000 in 1996 and
$13,265,000 in 1995.
An officer of the Company is the trustee of an employee benefits
trust, which provides certain insurance and health care benefits to
employees of the Company. Contributions to the trust, which were
charged to operating or selling and administrative expenses, as
appropriate, were $2,262,000 in 1997, $2,598,000 in 1996 and $2,567,000
in 1995.
In the opinion of management of the Company, the foregoing
transactions were effected at rates that approximate those the Company
would have realized or incurred had such transactions been effected
with independent third parties.
Commitments and Contingencies
In the normal course of its business, Matlack is subject to numerous
state and federal environmental laws and regulations and is also
exposed to the cost and risk of transporting and handling materials and
wastes characterized as hazardous by various regulatory agencies.
Matlack has received notices from the United States Environmental
Protection Agency ("EPA") and others indicating that it is a
"potentially responsible party" with respect to the cleanup of
hazardous wastes at several waste disposal sites. Matlack has been
named as a defendant in several lawsuits brought under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for recovery of costs associated with the cleanup of waste
disposal sites. In addition, Matlack has responded to various
governmental requests, principally those of the EPA pursuant to CERCLA,
for information with respect to possible disposition of waste materials
attributable to it at various waste disposal sites.
Where losses are probable, provision has been made based on
available information with respect to the cost of all such claims. In
determining the Company's liability with respect to such claims,
consideration is given to the total cost to remediate the site, the
Company's contribution of waste at the site, the participation of other
responsible parties and all other relevant circumstances of the claim.
All claims and litigations are reviewed to determine the likelihood
that their ultimate resolution would have a material adverse effect
upon the Company.
Matlack is involved in ordinary routine litigation incidental to the
operation of its business. In the opinion of management, based on the
advice of counsel, it is only remotely likely that the ultimate
resolution of these claims and actions will be material.
Quarterly Results (Unaudited)
December March June September
1997 31 31 30 30
Revenues $54,557,000 $56,538,000 $60,918,000 $59,696,000
Gross profit $ 4,750,000 $ 5,357,000 $ 6,694,000 $ 8,018,000
Earnings (loss)
before income
taxes (benefit) $ (333,000) $ 431,000 $ 1,454,000 $ 2,146,000
Net earnings
(loss) $ (272,000) $ 323,000 $ 733,000 $ 1,102,000
Earnings (loss)
per share $ (.03) $ .04 $ .08 $ .12
1996
Revenues $55,562,000 $57,666,000 $57,600,000 $54,038,000
Gross profit $ 5,807,000 $ 6,527,000 $ 5,922,000 $ 1,040,000(1)
Earnings (loss)
before income
taxes (benefit) $ 469,000 $ 1,164,000 $ 622,000 $(3,958,000)(1)
Net earnings
(loss) $ 274,000 $ 629,000 $ 270,000 $(2,650,000)(1)
Earnings (loss)
per share $ .03 $ .07 $ .03 $ (.30)(1)
(1) Includes special charge of $4,000,000 ($2,432,000 after-tax benefit
or $.28 per share).
SCHEDULE I - Condensed Financial Information
MATLACK SYSTEMS, INC.
BALANCE SHEET
($000 Omitted)
Assets September 30,
1997 1996
Current assets
Cash $ 578 $ 273
Accounts receivable from subsidiaries - 4
Other current assets 44 97
Refundable income taxes 98 -
Total current assets 720 374
Investments in subsidiaries, at equity* 59,388 57,448
Total assets $60,108 $57,822
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 24 $ 12
Accrued liabilities 408 271
Income taxes payable - 247
Total current liabilities 432 530
Advance from subsidiary* 1,896 1,364
Other liabilities 63 53
Deferred income taxes 160 199
Shareholders' equity
Common stock $1 par value,
24,000,000 shares authorized;
issued and outstanding:
1997: 8,778,149; 1996: 8,762,116 8,778 8,762
Additional paid-in capital 10,532 10,553
Retained earnings 38,247 36,361
Total shareholders' equity 57,557 55,676
Total liabilities and
shareholders' equity $60,108 $57,822
* Eliminated in consolidation.
The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I - Condensed Financial Information
(continued)
MATLACK SYSTEMS, INC.
STATEMENT OF EARNINGS
($000 Omitted)
Year Ended September 30,
1997 1996 1995
Revenues:
Dividends from subsidiaries $ 504 $ 720 $ 250
Administrative expenses 38 116 110
Earnings before income taxes
(benefits) 466 604 140
Income tax (benefits) (14) (17) 84
Net earnings of
Matlack Systems, Inc. 480 621 56
Equity in undistributed
net earnings (loss)
of subsidiaries 1,406 (2,098) 6,545
Net earnings (loss) $ 1,886 $(1,477) $ 6,601
The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I - Condensed Financial Information
(continued)
MATLACK SYSTEMS, INC.
STATEMENT OF CASH FLOWS
($000 Omitted)
Year Ended September 30,
1997 1996 1995
Cash flows from operating activities:
Earnings prior to equity in
subsidiaries' undistributed
earnings (loss) $ 480 $ 621 $ 56
Adjustments to reconcile
earnings to net cash provided
by operating activities:
Changes in assets and liabilities:
Accounts receivable 4 (4) -
Accounts payable and
accrued liabilities 149 139 47
Current and deferred
income taxes (384) 107 152
Other, net 62 102 (129)
Net cash provided by
operating activities 311 965 126
Cash flows from investing activities - - -
Cash flows from financing activities:
Exercise of stock options 71 46 205
Common stock acquired and retired (76) (425) -
Capital contribution to subsidiary (534) (438) (2,178)
Advance from subsidiary 533 107 1,257
Net cash used in financing activities (6) (710) (716)
Net increase (decrease) in cash 305 255 (590)
Cash beginning of period 273 18 608
Cash end of period $ 578 $ 273 $ 18
Supplemental information:
Income taxes paid $ 530 $ 119 $ 1,743
The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I - Condensed Financial Information
(continued)
MATLACK SYSTEMS, INC.
Note to the Financial Statements
Accounting Policies
The accounting policies of the Company and its subsidiaries are set
forth in the Organization and Accounting Policies note in the
consolidated financial statements of this 1997 Annual Report on Form
10-K.
The Company's principal source of earnings is dividends paid by its
subsidiaries. Certain loan agreements restrict payments to the Company
by its subsidiaries. Net assets of subsidiaries not restricted under
such loan agreements totaled $6,909,000 at September 30, 1997. The
Company also realizes cash receipts by assessing subsidiaries for
federal taxes on income and expends cash in payment of such taxes on a
consolidated basis. Tax assessments are based on the amount of federal
income taxes which would be payable (recoverable) by each subsidiary
company based on its current year's earnings (loss) reduced by that
subsidiary's applicable portion of any consolidated credits utilized
currently in the consolidated federal income tax return.
MATLACK SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($000 OMITTED)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
Year Ended
September 30,
1997: Allowance for
doubtful accounts $414 $465 $126(1) $422(2) $583
1996: Allowance for
doubtful accounts $391 $355 $162(1) $494(2) $414
1995: Allowance for
doubtful accounts $390 $129 $146(1) $274(2) $391
(1) Recoveries.
(2) Bad debt write-offs.
Matlack Systems, Inc.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1997
Index to Exhibits
Exhibit (3)(b) By-Laws of Matlack Systems, Inc.
as last amended on January 30,
1997.
Exhibit (10)(e) Second Amendment dated February 7, 1997 to
the Master Credit Agreement between Matlack
(DE), Inc. et al, and Bank of America
Illinois and First Union National Bank
dated March 27, 1996.
Exhibit (10)(f) Third Amendment dated September 2, 1997 to
the Master Credit Agreement between Matlack
(DE), Inc. et al, and Bank of America
National Trust and Savings Association
successor by merger to Bank of America
Illinois and First Union National Bank
dated March 27, 1996.
Exhibit (10)(g) First Amendment dated February 7, 1997 to
the Credit Agreement between Matlack (DE),
Inc. et al, and Bank of America Illinois
dated March 27, 1996.
Exhibit (10)(h) Second Amendment dated September 2, 1997 to
the Credit Agreement between Matlack (DE),
Inc. et al, and Bank of America National
Trust and Savings Association successor by
merger to Bank of America Illinois dated
March 27, 1996.
Exhibit (10)(i) First Amendment dated August 29, 1997 to
the Credit Agreement between Matlack (DE),
Inc. et al, and First Union National Bank
dated March 27, 1996.
Exhibit (10)(j) Second Amendment dated November 14, 1997 to
the Credit Agreement between Matlack (DE),
Inc. et al, and First Union National Bank
dated March 27, 1996.
Exhibit 21 Matlack Systems, Inc. Subsidiaries at
September 30, 1997
Exhibit 27 Matlack Systems, Inc. Financial Data
Schedule at September 30, 1997
Exhibit 21
Matlack Systems, Inc.
Subsidiaries at September 30, 1997
Jurisdiction of
Name Incorporation
Matlack (DE), Inc. Delaware
Bayonne Terminals, Inc. Pennsylvania
Matlack International, Inc. Delaware