Page 1 of 9
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, 1997
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, 1997 was 8,787,162.
FORM 10-Q Page 2 of 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 1998. 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, 1997.
B. 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,
1997 1996
Basic EPS 8,786 8,757
Effect of option
exercises (assumed) 115 41
Diluted EPS 8,901 8,798
No adjustments to net income available to common stockholders were
required during the periods presented.
FORM 10-Q Page 3 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Ended
December 31,
1997 1996
Revenues $62,509 $54,557
Operating expenses 53,194 46,595
Depreciation 3,267 3,212
Selling and administrative expenses 4,369 4,357
Other (income) expense (393) (14)
60,437 54,150
Operating earnings 2,072 407
Interest expense 1,039 740
Earnings (loss) before income taxes (benefit) 1,033 (333)
Income taxes (benefit) 434 (61)
Net earnings (loss) $ 599 $ (272)
Earnings (loss) per share
Basic $ .07 $ (.03)
Diluted $ .07 $ (.03)
Average common shares outstanding (000)
Basic 8,786 8,757
Diluted 8,901 8,798
Dividends paid per share None None
FORM 10-Q Page 4 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
December 31, September 30,
ASSETS 1997 1997
Current assets
Cash $ 2,868 $ 2,524
Accounts receivable, net of allowance for
doubtful accounts: December-$489;
September-$583 31,252 30,417
Inventories 6,048 5,895
Other current assets 4,663 3,036
Deferred income taxes 780 1,066
Total current assets 45,611 42,938
Property and equipment, at cost, net of
accumulated depreciation of:
December-$129,727; September-$128,216 97,573 99,106
Other assets 455 218
Total assets $143,639 $142,262
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,691 $ 8,320
Accrued liabilities 7,053 9,583
Income taxes payable 905 590
Current maturities of long-term debt 6,780 6,831
Total current liabilities 23,429 25,324
Long-term debt 46,815 42,778
Insurance reserves 2,308 3,176
Other liabilities 1,966 1,860
Deferred income taxes 10,935 11,567
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; issued and
outstanding - None
Common stock, $1 par value,
24,000,000 shares authorized;
issued and outstanding:
December-8,787,162 and
September-8,778,149 8,787 8,778
Capital in excess of par value 10,553 10,532
Retained earnings 38,846 38,247
Total shareholders' equity 58,186 57,557
Total liabilities and
shareholders' equity $143,639 $142,262
FORM 10-Q Page 5 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Quarter Ended
December 31,
1997 1996
Cash flows from operating activities:
Net earnings (loss) $ 599 $ (272)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 3,273 3,218
Net gain on sale of property and equipment (393) (14)
Changes in assets and liabilities:
Accounts receivable (835) (1,288)
Inventories and other assets (2,017) (2,323)
Accounts payable and accrued liabilities (2,159) (2,086)
Current and deferred income taxes (31) 485
Other, net (762) 194
Net cash used in by operating activities (2,325) (2,086)
Cash flows from investing activities:
Purchase of property and equipment (2,731) (6,178)
Proceeds from sale of property and equipment 1,384 291
Net cash used in investing activities (1,347) (5,887)
Cash flows from financing activities:
Proceeds of long-term debt 18,917 15,300
Repayment of long-term debt (14,931) (8,742)
Exercise of stock options 30 20
Common stock acquired and retired - (76)
Net cash provided by financing activities 4,016 6,502
Net increase (decrease) in cash 344 (1,471)
Cash beginning of period 2,524 3,019
Cash end of period $ 2,868 $ 1,548
Supplemental information:
Interest paid $ 1,046 $ 827
Income taxes paid (recovered) $ 465 $ (546)
FORM 10-Q Page 6 of 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Quarter Ended December 31, 1997 vs. Quarter Ended
December 31, 1996
Revenues for the quarter ended December 31, 1997 increased by
$7,952,000 (14.6%) to $62,509,000 compared with $54,557,000 during the same
quarter last year. Increased demand for transportation services in the
chemical industry due to rail service interruptions, the impact of recent
acquisitions and additional new business contributed to the higher
revenues. The number of bulk trucking loads carried increased by 14.5% and
average miles per load increased by 3.8%. The Company's non-bulk trucking
revenues, which represented almost 17% of the Company's revenues, increased
by 15.8%.
Operating expenses increased by $6,599,000 (14.2%) and reflected the
increase in revenues. Drivers' wages increased by $3,035,000 and other
compensation costs increased by $582,000 during the quarter. Fuel expense
increased by $464,000 reflecting the increase in miles driven, partially
offset by the effect of lower fuel prices. Equipment maintenance expense
increased by $769,000 and reflected the higher level of business and costs
associated with bringing certain recently acquired equipment up to Company
specifications. Terminal expenses increased by $758,000 and all other
operating expenses increased by $961,000 reflecting the higher level of
business and costs associated with integrating recently acquired facilities
and equipment.
Depreciation expense increased by $55,000 (1.7%) reflecting the
Company's continued investment in operating equipment. In large part, the
increase in depreciation has slowed as certain of the Company's assets have
become fully depreciated.
During the quarter, the Company realized proceeds from the sale of
property and equipment of $1,384,000, which resulted in a gain of $393,000.
A large portion of the proceeds and substantially all of the gain resulted
from the sale of the Company's Portland, Oregon terminal in late December
for approximately $1,200,000.
Selling and administrative expenses remained essentially unchanged
between the first quarter of fiscal year 1998 and the same quarter last
year. The stabilization of these expenses resulted from continued cost
containment efforts and the elimination, during fiscal 1997, of a region-
alized management structure related to the Company's operations. As a
percentage of revenues, these expenses were 7.0% in 1997 and 8.0% in 1996.
Interest expense increased $299,000 (40.4%) reflecting higher interest
rates and the Company's higher level of indebtedness, a large portion of
which was incurred during the fourth quarter of fiscal 1997.
The effective income tax rate was 42.0% for the first quarter of
fiscal year 1998. For the first quarter of fiscal year 1997, the effective
rate of income tax benefit was 18.3%. The low effective rate of benefit
was caused by the impact that non-deductible expenses had upon the tax
computations.
FORM 10-Q Page 7 of 9
Net earnings for the quarter were $599,000 or $.07 per diluted share
compared with a net loss last year of $272,000 or $.03 per diluted share.
The increase in net earnings reflects the higher level of revenues.
Revenues and operating expenses in the first quarter related to the
business formerly operated by Arrow Transportation Company of Portland,
Oregon were approximately $3,000,000. Earnings were negatively impacted by
transition and integration costs associated with Arrow, which included
driver hiring and training and certain equipment repositioning. The
integration of Arrow substantially was completed by the end of the first
quarter.
Liquidity and Capital Resources
During the first quarter of fiscal 1998, the Company financed its cash
outflow from operating activities and capital expenditures with increased
borrowings under its revolving credit agreement and equipment term loans.
At December 31, 1997, a total of $1,200,000 was available to the Company
under its revolving credit facility.
In recent years, the Company incurred a net cash outflow from
operating activities during the first fiscal quarter, when payments for
annual insurance premiums and the prior fiscal year's incentive
compensation liability are made. Normally, subsequent quarters provide a
cash inflow from operating activities, which the Company expects for the
remainder of fiscal 1998.
Otherwise, there were no material changes in the Company's financial
condition and its liquidity and capital resources since September 30, 1996.
For further details, see pages 5 through 7 of the Company's 1997 Annual
Report to Shareholders on Form 10-K for the year ended September 30, 1997.
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,
FORM 10-Q Page 8 of 9
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and legal actions pending against the
Company. In the opinion of management, based on the advice of counsel, the
outcome of such claims and litigation will not have a material adverse
effect upon the Company's financial position or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
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
None.
FORM 10-Q Page 9 of 9
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: January 28, 1998 MATLACK SYSTEMS, INC.
(Registrant)
/s/ G. J. Trippitelli
G. J. Trippitelli
President and Chief Executive Officer
/s/ P. J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer