Page 1 of 10
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, 1998
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, 1998 was 8,814,434.
FORM 10-Q Page 2 of 10
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.
Certain prior year amounts have been reclassified to conform with the
current period's presentation. Operating results for the quarter ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended September 30, 1999. 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, 1998.
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):
Quarter Ended
December 31,
1998 1997
Basic EPS 8,813 8,786
Effect of options - (1) 115
Diluted EPS 8,813 8,901
(1) The effect of options was not considered as it would have been
anti-dilutive.
No adjustments to net income available to common stockholders were
required during the periods presented.
FORM 10-Q Page 3 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($000 Omitted Except for Per Share Amounts)
Quarter Ended
December 31,
1998 1997
Revenues $54,512 $62,509
Expenses
Operating 47,165 52,644
Depreciation and amortization 2,924 3,267
Selling and administrative 5,221 4,919
Other income (179) (393)
55,131 60,437
Operating earnings (loss) (619) 2,072
Interest expense 934 1,039
Earnings (loss) before income taxes (benefit) (1,553) 1,033
Income taxes (benefit) (562) 434
Net earnings (loss) $ (991) $ 599
Earnings (loss) per share
Basic $ (.11) $ .07
Diluted $ (.11) $ .07
Average common shares outstanding (000)
Basic 8,813 8,786
Diluted 8,813 8,901
Dividends paid per share None None
FORM 10-Q Page 4 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
December 31, September 30,
ASSETS 1998 1998
Current assets
Cash $ 406 $ 5,477
Accounts receivable, net of allowance for
doubtful accounts: December-$830;
September-$668 30,697 29,831
Inventories 6,528 6,382
Other current assets 5,993 4,179
Refundable income taxes 160 -
Deferred income taxes 2,034 1,572
Total current assets 45,818 47,441
Property and equipment, at cost, net of
accumulated depreciation of:
December-$132,717; September-$130,600 91,080 94,382
Other assets 3,149 1,440
Total assets $140,047 $143,263
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,055 $ 6,846
Accrued liabilities 10,699 13,583
Income taxes payable - 1,393
Current maturities of long-term debt 2,648 2,588
Total current liabilities 18,402 24,410
Long-term debt 50,120 47,446
Insurance reserves 5,458 5,015
Other liabilities 1,485 1,266
Deferred income taxes 9,905 9,486
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-8,814,434 and
September-8,809,634 8,814 8,809
Capital in excess of par value 10,620 10,597
Retained earnings 35,243 36,234
Total shareholders' equity 54,677 55,640
Total liabilities and
shareholders' equity $140,047 $143,263
FORM 10-Q Page 5 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Quarter Ended
December 31,
1998 1997
Cash flows from operating activities:
Net earnings (loss) $ (991) $ 599
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 2,924 3,273
Net gain on sale of property and equipment (170) (393)
Changes in assets and liabilities:
Accounts receivable (666) (835)
Inventories and other assets (1,958) (2,017)
Accounts payable and accrued liabilities (4,675) (2,159)
Current and deferred income taxes (1,596) (31)
Other, net 661 (762)
Net cash used in operating activities (6,471) (2,325)
Cash flows from investing activities:
Purchase of property and equipment (1,734) (2,731)
Proceeds from the sale of property and equipment 372 1,384
Net cash used in investing activities (1,362) (1,347)
Cash flows from financing activities:
Proceeds of long-term debt 16,300 18,917
Repayment of long-term debt (13,566) (14,931)
Exercise of stock options 28 30
Net cash provided by financing activities 2,762 4,016
Net (decrease) increase in cash (5,071) 344
Cash beginning of period 5,477 2,524
Cash end of period $ 406 $ 2,868
Supplemental and noncash information:
Interest paid $ 936 $ 1,046
Income taxes paid $ 1,034 $ 465
Notes receivable from asset disposals
included in:
Accounts receivable $ 200 $ -
Other assets $ 1,825 $ -
FORM 10-Q Page 6 of 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Quarter Ended December 31, 1998 vs. Quarter Ended
December 31, 1997
Revenues for the quarter ended December 31, 1998 decreased by $7,997,000
(12.8%) to $54,512,000 compared with $62,509,000 during the same quarter
last year. The number of bulk trucking loads carried decreased by 25.1%
and average miles per load increased by 7.5%. Revenue per load increased
by 7.6% over the same quarter last year. Overall revenues from the
Company's non-bulk trucking operations remained essentially flat when
compared with the prior year.
Operating expenses decreased by $5,479,000 (10.4%) and reflected the
decrease in revenues. Drivers' wages decreased by $3,137,000, fuel expense
decreased by $1,714,000 and equipment maintenance expense decreased by
$432,000, all reflecting the lower level of business.
Depreciation expense decreased by $343,000 (10.5%) reflecting both the
disposition of property and equipment during fiscal 1998 and the first
quarter of fiscal 1999 and the fact that a larger portion of the Company's
assets have become fully depreciated.
Other income includes a gain of $154,000 from the sale of a significant
portion of the facility owned by Bayonne Terminals, Inc.
Selling and administrative expenses increased by $302,000 (6.1%)
principally as a result of increased spending for management information
systems enhancements and, as a percentage of revenue, were 9.6% in 1998 and
7.9% in 1997.
Interest expense decreased by $105,000 reflecting lower borrowing rates
and a slightly lower level of indebtedness when compared with the same
period of last year.
The rate of income tax benefit in the first quarter of fiscal 1999 was
36.2% compared with an effective income tax rate last year of 42.0%.
The net loss for the quarter was $991,000 or $.11 per diluted share.
The loss reflects the Company's lower level of business during the first
fiscal quarter.
Liquidity and Capital Resources
During the first quarter of fiscal 1999, the Company's operating
activities required a cash outflow of $6,471,000. Historically, the
Company incurs a net cash outflow from operating activities during the
first quarter due to the inclusion of annual payments for insurance
premiums and incentive compensation payments relating to the prior year.
These items, as well as the seasonal nature of the business, cause the net
cash flow from operating activities generally to be negative in the first
quarter and positive for the next three quarters. The two previous fiscal
years' cash flow from operating activities were as follows:
FORM 10-Q Page 7 of 10
Year ended September 30,
1998 1997
Cash flow from operating activities:
First fiscal quarter $(2,325,000) $(2,086,000)
Next three quarters 11,359,000 10,827,000
Full year $ 9,034,000 $ 8,741,000
Based on the Company's internal projections, the cash flow from
operating activities for the remaining three quarters of fiscal 1999 is
expected to be similar to the levels experienced during those same periods
in the two previous years.
Capital expenditures in the first quarter of fiscal 1999 were $1,734,000
compared with $2,731,000 in the prior year. The capital expenditures in
the first quarter were funded from available cash balances and borrowings
under the Company's credit agreement.
Capital expenditures for the remainder of fiscal 1999 are expected to be
between $3,000,000 and $5,000,000. As indicated above, cash flow from
operating activities during the remainder of the fiscal year is expected to
be sufficient to fund these expected capital expenditures.
The Company had no commitments for equipment or facilities at December
31, 1998, however, the Company currently is evaluating proposals from
tractor suppliers to buy or lease an as of yet undetermined number of new
tractors to replace existing older models in its fleet. Current and
expected future market conditions will determine the timing and level of
this tractor replacement decision. During the quarter ended December 31,
1998, the Company returned 35 tractors to a lessor due to lower overall
demand. Bulk trucking service demand continued to decrease during the
quarter ended December 31, 1998, however, this trend appears to have
slowed.
The Company's loss from operations for the quarter ended December 31,
1998 would have caused it to be out of compliance with the fixed charge
coverage ratio of its credit agreement. The Company amended this credit
agreement on February 12, 1999 and modified the terms of this covenant for
the quarter ended December 31, 1998 and the next three quarters. The
Company was in compliance with all the terms of the amended credit
agreement at December 31, 1998 and, based on its internal projections,
expects to remain in compliance with the modified terms of the agreement
for the remainder of the fiscal year. At December 31, 1998, a total of
$13,700,000 was available under this credit facility.
On December 16, 1998, the Company sold a significant portion of its
Bayonne Terminals, Inc. facility for $2,275,000 in cash and notes. The
proceeds from the notes are expected to be realized as follows: $200,000
in fiscal 2000, $300,000 in fiscal 2001 and $1,525,000 in fiscal 2002.
At December 31, 1998, the Company had required debt service obligations
of $2,347,000 during the next 12 months. Required debt service for fiscal
year 2000 is $1,638,000.
FORM 10-Q Page 8 of 10
Otherwise, there were no material changes in the Company's financial
condition and its liquidity and capital resources since September 30, 1998.
For further details, see page 6 of the Company's 1998 Annual Report to
Shareholders on Form 10-K for the year ended September 30, 1998.
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, particularly the
chemical industry, 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.
Year 2000 ("Y2K") Readiness Disclosure
The Company is aware of the issues related to the approach of the year
2000 and has assessed and investigated what steps must be taken to ensure
that its critical systems and equipment will function appropriately after
the turn of the century. The Company has completed a review of each of its
core systems to determine their Y2K compliance. As a result, the Company
is replacing its Service Management System with one designed to be Y2K
compliant from inception. The remaining core systems are vendor-supplied
and maintained systems where the Company has received Y2K compliant
upgrades and is in various stages of implementation and testing. The
Company expects to complete its Service Management System replacement by
June 30, 1999 and has taken actions toward making all other non-core
systems Y2K compliant by September 30, 1999. The Service Management System
replacement is expected to cost approximately $4,400,000 of which
$3,700,000 had been expended as of December 31, 1998.
FORM 10-Q Page 9 of 10
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its transportation equipment and to
provide dispatch and routing information to its drivers. The Company has
been informed that the software utilized by Qualcomm and the Company is
fully Y2K compliant. A failure of the satellite communication system could
have a materially adverse effect on the Company's results of operations.
The Company is relying on the contingency plan established by Qualcomm to
prevent the interruption of business. As an additional backup, the Company
plans to use its existing telephone systems to dispatch its equipment and
provide support to its drivers in the event of a complete satellite system
failure. In addition, the Company utilizes Comdata to allow drivers to
purchase fuel outside of the Company's terminal locations. The Company has
been informed that Comdata expects to be fully Y2K compliant by June 30,
1999. The Company also interacts with many of its vendors through
electronic data interchange (EDI). Although the Company is Y2K compliant
in its EDI applications, it cannot and does not guarantee the Y2K
compliance of its business partners' systems.
The Company is in the process of formulating a contingency plan to deal
with Y2K issues and expects such plan to be completed by June 30, 1999.
However, due to the complexity and widespread nature of such issues, the
contingency planning process of necessity must be an ongoing one requiring
possible further modification as more information becomes known regarding
(1) the Company's own systems and facilities, and (2) the status and
changes therein of the Y2K compliance efforts of outside suppliers and
vendors. Management believes that the Company's current state of
readiness, the nature of the Company's business, and the availability of
the contingency plan minimizes Y2K risks. Management does not foresee
significant liability to third parties if one or more of the Company's
systems are not Y2K compliant. As significant Y2K uncertainties remain
outside the control of the Company, at this time the Company is unable to
determine a most reasonably likely worst case scenario.
Through December 31, 1998, the Company has incurred, in addition to the
Service Management System costs noted above, $230,000 of internal staff
costs necessary to review and further Y2K compliance of its core operating
systems. All Y2K costs have been and will continue to be funded from cash
flows from operations. The Company expects the total costs associated with
its Y2K readiness program to aggregate approximately $400,000.
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.
FORM 10-Q Page 10 of 10
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.
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: February 16, 1999 MATLACK SYSTEMS, INC.
(Registrant)
/s/ G. J. Trippitelli
G. J. Trippitelli
President and Chief Executive Officer
/s/ Patrick J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer