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 March 31, 1999
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 March 31, 1999 was 8,814,434.
FORM 10-Q Page 2 of 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Basis of Presentation
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 and six
months ended March 31, 1999 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 Six Months Ended
March 31, March 31,
1999 1998 1999 1998
Basic EPS 8,814 8,787 8,814 8,786
Effect of assumed option
exercises - (1) 151 - (1) 130
Diluted EPS 8,814 8,938 8,814 8,916
(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
Item 1. Financial Statements
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Six Months Ended
March 31, March 31,
1999 1998 1999 1998
Revenues $51,638 $61,201 $106,150 $123,710
Operating expenses 45,399 51,863 92,564 104,507
Depreciation and amortization 2,852 3,085 5,776 6,352
Selling and administrative
expenses 5,038 5,114 10,259 10,033
Other (income) (224) (505) (403) (898)
53,065 59,557 108,196 119,994
Operating earnings (loss) (1,427) 1,644 (2,046) 3,716
Interest expense 948 1,049 1,882 2,088
Earnings (loss) before
income taxes (benefit) (2,375) 595 (3,928) 1,628
Income taxes (benefit) (879) 250 (1,441) 684
Net earnings (loss) $(1,496) $ 345 $ (2,487) $ 944
Earnings (loss) per share
- Basic $ (.17) $ .04 $ (.28) $ .11
- Diluted $ (.17) $ .04 $ (.28) $ .11
Average common shares
outstanding (000)
- Basic 8,814 8,787 8,814 8,786
- Diluted 8,814 8,938 8,814 8,916
Dividends paid per share None None None None
FORM 10-Q Page 4 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
March 31, September 30,
ASSETS 1999 1998
Current assets
Cash $ 2,892 $ 5,477
Accounts receivable, net of allowance for
doubtful accounts: March-$814;
September-$668 31,132 29,831
Inventories 6,392 6,382
Other current assets 3,505 4,179
Refundable income taxes 1,055 -
Deferred income taxes 2,014 1,572
Total current assets 46,990 47,441
Property and equipment, at cost, net of
accumulated depreciation of:
March-$133,026; September-$130,600 90,316 94,382
Other assets 3,372 1,440
Total assets $140,678 $143,263
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,971 $ 6,846
Accrued liabilities 11,492 13,583
Income taxes payable - 1,393
Current maturities of long-term debt 2,680 2,588
Total current liabilities 21,143 24,410
Long-term debt 49,907 47,446
Insurance reserves 5,053 5,015
Other liabilities 1,610 1,266
Deferred income taxes 9,784 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:
March-8,814,434 and September-8,809,634 8,814 8,809
Capital in excess of par value 10,620 10,597
Retained earnings 33,747 36,234
Total shareholders' equity 53,181 55,640
Total liabilities and
shareholders' equity $140,678 $143,263
FORM 10-Q Page 5 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Six Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net earnings (loss) $(2,487) $ 944
Adjustments to reconcile net earnings (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 5,776 6,352
Net gain on sale of property and equipment (361) (898)
Changes in assets and liabilities:
Accounts receivable (1,101) (723)
Inventories and other assets 311 (968)
Accounts payable and accrued liabilities (1,966) (2,566)
Current and deferred income taxes (2,592) 163
Other, net 382 (408)
Net cash (used in) provided by operating activities (2,038) 1,896
Cash flows from investing activities:
Purchase of property and equipment (4,123) (5,771)
Proceeds from sale of equipment 995 3,099
Net cash used in investing activities (3,128) (2,672)
Cash flows from financing activities:
Proceeds of long-term debt 26,000 32,081
Repayment of long-term debt (23,447) (31,529)
Exercise of stock options 28 33
Net cash provided by financing activities 2,581 585
Net decrease in cash (2,585) (191)
Cash beginning of period 5,477 2,524
Cash end of period $ 2,892 $ 2,333
Supplemental and noncash information:
Interest paid $ 1,441 $ 1,722
Income taxes paid $ 1,150 $ 521
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: Six Months Ended March 31, 1999 vs. Six Months
Ended March 31, 1998
Revenues for the six months ended March 31, 1999 decreased by $17,560,000
(14.2%) from $123,710,000 to $106,150,000. The number of loads carried
decreased by 22.5% while the average miles per load increased by 4.2%.
Revenue per load carried increased by 4.9% over the same period of last
year. Revenues from the Company's non-bulk trucking subsidiaries decreased
by 3.4% when compared with the prior year.
Operating expenses decreased by $11,943,000 (11.4%) and reflected the
decrease in revenues. Drivers' wages decreased by $5,723,000, fuel expense
decreased by $2,766,000, purchased transportation decreased by $2,573,000,
equipment maintenance expense decreased by $420,000 and tank cleaning
expense decreased by $391,000, all reflecting the lower level of business.
Operating expenses as a percentage of revenues increased to 87.2% in 1999
from 84.5% in 1998.
Depreciation expense decreased by $576,000 (9.1%) reflecting the
disposition of property and equipment both during fiscal 1998 and the first
six months of fiscal 1999.
Other income of $403,000 represents principally the net gain derived from
the disposal of property and equipment during the current fiscal year. The
sale, during the first quarter of fiscal 1999, of a significant portion of
the facility owned by Bayonne Terminals, Inc. accounted for $154,000 of the
gain.
Selling and administrative expenses increased by $226,000 (2.3%)
principally as a result of increased spending for management information
systems enhancements. As a percentage of revenue, selling and
administrative expenses were 9.7% in 1999 and 8.1% in 1998.
Interest expense decreased by $206,000 (9.9%) reflecting lower borrowing
rates on a slightly increased level of borrowing when compared with the
same period of last year.
The rate of income tax benefit for the first six months of fiscal 1999
was 36.7% compared with an effective tax rate last year of 42.0%.
The net loss for the fist six months of fiscal 1999 was $2,487,000 or
$.28 per diluted share. The loss reflects the Company's lower level of
business during the first six months of the current fiscal year.
Results of Operations: Quarter Ended March 31, 1999 vs. Quarter Ended
March 31, 1999
Revenues for the quarter ended March 31, 1999 were $51,638,000 compared
with $61,201,000 reported in the second quarter last year. The decrease of
$9,563,000 was principally due to lower demand for transportation services
in the chemical industry. The number of loads carried decreased by 19.9%.
During the quarter, revenue per load carried increased by 2.3%, while miles
per load and revenue per mile remained essentially unchanged. Non-bulk
trucking revenues decreased by 11.7% and reflected the continued weak
demand for the Company's services.
FORM 10-Q Page 7 of 10
Operating expenses decreased by $6,464,000 (12.5%) and reflected the
decrease in revenues. Drivers' wages decreased by $2,586,000, fuel expense
decreased by $1,052,000, purchased transportation decreased by $1,499,000
and tank cleaning expense decreased by $335,000, all reflecting the lower
level of business. Operating expenses as a percentage of revenues
increased to 87.9% in 1999 from 84.5% in 1998.
Depreciation expense decreased by $233,000 (7.6%) reflecting the
disposition of property and equipment both during fiscal 1998 and the first
six months of fiscal 1999.
Other income of $224,000 represents the net gain derived from the
disposal of property and equipment during the current quarter. The Company
sold 10 tractors, 60 trailers and a terminal facility in Marietta, Ohio
which accounted for the gain realized.
Selling and administrative expenses decreased by $76,000 (1.5%)
reflecting in part the lower level of business and, as a percentage of
revenue, were 9.8% in 1999 and 8.4% in 1998.
Interest expense decreased by $101,000 (9.6%) reflecting lower borrowing
rates on a lower level of borrowing when compared with the same period of
last year.
The rate of income tax benefit for the second quarter of fiscal 1999 was
37.0% compared with an effective income tax rate last year of 42.0%.
The net loss for the second quarter of fiscal 1999 was $1,496,000 or $.17
per diluted share. The loss reflects the continued lower level of business
experienced by the Company.
Liquidity and Capital Resources
During the second quarter of fiscal 1999, the Company's operating
activities produced a positive cash flow of $4,433,000 which, along with
the cash proceeds of $623,000 received from the sale of property and
equipment were used to purchase property and equipment for $2,389,000, to
reduce indebtedness by $181,000 and to increase the Company's cash balance
by $2,486,000. Based on the Company's internal projections, the cash flow
from operating activities for the remainder of fiscal 1999 is expected to
be positive.
Capital expenditures for the remainder of fiscal 1999 are expected to be
approximately $3,000,000. Cash flow from operating activities during the
remainder of the fiscal year is expected to be in excess of these expected
capital expenditures.
The Company had no commitments for equipment or facilities at March 31,
1999, however, the Company is evaluating proposals from tractor suppliers
to buy or lease an 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.
FORM 10-Q Page 8 of 10
On February 12, 1999, the Company modified the terms of its credit
agreement 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 March 31, 1999 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 March 31, 1999, a total of
$8,853,000 was available under this credit facility.
Otherwise, there have been no material changes in the Company's financial
condition and its liquidity and capital resources since September 30, 1998.
For further details, see 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
FORM 10-Q Page 9 of 10
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
$3,850,000 had been expended as of March 31, 1999.
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. However, as part of the
Company's contingency planning, programs are in place which permit the
Company to deal with its EDI business partners in a non-EDI environment, if
necessary. Therefore, the failure of any such business partners to achieve
Y2K compliance would not have a material adverse effect upon the Company's
operations.
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 March 31, 1999, the Company has incurred, in addition to the
Service Management System costs noted above, $300,000 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.
FORM 10-Q Page 9 of 10
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 Michael B. Kinnard the
Company's in-house General 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
The Company's Annual Meeting of Shareholders was held on January 28,
1999. With regard to Proposal No. 1 of the NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 28, 1999 to elect two Class I Directors
to the Board of Directors, Patrick J. Bagley and Gerard J. Trippitelli were
elected. At the meeting, 5,675,685 and 5,670,076 affirmative votes were
cast for Patrick J. Bagley and Gerard J. Trippitelli, respectively. There
were no votes cast against either nominee and 8,528 and 14,137 votes were
withheld from Patrick J. Bagley and Gerard J. Trippitelli, respectively.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) 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: May 7, 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