SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 September 26, 1997.
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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 000-8517
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Chemical Leaman Corporation
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2021808
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(State or other jurisdiction of incorporation or organization) (IRS employer
identification no.)
102 Pickering Way, Exton, Pennsylvania 19341-0200
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (610) 363-4200
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Former name, former address and former fiscal year, if changed since last report
Indicate by check 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 No X
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $2.50 per share: 546,895 shares outstanding as
of November 17, 1997.
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
INDEX
Page #
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
September 26, 1997 (Unaudited) and December 31, 1996 1-2
Condensed Consolidated Statements of Operations (unaudited)-
Three Months Ended September 26, 1997 and
September 29, 1996 3
Condensed Consolidated Statements of Operations (unaudited)-
Nine Months Ended September 26, 1997 and
September 29, 1996 3
Condensed Consolidated Statements of Cash Flows (unaudited)-
Nine Months Ended September 26, 1997 and
September 29, 1996 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis of financial condition
and results of operation 8-10
Part II Other Information 11
Item 1 Legal Proceedings
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature 12
PART I
FINANCIAL INFORMATION
Item 1 Financial Statements
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 26, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 9,663 $ 5,788
Accounts receivable, net of allowance of $963 at
September 26, 1997 and $570 at December 31, 1996 21,084 36,859
Operating supplies 984 1,548
Prepaid expenses and other 9,888 7,982
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Total current assets 41,619 52,177
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Property and equipment, net 110,485 108,789
Recoverable environmental costs 14,303 13,680
Other assets 13,637 7,898
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$ 180,044 $ 182,544
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 26, December 31,
1997 1996
------------ -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and drafts payable $20,371 $18,028
Accrued salaries and wages 4,010 4,336
Other accrued liabilities 2,694 3,828
Accrued liability - insolvent insurer obligation (See Note 3) 7,397 --
Estimated self-insurance liabilities 3,293 4,238
Current maturities of long-term debt 450 4,364
Current maturities of equipment obligations -- 4,957
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Total current liabilities 38,215 39,751
Long-term equipment obligations 53,484
Long-term debt 101,407 46,219
Estimated self-insurance liabilities 17,368 16,783
Other non-current liabilities 7,867 5,266
Redeemable preferred stock 5,318 5,318
Stockholders' equity
Common stock 2,677 2,677
Other stockholders' equity 7,192 13,046
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Total stockholders' equity 9,869 15,723
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$ 180,044 $ 182,544
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands)
FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
----------------------- -----------------------
SEPT. 26, SEPT. 29, SEPT. 26, SEPT. 29,
1997 1996 1997 1996
-------- --------- --------- --------
OPERATING REVENUES $240,581 $205,997 $ 84,036 $ 78,385
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits 51,680 49,538 16,733 17,007
Purchased transportation and rents 107,996 89,724 38,865 35,182
Operations and maintenance 49,489 40,139 17,331 17,443
Depreciation and amortization 14,427 11,471 5,091 4,298
Taxes and licenses 2,187 1,770 730 595
Insurance and claims 5,843 2,898 1,441 883
Communication and utilities 4,920 5,435 1,600 1,841
Loss on disposition of revenue equipment, net 140 233 95 92
Insolvent insurer obligation (See Note 3) 4,772 -- 4,772 --
--------- --------- -------- --------
Total operating expenses 241,454 201,208 86,658 77,341
--------- --------- -------- --------
OPERATING (LOSS) INCOME (873) 4,789 (2,622) 1,044
INTEREST EXPENSE, net 7,311 5,106 2,796 2,014
OTHER EXPENSE (INCOME), net 266 (135) 101 (124)
--------- ---------- -------- ---------
Loss before income tax benefit (8,450) (182) (5,519) (846)
INCOME TAX BENEFIT (3,572) (26) (2,349) (359)
--------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (4,878) (156) (3,170) (487)
--------- --------- -------- --------
EXTRAORDINARY LOSS on early extinguishment of debt,
less applicable income taxes of $133 (199) -- -- --
---------- ---------- -------- --------
NET LOSS $ (5,077) $ (156) $ (3,170) $ (487)
========= =========== ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(In thousands)
For the Nine Months Ended
--------------------------------
September 26, September 29,
1997 1996
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OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities (1,068) 583
INVESTING ACTIVITIES:
Acquisition of business -- (15,517)
Additions to property and equipment (16,135) (13,867)
Proceeds from the sales of property and equipment 846 1,399
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Net cash used in investing activities (15,289) (27,985)
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FINANCING ACTIVITIES:
Payments on equipment obligations (62,439) (8,022)
Proceeds from issuance of equipment obligations 3,998 30,115
Increase (decrease) in bank overdrafts 839 (24)
Proceeds from issuance of long-term debt 100,000 7,000
Payments on long-term debt (21,700) (1,399)
Payments on early extinguishment of debt (199) --
Retirement of common stock -- (796)
Preferred stock dividends (267) (266)
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Net cash provided by financing activities 20,232 26,608
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Net increase (decrease) in cash and cash equivalents 3,875 (794)
CASH AND CASH EQUIVALENTS:
Beginning of year 5,788 8,523
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End of year $ 9,663 $ 7,729
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Chemical Leaman Corporation and Subsidiaries
Notes To Condensed Consolidated Financial Statements (unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Preparation
The unaudited condensed consolidated financial statements of Chemical
Leaman Corporation (the "Company") included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures included herein are adequate to make the
information presented not misleading. Operating results for the three and nine
month periods ended September 26, 1997 and September 29, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997 or for future fiscal periods. These unaudited condensed
consolidated financial statements should be read in conjunction with the
financial statements included in the Company's Form S-4 Registration Statement
(the "Registration Statement") declared effective by the Securities and Exchange
Commission on October 10, 1997. Reference should be made to the Registration
Statement for capitalized (defined) terms used herein.
In the opinion of the Company, the unaudited condensed consolidated
financial statements contain all adjustments necessary for a fair statement of
the results of operations for the three and nine month periods ended September
26, 1997 and September 29, 1996 and for a fair presentation of financial
position at September 26, 1997.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No.130, "Reporting
Comprehensive Income" was issued in 1997 by the Financial Accounting Standards
Board ("FASB"). Under this Statement, standards were established for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income, but bypass net income. Components of comprehensive income
include (a) unrealized holding gains/losses on securities classified as
available for sale under FASB Statement No. 115, (b) Foreign currency
translation adjustments accounted for under FASB Statement No. 52, and (c)
minimum pension liability adjustments made pursuant to FASB Statement No. 87.
The only comprehensive income adjustment applicable to the Company is a minimum
pension liability adjustment. This Statement is effective for fiscal years
beginning after December 15, 1997. The Company will adopt this statement
prospectively during the first quarter of 1998.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" was issued in 1997. Under
this Statement, reporting standards were established for the way that public
business enterprises report information about operating segments in annual
financial statements and selected information about operating segments in
interim financial reports issued to shareholders. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement need
not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in the financial statements for interim
5
Chemical Leaman Corporation and Subsidiaries
Notes To Condensed Consolidated Financial Statements (unaudited)
periods in the second year of application. The Company will evaluate the impact
of this Statement prospectively in 1998.
Note 2 - December 31, 1996 Balance Sheet
- ------------------------------------------
The amounts presented in the balance sheet as of December 31, 1996 were
derived from the Company's audited consolidated financial statements which were
included in the Registration Statement.
Note 3 - Contingencies/Litigation
Multiemployer Pension Plan
In September of 1997 the Company entered into an agreement to settle a
dispute between the Company and a multiemployer pension plan covering certain of
the Company's union employees. Under the agreement, the Company has agreed to
provide a minimum level of future contributions to the plan for a four-year
period ending September 1, 2001. At that time, the plan trustees may renew their
claim that they have the right to terminate the Company's participation in the
plan with respect to some or all of its employees, and the Company retains any
and all defenses it has with respect to such claim. If the Company's
participation were to have terminated during 1997 with respect to a group of
employees, the Company would have been assessed a partial withdrawal liability
of approximately $3.8 million payable over a period of two years commencing in
1999. The Company anticipates that any withdrawal liability that might be due on
account of a partial withdrawal in or after 2001 will be substantially reduced
from that level.
Insolvent Insurer Obligation
On September 19, 1997, the Company agreed to settle all claims in the
A.L.U. Textile Combining Corp. et al. v. Texaco Chemical Co., et al. lawsuit
(Superior Court of New Jersey, Passaic County No. L-23905-87) for $19 million.
Although the Company has insurance coverage with several companies and
syndicates for that amount, a portion of the insurance coverage is carried by
insurers which are currently insolvent. As a result, in October 1997 the Company
initially funded the portion of the settlement, aggregating $7,397,390, for
which the insolvent carriers provided coverage, with the solvent insurers paying
the balance of the settlement. Most of the insolvent insurers have entered into
an arrangement approved by the British courts, pursuant to which the Company
expects to receive additional coverage payments of $794,659 approximately 60
days after payment of the settlement amount. In addition, based on its review of
the most recent annual report to creditors of the insolvent insurers and
discussions with representatives of such insurers, the Company expects periodic
payments over the next 10 years up to an aggregate amount of $3.2 million.
As of September 26, 1997, the Company recorded a current receivable in
the amount of $794,659 representing the additional coverage payments expected to
be received and a long term receivable in the amount of $1,830,277 representing
the discounted value of the aggregate payments expected to be received over 10
years. For the quarter ended September 26, 1997 the Company expensed $4,772,454
representing the settlement net of recoveries.
6
Chemical Leaman Corporation and Subsidiaries
Notes To Condensed Consolidated Financial Statements (unaudited)
Bridgeport, New Jersey
The Company is in litigation with its insurers to recover its costs in
connection with the environmental cleanup at its Bridgeport, NJ site, Chemical
Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., et al, Civil Action No.
89-1543 (SSB) (D.N.J.). On April 7, 1993, the U.S. District Court for the
District of New Jersey entered a judgment requiring the insurers to reimburse
the Company for substantially all past and future environmental cleanup costs at
the Bridgeport site. The insurers appealed the judgment to the U.S. Court of
Appeals for the Third Circuit, but before the appeal was decided the Company and
its primary insurer settled all of the Company's claims, including claims
asserted or to be asserted at other sites, for $11.5 million. This insurer
dismissed its appeal, but the excess carriers did not. On June 20, 1996, the
U.S. Court of Appeals affirmed the judgment against the excess insurance
carriers, except for the allocation of liability among applicable policies, and
remanded the case for an allocation of damage liability among the insurers and
applicable policies on a several basis. On September 15, 1997, the District
Court issued an order and accompanying opinion ruling on the allocation of
damages among the applicable policies as directed by the Court of Appeals. The
District Court's decision found that the Company has already recovered $11.5 in
past Bridgeport investigation and remediation costs from its primary insurer
under the aforementioned settlement agreement. The District Court's decision
further found that the Company is entitled to have the balance of its past costs
and all future Bridgeport investigation and remediation costs allocated among
the liable excess carriers, according to specific percentages set forth in the
District Court's Order. The Company and its excess carriers are engaged in
settlement negotiations in an effort to resolve all of the Company's claims,
including those relating to the Bridgeport, NJ site.
It is the belief of the environmental counsel to the Company, and
management, that receipt of insurance proceeds sufficient to recover all or
substantially all of the costs of remediating the Bridgeport, NJ site, including
attorneys' fees and expenses, is likely to occur.
7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operations
As noted in the audited financial statements of the Company included in
the Registration Statement, the Company acquired Fleet Transportation Company,
Inc. ("Fleet") in June of 1996. As such, much of the analysis of the results of
operation between comparative periods will be impacted by the results of Fleet.
Three Month Period Ended September 26, 1997 Compared to the Three Month Period
Ended September 29, 1996
Operating Revenues
Operating revenues increased by $5.6 million from $78.4 million for the
three month period ended September 29, 1996 to $84 million for the three month
period ended September 26, 1997. This increase is attributable to an increase in
existing operations.
Operating Expenses
Operating expenses increased $9.4 million from $77.3 million for the
three month period ended September 29, 1996 to $86.7 million for the three month
period ended September 26, 1997. The $9.4 million increase is due to $4.8
million related to the settlement of a lawsuit (discussed in Note 3) and $4.6
million attributable to increased business levels from existing operations.
Interest Expense
Interest expense increased from $2.0 million, or 2.6% of revenue for
the three month period ended September 29, 1996, to $2.8 million or 3.3% of
revenue for the three month period ended September 26, 1997. The increase in
interest expense is attributable to additional debt incurred in connection with
the Fleet acquisition and higher interest rates and increased debt as a result
of the issuance of the Company's Senior Notes completed on June 16, 1997.
Net Loss
The net loss for the three month period ended September 26, 1997
increased $2.7 million from $.5 million for the three month period ended
September 29, 1996 to $3.2 million. The increase was due primarily to the
after-tax effect of $4.8 million related to the settlement of a lawsuit
(discussed in Note 3) and $.8 million in increased interest expense.
8
Nine Month Period Ended September 26, 1997 Compared to the Nine Month Period
Ended September 29, 1996
Operating Revenues
Operating revenues increased by $34.6 million from $206 million for the
nine month period ended September 29, 1996 to $240.6 million for the nine month
period ended September 26, 1997. Of this increase, $31.7 million was a result of
the acquisition of Fleet. The remaining increase of $2.9 million results from an
increase in existing operations.
Operating Expenses
Operating expenses increased $40.2 million from $201.2 million for the
nine month period ended September 29, 1996 to $241.4 million for the nine month
period ended September 26, 1997. Of this increase, $31.3 million was a result of
the acquisition of Fleet. Of the $8.9 million remaining increase, $1.5 million
is attributable to a one-time charge for an insurance claim for personal injury
arising from a trucking accident and $4.8 million related to the settlement of a
lawsuit (discussed in Note 3). The balance, or $2.6 million, is attributable to
increased business levels from existing operations.
Interest Expense
Interest expense increased from $5.1 million for the nine month period
ended September 29, 1996, or 2.5% of revenue, to $7.3 million for the nine month
period September 26, 1997, or 3.0% of revenue. The increase in interest is
attributable to the additional debt incurred in connection with the Fleet
acquisition being outstanding for the entire 1997 nine month period and higher
interest rates and increased debt as a result of the issuance of the Company's
Senior Notes on June 16, 1997.
Net Loss
The net loss for the nine month period ended September 26, 1997
increased $4.9 million from $.2 million for the nine month period ended
September 29, 1996 to $5.1 million. The increase was due primarily to the
after-tax effect of the one-time insurance charge of $1.5 million, $4.8 million
related to the settlement of a lawsuit (discussed in Note 3) and $2.2 million in
increased interest expense.
9
Liquidity and Capital Resources
Since the issuance of the Company's Senior Notes on June 16, 1997, the
Company's primary source of liquidity has been existing cash balances and the
New Revolving Credit Facility. The New Revolving Credit Facility provides
additional lines of credit up to $20 million. As of September 26, 1997 the New
Revolving Credit Facility was undrawn except for standby letters of credit in
the amount of $3.9 million.
During the nine month period ended September 26, 1997, cash used in
operating activities was $1.1 million versus cash provided by operating
activities of $.6 million in the nine month period ended September 29, 1996.
Cash used in investing activities was $15.3 million and $28 million for the nine
month periods in 1997 and 1996, respectively. The Company acquired Fleet in June
of 1996, accounting for the substantially lower investment levels in 1997 versus
1996. Cash from financing activities was $20.2 million for the first nine months
of 1997 versus $26.6 million in the first nine months of 1996. The decrease was
a result of reduced financing needs due to lower investment activities, offset
by the financing raised by the issuance of the Company's Senior Notes.
The Company expects that available cash balances, cash flow from
operations and available borrowings under the New Revolving Credit Facility will
be sufficient to fund the Company's working capital, debt service, capital and
environmental expenditure requirements, the settlement of the insolvent insurer
obligation (See Note 3) and anticipated growth plans for the foreseeable future.
10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning material developments of legal proceedings
furnished in the financial information in Part I, Note 3
("Contingencies/Litigation") of this report is incorporated by reference herein.
Item 5. Other Information
On November 10, 1997, the Company consummated the exchange of all of
its outstanding 10 3/8% Senior Notes due 2005 ("Old Notes") for its 10 3/8%
Senior Notes due 2005 registered under the Securities Act of 1933, as amended
("New Notes"), pursuant to the terms of the Exchange Offer set forth in the
Company's Registration Statement. All of the Old Notes were tendered in exchange
for the New Notes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule (Article V)
11
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.
CHEMICAL LEAMAN CORPORATION
Date: November 20, 1997 By: /s/ David R. Hamilton
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David R. Hamilton
Chairman, Chief Executive
Officer and President
Date: November 20, 1997 By: /s/ David M. Boucher
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David M. Boucher
Senior Vice President, Chief
Financial Officer and Secretary
12