SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 April 5, 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 000-8517
Chemical Leaman Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2021808
(State or other jurisdiction of incorporation or organization) (IRS employer identification no.)
102 Pickering Way, Exton, Pennsylvania 19341-0200
(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 X No
-------- -------
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: 549,725 shares outstanding as
of May 18, 1998.
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
INDEX
Page #
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
April 5, 1998 (Unaudited) and December 31, 1997 1-2
Condensed Consolidated Statements of Operations
(Unaudited) - Three Months Ended April 5, 1998 and
March 30, 1997 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Three Months Ended April 5, 1998
and March 30, 1997 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition
and results of operation 7-8
Part II Other Information 9
Item 6 Exhibits and Reports on Form 8-K
Signatures 10
PART I
FINANCIAL INFORMATION
Item 1 Financial Statements
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 5, December 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 3,845 $ 2,681
Accounts receivable, net of allowance of $1,077
at April 5, 1998 and $850 at December 31, 1997 21,261 22,871
Operating supplies 855 940
Prepaid expenses and other 9,715 8,252
----------- ----------
Total current assets 35,676 34,744
----------- ----------
Property and equipment, net 111,381 109,871
Recoverable environmental costs 14,038 14,002
Other assets 18,014 18,897
----------- -----------
$ 179,109 $ 177,514
=========== ===========
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)
April 5, December 31,
1998 1997
----------- ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and drafts payable $19,971 $19,317
Accrued salaries and wages 4,948 5,383
Other accrued liabilities 7,596 4,028
Estimated self-insurance liabilities 2,566 4,183
Current maturities of long-term debt 475 462
Current maturities of equipment obligations 320 166
---------- -----------
Total current liabilities 35,876 33,539
Long-term equipment obligations 13,181 10,177
Long-term debt 101,333 101,496
Estimated self-insurance liabilities 15,637 18,889
Other non-current liabilities 5,128 5,082
Redeemable preferred stock 5,318 5,318
Stockholders' equity
Common stock 2,677 2,677
Other stockholders' equity (41) 336
----------- -----------
Total stockholders' equity 2,636 3,013
---------- -----------
$ 179,109 $ 177,514
========== ===========
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 THREE
MONTHS ENDED
-------------------------
April 5, March 30,
1998 1997
--------- ---------
OPERATING REVENUES $ 90,608 $ 76,066
--------- --------
OPERATING EXPENSES:
Salaries, wages and benefits 18,724 17,201
Purchased transportation and rents 42,321 33,885
Operations and maintenance 16,546 15,979
Depreciation and amortization 5,351 4,424
Taxes and licenses 1,350 680
Insurance and claims 1,298 2,815
Communication and utilities 1,922 1,682
Loss on disposition of revenue equipment, net 166 9
--------- --------
Total operating expenses 87,678 76,675
--------- --------
OPERATING INCOME (LOSS) 2,930 (609)
INTEREST EXPENSE, net 3,017 2,332
OTHER EXPENSE (INCOME), net 356 (191)
--------- --------
Loss before income taxes (443) (2,750)
INCOME TAX BENEFIT (155) (1,157)
--------- --------
NET LOSS $ (288) $ (1,593)
========= ========
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 Three Months Ended
------------------------------
April 5, 1998 March 30, 1997
------------- --------------
OPERATING ACTIVITIES:
Net cash used in operating activities $ (727) $ (562)
INVESTING ACTIVITIES:
Acquisition of business (1,598)
Additions to property and equipment (5,690) (3,529)
Proceeds from the sales of property and equipment 261 101
---------- -----------
Net cash used in investing activities (7,027) (3,428)
---------- -----------
FINANCING ACTIVITIES:
Payments on equipment obligations (38) (1,349)
Proceeds from issuance of equipment obligations 3,196 1,333
Increase in bank overdrafts 999 4,725
Proceeds from sale of receivables 5,000
Payments on long-term debt (150) (1,034)
Preferred stock dividends (89) (111)
---------- -----------
Net cash provided by financing activities 8,918 3,564
---------- -----------
Net increase (decrease) in cash and cash equivalents 1,164 (426)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,681 5,788
---------- -----------
End of period $ 3,845 $ 5,362
========== ===========
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 and subsidiaries (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 annual 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 month period ended April 5, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998 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 10-K Annual Report ("Annual Report").
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 month periods ended April 5, 1998 and
March 30, 1998 and for a fair presentation of financial position at April 5,
1998.
Recent Accounting Pronouncements
In February of 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No.132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits, an amendment of
FASB Statements 87, 88, and 106 ("SFAS No. 132"). This statement revises
company's disclosures about pension and other postretirement benefit plans. It
does not change the measurement or liability recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures that are no longer as
useful. The Company has two noncontributory benefit plans in which SFAS 132 will
be applied. The Company will adopt this statement for the year ended December
31, 1998.
Note 2 - December 31, 1997 Balance Sheet
- ------------------------------------------
The amounts presented in the balance sheet as of December 31, 1997 were
derived from the Company's audited consolidated financial statements which were
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
5
Chemical Leaman Corporation and Subsidiaries
Notes To Condensed Consolidated Financial Statements (unaudited)
Note 3 - Comprehensive Income
- -----------------------------
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" was issued in July 1997. The Company adopted
SFAS No. 130 on January 1, 1998, as required. SFAS No. 130 established standards
for the reporting and display of comprehensive income and its components. The
main objective of the statement is to report a measure of all changes in equity
that result from transactions and other economic events of the period other than
transactions with owners. Such components of total comprehensive income for the
Company are net income and a minimum pension liability adjustment made pursuant
to SFAS No. 87. The effect of the minimum pension liability adjustment for the
first quarter of 1998 was immaterial.
Note 4 - Contingencies/Litigation
- -----------------------------------
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
million 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
substantially all of the costs of remediating the Bridgeport, NJ site, including
natural resources damages, and attorneys' fees and expenses, is likely to occur.
6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operation
--------------------------------------------
Results of Operations
The Company employs an accounting calendar consisting of four thirteen
week quarters. Because of differences in the week ending dates of the quarters
ended April 5, 1998 and March 30 , 1997, there were five additional billing days
in the first quarter of 1998. As such, the analysis of the results of operations
between comparative periods will be impacted by the additional revenue days in
1998 versus 1997.
Three Month Period Ended April 5, 1998 Compared to the Three Month Period Ended
March 30, 1997
Operating Revenues
Operating revenues increased by $14.5 million from $76.1 million for
the three month period ended March 30, 1997 to $90.6 million for the three month
period ended April 5, 1998. Of this increase, approximately $6.2 million is
attributable to the increased number of billing days in the first quarter of
1998 versus the first quarter of 1997. An additional $1.7 million is
attributable to acquisitions in the Company's dry bulk and tank cleaning
subsidiaries. The remaining increase of $6.6 million results from growth in
existing operations.
Operating Expenses
Operating expenses increased $11.0 million from $76.7 million for the
three month period ended March 30, 1997 to $87.7 million for the three month
period ended April 5, 1998. Of this increase, approximately $6.0 million is
attributable to the increased number of billing days in the first quarter of
1998 versus the first quarter of 1997. An additional $1.4 million is
attributable to acquisitions in the Company's dry bulk and tank cleaning
subsidiaries referred to above. The remaining $3.6 million is attributable to
growth in existing operations.
Interest Expense
Interest expense increased from $2.3 million, or 3.1% of revenue for
the three month period ended March 30, 1997, to $3.0 million or 3.3% of revenue
for the three month period ended April 5, 1998. The increase in interest expense
is attributable to additional debt incurred in support of growth from
acquisitions and in existing operations as well as higher interest rates and
increased debt as a result of the issuance of the Company's 10 3/8% Senior Notes
due 2005 ("Senior Notes") completed on June 16, 1997.
Net Loss
The net loss for the three month period ended April 5, 1998 decreased
$1.3 million from $1.6 million for the three month period ended March 30, 1997
to $.3 million. The decrease in net loss was due primarily to the after-tax
effect of higher operating profit attributable to increased business levels
offset by the increase in interest expense and other expense.
7
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 a bank
revolving credit facility. The revolving credit facility provides lines of
credit up to $20 million. As of April 5, 1998, the revolving credit facility had
outstanding advances of $9.9 million in addition to standby letters of credit in
the amount of $3.9 million.
The Company accounts for the Asset Backed Certificate ("Certificate")
issued in connection with the Company's accounts receivable securitization
facility as a sale for financial reporting purposes (see Form 10-K, Part IV ,
Note 5). In January of 1998, the Company amended the related Receivables
Contribution and Purchase Agreement and the Pooling and Servicing Agreement to
increase the Certificate amount to $33 million from $28 million. The Company
used the entire amount of this increase in the first quarter.
During the three month period ended April 5, 1998, cash used in
operating activities was $.7 million versus $.6 million used in the three month
period ended March 30, 1997. During the first quarter of 1998, the Company used
cash from operations to pay the settlement of two insurance claims totaling $3.2
million. Cash used in investing activities was $7.0 million and $3.4 million for
the three month periods in 1998 and 1997, respectively. Cash from financing
activities was $8.9 million for the first three months of 1998 versus $3.6
million in the first three months of 1997. The increase was a result of
financing needs directly related to the higher investing activities of the
Company during the first quarter of 1998.
Consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") increased $3.9 million from $4.0 million for the period
ended March 30, 1997 to $7.9 million for the period ended April 5, 1998. EBITDA
margin, defined as EBITDA divided by revenue, was 8.7% for the period ended
April 5, 1998 versus 5.3% for the period ended March 30, 1997.
The Company expects that available cash balances, cash flows from
operations and available borrowings under the revolving credit facility will be
sufficient to fund the Company's working capital, debt service, capital and
environmental expenditure requirements and anticipated growth plans for the
foreseeable future.
8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule (Article V)
(b) Reports on Form 8-K
None
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.
CHEMICAL LEAMAN CORPORATION
Date: May 18, 1998 By: /s/ David R. Hamilton
--------------------------
David R. Hamilton
Chairman, Chief Executive
Officer and President
Date: May 18, 1998 By: /s/ David M. Boucher
--------------------------
David M. Boucher
Senior Vice President, Chief
Financial Officer and Secretary