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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 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 000-23341
MOTOR CARGO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0406479
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
845 West Center Street
North Salt Lake, Utah 84054
(801) 292-1111
(Address of principal executive offices and telephone number)
Indicate by check mark 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On April 30, 1999, there were
6,925,040 outstanding shares of the Registrant's Common Stock, no par value.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 (unaudited) and December 31, 1998 (audited)
ASSETS
March 31, December 31,
1999 1998
----------- -----------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,848,864 $ 7,514,654
Receivables 13,125,353 14,182,974
Prepaid expenses 2,410,522 2,630,416
Supplies inventory 452,362 459,711
Deferred income taxes 1,365,000 1,365,000
Income taxes receivable 140,802 622,648
----------- -----------
Total current assets 21,342,903 26,775,403
PROPERTY AND EQUIPMENT, AT COST 89,247,119 85,954,356
Less accumulated depreciation
and amortization 42,586,787 40,560,113
----------- -----------
46,660,332 45,394,243
OTHER ASSETS
Deferred charges 426,318 426,461
Unrecognized net pension obligation 63,861 63,861
----------- -----------
490,179 490,322
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$68,493,414 $72,659,968
=========== ===========
The accompanying notes are an integral part of these statements.
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MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 1999 (unaudited) and December 31, 1998 (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
----------- -----------
(unaudited) (audited)
CURRENT LIABILITIES
Current maturities of long-term obligations $ 102,206 $ 99,990
Accounts payable 3,664,542 4,237,515
Accrued liabilities 5,219,533 5,021,286
Accrued claims 1,163,955 1,382,085
----------- -----------
Total current liabilities 10,150,236 10,740,876
LONG-TERM OBLIGATIONS, less current
maturities 1,365,670 5,389,852
DEFERRED INCOME TAXES 7,267,952 7,255,000
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, no par value; Authorized -
25,000,000 shares - none issued -- --
Common stock, no par value; Authorized -
100,000,000 shares; Issued and outstanding 6,925,040
shares as of March 31, 1999 and 6,987,820 shares as of
December 31, 1998 11,849,600 12,135,490
Retained earnings 37,859,956 37,138,750
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49,709,556 49,274,240
----------- -----------
$68,493,414 $72,659,968
=========== ===========
The accompanying notes are an integral part of these statements.
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MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended March 31,
(Unaudited)
1999 1998
------------ ------------
Operating revenues $ 28,730,830 $ 25,587,581
------------ ------------
Operating expenses
Salaries, wages and benefits 13,930,646 12,041,556
Operating supplies and expenses 4,307,049 3,713,159
Purchased transportation 4,071,468 3,779,882
Operating taxes and licenses 1,057,168 884,805
Insurance and claims 975,176 933,757
Depreciation and amortization 2,084,509 1,830,780
Communications and utilities 432,974 437,694
Building rents 679,232 501,184
------------ ------------
Total operating expenses 27,538,222 24,122,817
------------ ------------
Operating income 1,192,608 1,464,764
Other income (expense)
Interest expense (36,617) (75,353)
Other, net 34,215 48,441
------------ ------------
(2,402) (26,912)
------------ ------------
Earnings before income taxes 1,190,206 1,437,852
Income taxes 469,000 549,000
============ ============
NET EARNINGS $ 721,206 $ 888,852
============ ============
Earnings per common share - basic $ 0.10 $ 0.13
============ ============
Weighted-average shares outstanding - basic 6,979,080 6,990,000
============ ============
Earnings per common share - diluted $ 0.10 $ 0.13
============ ============
Weighted-average shares outstanding - diluted 6,979,080 7,007,084
============ ============
The accompanying notes are an integral part of these statements.
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MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
(Unaudited)
1999 1998
----------- -----------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 721,206 $ 888,852
----------- -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 2,084,509 1,830,780
Provision for losses on receivables 57,100 52,500
Loss (gain) on disposition of
property and equipment (1,116) 2,944
Deferred income taxes 12,952 (355,000)
Charge associated with stock issuance to
officer 40,000 --
Changes in assets and liabilities
Receivables 1,000,521 1,205,466
Prepaid expenses 219,894 212,366
Supplies inventory 7,349 24,677
Income taxes receivable 481,846 683,033
Other assets 143 53,060
Accounts payable (572,973) (303,196)
Accrued liabilities and claims (37,323) 31,131
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Total adjustments 3,292,902 3,437,761
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Net cash provided by operating
activities 4,014,108 4,326,613
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Cash flows from investing activities
Purchase of property and equipment (3,387,482) (861,778)
Proceeds from disposition of property
and equipment 38,000 2,200
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Net cash used in
investing activities (3,349,482) (859,578)
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(Continued)
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MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Three months ended March 31,
(Unaudited)
1999 1998
----------- -----------
Cash flows from financing activities
Proceeds from issuance of long-term
obligations -- 4,275,000
Principal payments on long-term
obligations (4,021,966) (9,297,152)
Repurchase of shares (308,450) --
----------- -----------
Net cash used in financing activities (4,330,416) (5,022,152)
----------- -----------
Net decrease in cash and cash equivalents (3,665,790) (1,555,117)
Cash and cash equivalents at beginning of period 7,514,654 8,616,702
----------- -----------
Cash and cash equivalents at end of period $ 3,848,864 $ 7,061,585
=========== ===========
Supplemental cash flow information
Cash paid during the period for
Interest $ 36,617 $ 75,000
Income taxes 5,650 4,050
Noncash investing and financing activities
During the first quarter of 1999, in connection with shares issued per the
restricted stock agreement, 2,180 shares valued at $17,440 were withheld by the
Company as tax withholdings.
The accompanying notes are an integral part of these statements.
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MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial information included herein is
unaudited; however, the information reflects all adjustments (consisting
of normal recurring adjustments) that are, in the opinion of management,
necessary to the fair presentation of the consolidated financial
position, results of operations, and cash flows for the interim periods.
The consolidated financial statements should be read in conjunction with
the Notes to consolidated financial statements included in the audited
consolidated financial statements for Motor Cargo Industries, Inc. (the
"Company") for the year ended December 31, 1998 which are included in
the Company's Annual Report on Form 10-K for such year (the "1998
10-K"). Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated balance
sheet at December 31, 1998, was extracted from the Company's audited
consolidated financial statements contained in the 1998 10-K, and does
not include all disclosures required by generally accepted accounting
principles for annual consolidated financial statements.
2. EARNINGS PER SHARE
Basic earnings per common share are based on the weighted average number
of common shares outstanding during each such period. Diluted earnings
per common share are based on shares outstanding (computed under basic
EPS) and dilutive potential common shares. Potential common shares
included in dilutive earnings per share calculations include stock
options granted but not exercised.
FOR THE QUARTER ENDED MARCH 31, 1999
EARNINGS SHARES EARNINGS
(NUMERATOR (DENOMINATOR) PER-SHARE
---------- ------------- ---------
BASIC EPS
Net earnings $ 721,206 6,979,080 $0.10
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EFFECT OF DILUTIVE SECURITIES
Stock options -- --
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DILUTED EPS
Net earnings $ 721,206 6,979,080 $0.10
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FOR THE QUARTER ENDED MARCH 31, 1998
EARNINGS SHARES EARNINGS
(NUMERATOR (DENOMINATOR) PER-SHARE
---------- ------------- ---------
BASIC EPS
Net earnings $ 888,852 6,990,000 $0.13
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EFFECT OF DILUTIVE SECURITIES
Stock options -- 17,084
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DILUTED EPS
Net earnings $ 888,852 7,007,084 $0.13
========= ========= =====
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and results of
operations. This analysis should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (the "1998 10-K").
This section contains certain forward-looking statements that involve
risks and uncertainties, including statements regarding the Company's plans,
objectives, goals, strategies and financial performance. The Company's actual
results could differ materially from the results anticipated in these
forward-looking statements as a result of factors set forth under "Cautionary
Statement for Forward-Looking Information" below and elsewhere in this report.
OVERVIEW
Motor Cargo Industries, Inc. (the "Company") is a regional
less-than-truckload ("LTL") carrier which provides transportation and logistics
services to shippers within the Company's core service region. The Company's
core service region is the western United States, including Arizona, California,
Colorado, Idaho, New Mexico, Oregon, western Texas, Utah and Washington. The
Company transports general commodities, including consumer goods, packaged
foodstuffs, electronics, computer equipment, apparel, hardware, industrial goods
and auto parts for a diversified customer base. The Company offers a broad range
of services, including expedited scheduling and full temperature-controlled
service. Through its wholly-owned subsidiary, MC Distribution Services, Inc.
("MCDS"), the Company also provides customized logistics, warehousing and
distribution management services.
In 1997, the Company initiated a program to establish market and
operations presence in several major business economic areas ("BEAs") outside of
the Company's core service region. Unlike more traditional inter-regional
expansion models, the Company intends only to solicit tonnage from these markets
moving west into its core service region. The Company intends to utilize
third-party truckload carriers to transport freight from these markets to its
core service region. The Company anticipates that this strategy of selling into
the region will improve lane, route and service center densities in its core
service region without requiring the Company to incur the costs associated with
building an inter-regional terminal network. The Company commenced operations at
its first BEA expansion facility in Dallas in October 1997. In April 1998, the
Company commenced operations at its second BEA expansion facility in Chicago.
The Company has postponed the opening of its next BEA expansion facility in
Cincinnati, Ohio. The Company intends to focus on maximizing the profit
contribution of its Dallas and Chicago facilities before proceeding with
additional BEA expansion facilities.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in the Company's statements of
earnings:
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Three Months Ended
March 31,
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1999 1998
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Operating revenues 100.0% 100.0%
Operating expenses
Salaries, wages and benefits 48.5 47.0
Operating supplies and expenses 15.0 14.5
Purchased transportation 14.2 14.7
Operating taxes and licenses 3.7 3.5
Insurance and claims 3.4 3.7
Depreciation and amortization 7.2 7.2
Communications and utilities 1.5 1.7
Building rents 2.4 2.0
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Total operating expenses 95.9 94.3
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Operating income 4.1 5.7
Other income (expense)
Interest expense (0.1) (0.3)
Other, net 0.1 0.2
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Earnings before income taxes 4.1 5.6
Income taxes 1.6 2.1
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Net earnings 2.5% 3.5%
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Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Operating revenues increased 12.3% to $28.7 million for the three months
ended March 31, 1999, compared to $25.6 million for the first three months of
1998. The increase was attributable to an increased volume of freight within the
Company's core service region, as well as new freight from the Company's BEA
expansion facilities in Dallas, Texas and Chicago, Illinois. The number of
shipments during the first quarter of 1999 increased by 17.5% to 235,212,
compared to 200,235 for the first quarter of 1998.
Of the $28.7 million in operating revenues for the three months ended
March 31, 1999, $849,000 was attributable to the Company's warehousing and
distribution company, MCDS. This represents a increase in revenues for MCDS from
$476,000 during the first quarter of 1998, which was attributable to the
expansion of a contract with one customer and the addition of several smaller
customers.
As a percentage of operating revenues, salaries, wages and benefits
increased to 48.5% for the first quarter of 1999 from 47.0% for the first
quarter of 1998. This 1.5% increase was due primarily to increased staffing of
full-time employees with their associated benefits. This included staffing of
the Company's BEA expansion facility in Chicago and a new service center in
Benecia, California. Also, additional line drivers were employed by the Company
in the first quarter of 1999, compared to the first quarter of 1998. During the
first quarter of 1998, the Company utilized more purchased transportation
instead of employee-drivers.
Purchased transportation decreased to 14.2% of operating revenues for
the quarter ended March 31, 1999 as compared to 14.7% for the same period of
1998. This was primarily caused by shifting costs from purchased transportation
to other expense categories such as payroll, operating expenses and depreciation
associated with having approximately 20 more employee line drivers during the
first quarter of 1999 compared to the first quarter of 1998. The Company has
increased its staff of employee line drivers in order to reduce overall costs
and provide more reliable and consistent service.
Insurance and claims expense decreased to 3.4% of operating revenues for
the three months ended March 31, 1999 from 3.7% for the same period in 1998.
Operating supplies and expenses increased to 15.0% of operating revenues
for the quarter ended March 31, 1999 compared to 14.5% for the same period in
1998. This increase was primarily due to fuel costs associated with additional
employee line drivers during the first quarter of 1999. During the first quarter
of 1998, comparable fuel
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costs were included in purchased transportation, reflecting the use of
owner-operators as opposed to employee drivers.
Total operating expenses increased to 95.9% of operating revenues for
the three months ended March 31, 1999 from 94.3% for the same period in 1998.
This increase was primarily due to increased salaries, wages and benefits.
Net earnings decreased 1.0% to $721,000 for the three months ended March
31, 1999, compared to $889,000 for the same period in 1998. Net earnings per
weighted average share outstanding decreased $.03 to $.10 for the first quarter
of 1999, compared to $.13 for the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are funds provided by
operations and bank borrowings. Net cash provided by operating activities was
approximately $4.0 million for the first three months of 1999 compared to $4.3
million for the corresponding period in 1998. Net cash provided by operating
activities is primarily attributable to the Company's earnings before
depreciation and amortization expense.
Capital expenditures totaled approximately $3.4 million during the first
three months of 1999 compared to $.9 million in the comparable period of 1998.
For the three months ended March 31, 1999, $2.4 million of the $3.4 million of
capital expenditures consisted of land, buildings, yard and fuel tank
acquisitions and improvements. For the three months ended March 31, 1998, $.5
million of the $.9 million of capital expenditures were comprised of computer
equipment.
Net cash used in financing activities was $4.3 million for the three
months ended March 31, 1999 compared to $5.0 million for the comparable period
of 1998. At March 31, 1999, total borrowings under long-term obligations totaled
approximately $1.4 million.
The Company is a party to a loan agreement with Zions First National
Bank ("Zions") that provides for a revolving line of credit in an amount not
exceeding $5 million. The loan agreement provides for the issuance of letters of
credit and may be used for this purpose, as well as to fund the working capital
needs of the Company. As of March 31, 1999, there was no outstanding balance
under this revolving line of credit.
Zions has also provided a second revolving line of credit to the Company
in an amount not to exceed $20 million. The Company intends to use amounts
available under this credit facility, if necessary, primarily to purchase
equipment used in operations. As of March 31, 1999, there was no outstanding
balance under this facility.
All amounts outstanding under the two loan facilities described above
accrue interest at a variable rate established from time to time by Zions. The
Company does have the option, however, to request that specific advances accrue
interest at a fixed rate quoted by Zions subject to certain prepayment
restrictions. All amounts outstanding under the two loan facilities are
collateralized by the Company's inventory, chattel paper, accounts receivable
and equipment now owned or hereafter acquired by the Company.
During the first quarter of 1999, the Company announced a share
repurchase program. The Board of Directors of the Company authorized the
repurchase of up to 700,000 shares. As of March 31, 1999, a total of 60,600
shares had been repurchased by the Company for approximately $308,450.
SEASONALITY
The Company experiences some seasonal fluctuations in freight volume.
Historically, the Company's shipments decrease during the winter months. In
addition, the Company's operating expenses historically have been higher in the
winter months due to decreased fuel efficiency and increased maintenance costs
for revenue equipment in colder weather.
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THE YEAR 2000 ISSUE
The Company utilizes computer hardware and software in its operations.
Certain computer applications could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). The Company has
performed an analysis and has implemented procedures to address the Year 2000
Issue. The Company regularly upgrades its computer hardware and believes that it
will not incur any additional expenses to modify computer hardware due to the
Year 2000 Issue. In addition, the Company has received commitments from software
vendors that will allow the Company to upgrade third-party software programs
with minimal expense to the Company. The Company anticipates, however, that it
will incur expenses of approximately $100,000 to upgrade and test certain
proprietary software developed for the Company. As of March 31, 1999,
approximately $80,000 of these expenses had been incurred. The Company has
completed the modification of its proprietary software and has completed the
majority of testing for such software. The Company is also contacting vendors
and customers to determine the extent to which the Company may be vulnerable to
third party year 2000 issues. Based upon current information, the Company
believes that all hardware and software modifications necessary to operate and
effectively manage the Company will be performed by the year 2000 and that
related costs will not have a material impact on the results of operations, cash
flow, or financial condition of the Company.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward looking
statements include statements concerning plans, objectives, goals, strategies,
future events, future revenues or performance, capital expenditures, financing
needs, plans or intentions relating to acquisitions by the Company and other
information that is not historical information. When used in this report, the
words "estimates," "expects," "anticipates," "forecasts," "plans," "intends,"
"believes" and variations of such words or similar expressions are intended to
identify forward-looking statements. Additional forward-looking statements may
be made by the Company from time to time. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary statements.
The Company's forward-looking statements are based upon the Company's
current expectations and various assumptions. The Company's expectations,
beliefs and projections are expressed in good faith and are believed by the
Company to have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the Company's
records and other data available from third parties, but there can be no
assurance that management's expectations, beliefs and projections will result or
be achieved or accomplished. The Company's forward-looking statements apply only
as of the date made. The Company undertakes no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.
There are a number of risks and uncertainties that could cause actual
results to differ materially from those set forth in, contemplated by or
underlying the forward-looking statements contained in this report. These risks
include, but are not limited to, economic factors and fuel price fluctuations,
the availability of employee drivers and independent contractors, risks
associated with geographic expansion, capital requirements, claims exposure and
insurance costs, competition and environmental hazards. Each of these risks and
certain other uncertainties are discussed in more detail in the 1998 10-K. There
may also be other factors, including those discussed elsewhere in this report,
that may cause the Company's actual results to differ from the forward-looking
statements. Any forward-looking statements made by or on behalf of the Company
should be considered in light of these factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use financial instruments for trading purposes and
is not a party to any derivative financial instruments or derivative commodity
instruments. The Company is exposed to a variety of market risks, including the
effects of changes in interest rates and fuel prices. The Company's short-term
and long-term financing is generally at variable rates; however, these
obligations may be repaid or converted to a fixed rate at the Company's option.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
10.1 First Amendment to Motor Cargo Industries, Inc. 1997 Stock
Option Plan
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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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.
MOTOR CARGO INDUSTRIES, INC.
/s/ LYNN H. WHEELER
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LYNN H. WHEELER
Vice President of Finance and Chief Financial Officer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 12, 1999
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INDEX TO EXHIBITS
Exhibits
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10.1 First Amendment to Motor Cargo Industries, Inc. 1997 Stock Option Plan
27 Financial Data Schedule.