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, 2001
----------------------
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
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MATLACK SYSTEMS, INC.
(DEBTOR-IN-POSSESSION AS OF MARCH 29, 2001)
- --------------------------------------------------------------------------------
(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
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(Address of principal executive offices) (Zip Code)
(302) 426-2700
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(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, 2001 was 8,814,434.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
MATLACK SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF OPERATIONS
In Thousands, Except Per Share Amounts
(Unaudited)
Quarter Ended Six Months Ended
March 31 March 31,
----------------- ------------------
2001 2000 2001 2000
------- -------- -------- --------
Revenues $37,336 $ 47,717 $ 76,587 $ 97,448
------- -------- -------- --------
Expenses
Operating 34,439 47,712 71,416 90,734
Depreciation and amortization 1,553 2,632 3,629 4,706
Selling and administrative 4,432 5,183 9,620 9,863
Other (income) expense, net (139) 2,080 (197) 2,011
------- -------- -------- --------
40,285 57,607 84,468 107,314
------- -------- -------- --------
Operating loss (2,949) (9,890) (7,881) (9,866)
Interest expense 1,285 1,265 2,790 2,574
Reorganization items, net 767 - 767 -
------- -------- -------- --------
Loss from continuing operations before
income tax benefit (5,001) (11,155) (11,438) (12,440)
Income tax benefit - (4,308) - (4,749)
------- -------- -------- --------
Loss from continuing operations (5,001) (6,847) (11,438) (7,691)
Earnings from discontinued operation - 283 4 736
------- -------- -------- --------
Net loss $(5,001) $ (6,564) $(11,434) $ (6,955)
======= ======== ======== ========
Basic and diluted loss per share
from continuing operations $ (.57) $ (.77) $ (1.30) $ (.87)
Basic and diluted earnings per share
from discontinued operation $ - $ .03 $ - $ .08
------- -------- -------- --------
Basic and diluted net loss per share $ (.57) $ (.74) $ (1.30) $ (.79)
======= ======== ======== ========
Basic and diluted average
common shares outstanding 8,814 8,814 8,814 8,814
Dividends paid per share None None None None
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
FORM 10-Q
MATLACK SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
Unaudited
March 31, September 30,
ASSETS 2001 2000
------ -------- --------
Current assets
Cash $ 2,646 $ 4,060
Accounts receivable, net of allowance for doubtful
accounts: March-$5,571; September-$5,805 17,292 24,328
Inventories 3,639 4,035
Other current assets 1,809 1,658
Refundable income taxes 53 86
Net realizable value of discontinued operation 300 12,388
-------- --------
Total current assets 25,739 46,555
Property and equipment, at cost, net of accumulated
depreciation: March-$113,147; September-$113,953 50,623 53,900
Property held for sale 3,355 3,355
Other assets 1,443 1,527
-------- --------
Total assets $ 81,160 $105,337
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities
Accounts payable $ 200 $ 11,600
Accrued liabilities 1,624 19,515
Current maturities of long-term debt - 56,972
-------- --------
Total current liabilities 1,824 88,087
Liabilities subject to compromise 82,840 -
Long-term debt - 2,303
Self-insurance reserves - 5,390
Environmental reserves 5,322 6,253
Other liabilities - 696
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity (deficit):
Common stock, $1 par value, 24,000,000 shares authorized;
issued and outstanding: March-8,814,434 and September-8,814,434 8,814 8,814
Capital in excess of par value 10,620 10,620
Accumulated deficit (28,260) (16,826)
-------- --------
Total shareholders' equity (deficit) (8,826) 2,608
-------- --------
Total liabilities and shareholders' equity (deficit) $ 81,160 $105,337
======== ========
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
FORM 10-Q
MATLACK SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
Unaudited
Six Months Ended
March 31,
--------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss $(11,434) $ (6,955)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Impairment loss - 2,203
Depreciation and amortization 3,629 5,667
Provision for bad debts 282 500
Net gain on sale of property and equipment (193) (237)
Changes in assets and liabilities:
Accounts receivable 7,499 (5,362)
Inventories and other assets 166 (1,582)
Accounts payable and accrued liabilities 298 (1,880)
Current and deferred income taxes 33 (2,383)
Other, net - 3,168
-------- --------
Net cash provided by (used in) operating activities 280 (6,861)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (817) (3,922)
Proceeds from the sale of property and equipment 839 6,392
Proceeds from disposition of leasing segment assets, net 11,325 -
-------- --------
Net cash provided by investing activities 11,347 2,470
-------- --------
Cash flows from financing activities:
Proceeds of long-term debt - 24,800
Repayment of long-term debt (13,041) (20,797)
-------- --------
Net cash (used in) provided by financing activities (13,041) 4,003
-------- --------
Net decrease in cash (1,414) (388)
Cash at beginning of period 4,060 2,837
-------- --------
Cash at end of period $ 2,646 $ 2,449
======== ========
Supplemental and noncash information:
Interest paid $ 1,872 $ 2,493
Income taxes recovered $ 33 $ 1,885
Reorganization items paid $ 767 $ -
The Notes to the Consolidated Financial Statements are an integral part of these
statements.
FORM 10-Q
MATLACK SYSTEMS, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
- ---------------------
The accompanying unaudited 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. Operating results for the quarter and six
months ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ended September 30, 2001. 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,
2000.
In November 2000, the Company sold substantially all of the assets of its
leasing business segment (see Note "Discontinued Operation"). Accordingly, the
results of operations of the leasing business segment have been reported as a
discontinued operation and previously reported financial statements have been
restated.
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under Chapter 11 of
the United States Bankruptcy Code ("Chapter 11 filing") in the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). The filings
have been consolidated for the purpose of joint administration as Case No. 01-
1114 (MFW). The Company is continuing to operate its business as debtor-in-
possession. As debtor-in-possession, the Company is authorized to operate;
however, it is not permitted to engage in transactions considered outside of the
normal course of business without the approval of the Bankruptcy Court.
Provisions of the Bankruptcy Code allow the Company an exclusive period of up to
120 days during which it may propose, file and solicit acceptances of a plan of
reorganization.
On March 30, 2001, a stipulation and interim order permitting the Company to use
cash collateral until April 25, 2001 was entered into by the Company and its
bank lenders. Subsequently, on April 19, 2001, the Bankruptcy Court authorized
a stipulation and order extending the stipulation and interim order until May
24, 2001, at which time a stipulation and final order was approved with an
extension to June 25, 2001. Further extensions may be granted without
Bankruptcy Court approval by written agreement between the banks and the
Company.
On May 11, 2001, the Bankruptcy Court authorized the employment and retention of
Raymond James & Associates ("Raymond James") to provide investment banking
services for the Company. Raymond James will assist in the valuation analysis
relating to the Company's reorganization and examine potential financing
alternatives available, as well as the possibility of a sale of the Company or
its assets. Raymond James will be retained for a non-refundable fee for up to
six months. Should any transaction result in a sale of the Company or a
material portion of its assets, Raymond James will be paid a fee equal to 1% of
the total consideration. If a transaction results in the restructuring of the
Company's liabilities, Raymond James will be paid a fee equal to 0.5% of the
value of the liabilities that have been restructured.
In connection with the Chapter 11 filing, the Company is required to file
various reports and other legal documents with the Bankruptcy Court that may
contain information presented in a level of detail and format different than
that required for this report. Copies of filings may be viewed at the office of
the
FORM 10-Q
Clerk of the Bankruptcy Court, United States Bankruptcy Court for the District
of Delaware, 5th Floor, 824 Market Street, Wilmington, Delaware 19801. Certain
selected filings may be viewed electronically on the Bankruptcy Court's
electronic docket on the internet at www.deb.uscourts.gov.
The Company's financial statements have been presented in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7:
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") and have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. Accordingly, the financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result should the Company be unable to continue as a going concern. There
are a number of factors and conditions that raise substantial doubt about the
Company's ability to continue as a going concern for a reasonable period of
time, including:
- The Company continues to incur net losses and declining revenues.
- By letter dated March 28, 2001 the banks declared an event of default and
accelerated the amount due under the Company's existing revolving credit
agreement.
- The Company proceeded with the Chapter 11 filing on March 29, 2001.
- At March 31, 2001 the Company had an accumulated deficit of $28,260,000.
- The group of banks sponsoring the existing revolving credit agreement has
not committed to and may not provide additional long-term financing.
- The Company expects minimal cash flows from operations to continue into the
immediate future and may require additional sources of funding to continue
operations if cash flows are negative.
- The Company has not had any success to date with respect to securing
alternative funding from other banks or financial institutions.
The Company's ability to continue as a going concern is primarily dependent
upon, among other things:
- Securing and maintaining a debtor-in-possession financing agreement,
including compliance with the terms and restrictions of such an agreement
and/or continued access to cash collateral while a plan of reorganization is
developed.
- Confirmation of a plan of reorganization under the Bankruptcy Code.
- Achieving profitable operations on a consistent basis.
- Securing an alternative form or source of financing on a long-term basis.
- Generating sufficient cash from operations to meet the Company's
obligations.
The Company is continuing its efforts to dispose of non-core assets and
streamline operations commensurate with projected levels of demand. Where
appropriate, this includes, among other things, the termination of employees and
the cancellation of, or election not to renew, existing contracts for services
and materials.
In the event that the Company is unable to secure adequate debtor-in-possession
financing and/or continued access to cash collateral as well as obtain
confirmation of a plan of reorganization under the Bankruptcy Code, it is likely
that the Company will be forced to proceed with a liquidation. No adjustments
have been made to reflect the March 31, 2001 consolidated financial statements
on the liquidation basis of accounting.
FORM 10-Q
Liabilities Subject to Compromise
- ---------------------------------
As of the date of the Chapter 11 filing, actions on the part of creditors and
others to collect pre-petition obligations are stayed and other contractual
obligations may not be enforced against the Company. In addition, the Company
may elect to assume or reject pre-petition executory contracts, subject to
Bankruptcy Court approval. Creditors and others adversely impacted by any such
rejection may file a claim with the Bankruptcy Court in accordance with the
reorganization process, which could result in additional liabilities subject to
compromise.
Liabilities subject to compromise consist of obligations incurred prior to the
Chapter 11 filing and are segregated on the Company's balance sheet as such in
accordance with SOP 90-7. The largest amounts represent debt obligations,
principally those under the revolving credit agreement, payable to a group of
banks. Also included are amounts for accrued interest and fees associated with
the debt obligations as well as trade payables and other accrued expenses. The
amounts recorded in the Company's books may vary significantly from the stated
amount of proofs of claims that have or will be filed with the Bankruptcy Court
by the creditors and other parties. The amounts are also subject to future
adjustment based on actions of the Bankruptcy Court, future developments with
respect to disputed claims and the determination of the value of any collateral
securing claims, among others. The amounts presented below represent
management's best estimate of known or potential claims to be resolved in
connection with the Chapter 11 filing (in thousands).
Revolving credit agreement $43,586
Equipment financing obligations 2,618
Promissory note payable 30
Trade accounts payable 14,595
Accrued expenses 10,216
Self-insurance reserves 11,099
Other 696
-------
$82,840
=======
On March 30, 2001, the Bankruptcy Court authorized the payment of certain pre-
petition obligations, including pre-petition employee wages, benefits and
related deductions as well as pre-petition trust fund taxes including sales and
use taxes and employee withholdings for federal, state, local and social
security taxes. In addition, the Bankruptcy Court also authorized the payment
of certain pre-petition claims of possessory and mechanic lienholders so as to
aid the Company in the uninterrupted use of its equipment in providing services
to its customers while a plan of reorganization is being developed.
Reorganization Items
- --------------------
In accordance with SOP 90-7, revenues and expenses, realized gains and losses
and provisions for losses resulting from the reorganization process are
segregated in the Company's statement of operations. These include, but are not
limited to, professional fees related to the reorganization proceedings,
provisions for claims allowed in excess of amounts recorded and interest earned
on any cash accumulated as a result of not paying pre-petition obligations.
As the Company's Chapter 11 filing was made during the latter stage of the
current quarter, the only items reflected in the statement of operations as
"Reorganization items, net" for the quarter and six months ended March 31, 2001
are legal, financial advisory and other professional fees.
FORM 10-Q
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,
------------------ ----------------
2001 2000 2001 2000
----- ----- ----- -----
Basic EPS 8,814 8,814 8,814 8,814
Effect of options - (1) - (1) - (1) - (1)
----- ----- ----- -----
Diluted EPS 8,814 8,814 8,814 8,814
===== ===== ===== =====
(1) The effect of options was not considered as it would have been anti-
dilutive.
No adjustments to net earnings available to common stockholders were required
during the periods presented.
Discontinued Operation
- ----------------------
In November 2000, Matlack Leasing Corporation sold substantially all of its
assets for $12,000,000. Of this amount, approximately $675,000 was placed in
escrow pending the settlement of various matters. These assets consisted
principally of International Standards Organization (ISO) tank containers, tank
trailers, customer leases and a container lease management agreement. As a
result of this transaction, the leasing business segment has been reported as a
discontinued operation and previously reported financial statements have been
restated.
The statement of operations for the six months ended March 31, 2001 reflects the
results of the leasing business segment as a discontinued operation through the
date of the sale on November 22, 2000. The balance sheet for the quarter ended
March 31, 2001 includes as "Net realizable value of discontinued operation"
proceeds due to the Company that are being held in escrow pending the settlement
of certain sales tax matters addressed in the sales agreement. Subsequent to
the period ended March 31, 2001 and in connection with post-petition
negotiations with the banks regarding financing, an agreement was reached
whereby the Company was allowed access to these funds. An additional $375,000
in escrow funds related to indemnification and other matters also became
available under the agreement. Summarized financial information for the
discontinued operation is as follows (in thousands):
Quarter Ended Six Months Ended
March 31, March 31,
------------- ----------------
2001 2000 2001(a) 2000
---- ---- ---- ----
Revenues $ - $1,916 $ 448 $4,075
Operating earnings - 550 47 1,408
Interest expense - 83 40 191
Income taxes - 184 3 481
----- ------ ----- ------
Earnings from discontinued operation $ - $ 283 $ 4 $ 736
===== ====== ===== ======
(a) Represents activity through the date of sale on November 22, 2000.
FORM 10-Q
As of As of
March 31, September 30,
2001 2000
---- ----
Current assets $ 300 $ 1,382
Property and equipment - 10,978
Other assets - 28
----- -------
Net realizable value of discontinued operation $ 300 $12,388
===== =======
Long-Term Debt
- --------------
The Company maintains a revolving credit agreement ("Agreement") with a group of
banks. On March 8, 2001, the Company and the banks signed a forbearance and
fifth amendment to the Agreement extending the term to April 2, 2001. As a
provision of this amendment, the banks agreed to forbear from exercising their
rights and remedies available as a result of prior events of default including
the violation of several financial covenants. Prior to the event of default, as
discussed below, the interest rate on borrowings under the Agreement was 2%
above the reference rate (Prime) applicable to each loan or portion thereof.
The borrowing limit under the Agreement has been limited to the amount
outstanding since it was amended on October 9, 2000. The Agreement is secured
by substantially all unpledged equipment, all accounts receivable and certain
real estate.
By letter dated March 28, 2001, the banks declared an event of default and
accelerated the amounts due the banks under the Agreement at which time
approximately $43,586,000 in principal was outstanding in addition to $7,000,000
in undrawn letters of credit.
In addition to the Agreement, the Company had outstanding at March 31, 2001
other equipment financing obligations of $2,618,000 and a $30,000 promissory
note payable. The equipment financing obligations have certain equipment
pledged as security and have interest rates ranging from 7.65% to 8.13%. The
promissory note is unsecured and carries an interest rate of 8%. The
acceleration of the Agreement, as discussed above, triggered an event of default
with respect to these debt obligations resulting in their acceleration as well.
Accordingly, all long-term debt obligations were classified as current on the
Company's balance sheet as of December 31, 2000.
As of March 31, 2001, all debt obligations were included with other pre-petition
liabilities as "Liabilities Subject to Compromise" on the balance sheet (see
Note "Liabilities Subject to Compromise").
Income Tax Valuation Allowance
- ------------------------------
Management has deemed it necessary to provide a 100% valuation allowance against
the Company's net deferred tax asset due to the high level of uncertainty
surrounding the future realization of tax benefits from the Company's continuing
net operating losses and other deferred tax assets. Accordingly, the
Consolidated Statement of Operations reflects no income tax benefit for the
quarter and six months ended March 31, 2001.
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations Liquidity and Capital Resources
- -----------------------------------------------------
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under Chapter 11 of
the United States Bankruptcy Code ("Chapter 11 filing") in the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). The filings
have been consolidated for the purpose of joint administration as Case No. 01-
1114 (MFW). The Company is continuing to operate its business as debtor-in-
possession. As debtor-in-possession, the Company is authorized to operate;
however, it is not permitted to engage in transactions considered outside of the
normal course of business without approval of the Bankruptcy Court. Provisions
of the Bankruptcy Code allow the Company an exclusive period of up to 120 days
during which it may propose, file and solicit acceptances of a plan of
reorganization.
On March 30, 2001, a stipulation and interim order permitting the Company to use
cash collateral until April 25, 2001 was entered into by the Company and its
bank lenders. Subsequently on April 19, 2001, the Bankruptcy Court authorized a
stipulation and order extending the stipulation and interim order until May 24,
2001 at which time a stipulation and final order was approved with an extension
to June 25, 2001. Further extensions may be granted without Bankruptcy Court
approval by written agreement between the banks and the Company.
On May 11, 2001, the Bankruptcy Court authorized the employment and retention of
Raymond James & Associates ("Raymond James") to provide investment banking
services for the Company. Raymond James will assist in the valuation analysis
relating to the Company's reorganization and examine potential financing
alternatives available, as well as the possibility of a sale of the Company or
its assets. Raymond James will be retained for a non-refundable fee for up to
six months. Should any transaction result in a sale of the Company or a
material portion of its assets, Raymond James will be paid a fee equal to 1% of
the total consideration. If a transaction results in the restructuring of the
Company's liabilities, Raymond James will be paid a fee equal to 0.5% of the
value of the liabilities that have been restructured.
Despite a net loss of $11,434,000, including $3,629,000 of depreciation and
amortization, the Company's operations provided $280,000 of positive cash flow.
As the Company has been restricted in its ability to draw upon its revolving
credit agreement, significant efforts were made to reduce costs and extend the
payables cycle as well as aggressive efforts to collect accounts receivables.
In this regard, the collection efforts represented a continuation of improvement
over the prior year and previous quarters.
In November 2000, the Company sold substantially all of the assets of its
leasing business segment for $12,000,000 of which $11,325,000 was realized after
$675,000 was placed in escrow pending the settlement of various matters.
Approximately $10,872,000 of the total proceeds was remitted directly to the
banks providing the Company's revolving credit agreement and other financing
sources in connection with a mandatory prepayment provision in the revolving
credit agreement as amended on October 9, 2000. The remaining proceeds and the
net cash provided by operations, as well as $839,000 in proceeds from the sale
of other property and equipment, were utilized to pay down an additional
$2,169,000 in debt and fund a modest capital expenditures program of $817,000.
FORM 10-Q
Subsequent to the period ended March 31, 2001 and in connection with post-
petition negotiations with the banks regarding financing, an agreement was
reached whereby the Company was allowed access to funds placed in escrow upon
the sale of assets of the leasing business segment. This includes $300,000 in
escrow funds related to sales taxes, which is reflected on the Company's balance
sheet as of March 31, 2001 as "Net realizable value of discontinued operation."
An additional $375,000 in escrow funds related to indemnification and other
matters is also available.
During April 2001, the Company sold non-core transportation equipment in the
ordinary course of business for approximately $375,000 as part of its continuing
efforts to raise cash to fund critical operations in the absence of other
financing sources and while negotiations continue to secure a debtor-in-
possession credit facility or other similar financing agreement.
Reference is made to the Notes to the Consolidated Financial Statements, "Basis
of Presentation" for a discussion of the implications and assumptions of the
Company's ability to continue as a going concern and "Long-term Debt" for a
discussion of the status of the Company's existing financing arrangements.
Results of Operations: Six Months Ended March 31, 2001 vs. Six Months Ended
- ----------------------------------------------------------------------------
March 31, 2000
- --------------
Revenues for the six months ended March 31, 2001 decreased by $20,861,000
(21.4%) to $76,587,000 compared with $97,448,000 during the same period last
year. The decline is primarily attributable to the weak demand in the domestic
chemical industry and the continued adverse impact on the bulk transportation
industry. Accordingly, the competition for the lower volume of available loads
remains fierce and there is substantial pressure to maintain price stability.
Operating expenses decreased by $19,318,000 (21.3%) to $71,416,000 compared with
$90,734,000 during the prior year period. The decline in operating expenses is
also attributed to reduced demand and the corresponding decrease in the number
of loads carried. Accordingly, there were declines in most of the major
components of operating expenses including cleaning, maintenance and terminal
expense. Driver and leased operator compensation and purchased transportation
also experienced significant declines reflecting the decrease in demand for
services and fewer loads carried. Fuel costs were also down during the six-
month period reflecting fewer miles driven partially offset by higher prices for
all petroleum products. As a percentage of revenue, operating expenses were
93.2% for the six-month period in 2001 and 93.1% in 2000.
Depreciation and amortization expense decreased by $1,077,000 (22.9%) to
$3,629,000 compared with $4,706,000 during the prior year period. The decrease
results from the disposition of property and equipment in the last 12 months as
well as a growing proportion of property and equipment that are fully
depreciated. In addition, the prior period included a charge resulting from the
reduction in the useful life of transportation software that has since been
replaced. As a percent of revenue, depreciation and amortization expense was
relatively flat at 4.7% for the six-month period in 2001 compared with 4.8% in
2000.
Selling and administrative expenses decreased by $243,000 (2.5%) to $9,620,000
compared with $9,863,000 in the prior year period. However, as a percent of
revenue, selling and administrative expenses increased to 12.6% for the period
ending in 2001 as compared to 10.1% in 2000. The decline reflects Company-wide
efforts to contain costs offset by approximately $430,000 for professional
services including consulting fees and related expenses attributable to the
implementation of enterprise-wide transportation management software, as well as
legal and financial advisory fees of approximately $456,000 incurred during the
first three months of the fiscal year in connection with the Company's
FORM 10-Q
efforts to explore strategic alternatives and refinancing of the revolving
credit agreement. Absent these charges, selling and administrative expenses
declined by $1,129,000 or 11.4%. As the Company committed to and proceeded with
the Chapter 11 filing, fees for legal, financial advisory and other professional
services primarily related to the Chapter 11 filing were recorded as
"Reorganization items, net."
Other (income) expense, net decreased by $2,208,000 primarily as a result of a
$2,203,000 non-cash impairment charge related to the write-down of several
Company-owned locations in the prior year period.
Interest expense increased by $216,000 (8.4%) primarily as a result of higher
interest rates associated with the revolving credit agreement. Effective
February 15, 2001, interest began to accrue on amounts outstanding under the
revolving credit agreement at 2% above the reference rate (Prime) then
applicable in accordance with a provision included in the forbearance and fifth
amendment to the Agreement. The increase resulted despite lower average
outstanding borrowings as significant portions of debt were paid down primarily
as a result of asset dispositions including substantially all of the assets of
the Company's leasing business segment, which was sold in November 2000.
As discussed above, fees for legal, financial advisory and other professional
services primarily attributable to the Chapter 11 filing are recorded as a
component of "Reorganization items, net." Accordingly, the six-month period
ended 2001 includes professional fees, primarily legal and financial advisory,
of $767,000. Reference is made to the Note to the Consolidated Financial
Statements, "Reorganization Items" for a more comprehensive discussion of the
components of this item during the periods ended in 2001 as well as those
anticipated in subsequent periods.
The six months ended March 31, 2001 does not reflect an income tax benefit
compared with $4,749,000 or 38.2% in the prior period. The significant
reduction reflects the provision of a 100% valuation allowance against the
Company's net deferred tax asset. The valuation reserve is considered necessary
by management due to the high level of uncertainty surrounding the future
realization of tax benefits from the Company's net operating losses and other
deferred tax assets.
Earnings from discontinued operation decreased $732,000 reflecting the exit from
the leasing business segment effective with the sale of substantially all of the
assets of Matlack Leasing Corporation in November 2000.
Net loss for the six months ended March 31, 2001 was $11,434,000 or $1.30 per
diluted share compared with a net loss of $6,955,000 or $.79 per diluted share
in the prior period.
Results of Operations: Quarter Ended March 31, 2001 vs. Quarter Ended March 31,
- --------------------------------------------------------------------------------
2000
- ----
Revenues for the quarter ended March 31, 2001 decreased by $10,381,000 (21.8%)
to $37,336,000 compared with $47,717,000 during the same quarter last year. The
decline reflects a trend that has continued for several consecutive quarters
reflecting weak demand in the domestic chemical industry and the adverse impact
on the bulk transportation industry.
Operating expenses decreased by $13,273,000 (27.8%) to $34,439,000 compared with
$47,712,000 during the prior year quarter. The decline in operating expenses is
also attributable to reduced demand and the corresponding decrease in the number
of loads carried. In addition, the prior year quarter includes a provision for
the closure of certain terminals. Also, cost containment efforts were
continuously employed during the quarter as the company experienced increasing
pressure as a result of
FORM 10-Q
financing limitations imposed under the revolving credit agreement. Accordingly,
decreases were experienced in most of the major components of operating
expenses. As a percentage of revenue, operating expenses were 92.2% for the
quarter ended 2001 and 100.0% in 2000.
Depreciation and amortization expenses decreased by $1,079,000 (41.0%) to
$1,553,000 compared with $2,632,000 during the prior year quarter. The decrease
is primarily a result of a charge taken in the prior year quarter relating to
the reduction in the useful life of transportation software that has since been
replaced as well as continued growth in the proportion of property and equipment
that is fully depreciated. As a percentage of revenue, depreciation and
amortization expense was 4.2% for the quarter ended 2001 and 5.5% in 2000.
Selling and administrative expenses decreased by $751,000 (14.5%) to $4,432,000
compared with $5,183,000 during the prior year quarter. However, as a
percentage of revenue, selling and administrative expenses increased to 11.9%
for the quarter ending in 2001 as compared with 10.9% in 2000. The decline
reflects Company-wide efforts to contain costs offset by approximately $159,000
in professional services including consulting, legal and financial advisory fees
related to software implementation and strategic alternatives in connection with
the Company's efforts to refinance its revolving credit agreement. Absent these
charges, selling and administrative expenses declined by $910,000 or 17.6%. As
the Company committed to and proceeded with the Chapter 11 filing, fees for
legal, financial advisory and other professional services primarily attributable
to the Chapter 11 filing were recorded as "Reorganization items, net."
Other (income) expense, net decreased by $2,219,000 primarily as a result of a
$2,203,000 non-cash impairment charge related to the write-down of several
Company-owned locations in the prior year quarter.
Interest expense increased by $20,000 (1.6%) primarily as a result of higher
interest rates associated with the revolving credit agreement partially offset
by the effect of a lower borrowing base as compared with the prior year quarter.
Effective February 15, 2001, interest began to accrue on amounts outstanding
under the revolving credit agreement at 2% above the reference rate (Prime) then
applicable in accordance with a provision included in the forbearance and fifth
amendment to the Agreement.
Reorganization items, net reflects professional fees, primarily legal and
financial advisory, of $767,000 attributable to the Chapter 11 filing.
The quarter ended March 31,2001 does not reflect an income tax benefit compared
with $4,308,000 or 38.6% in the prior year quarter. The significant reduction
reflects the provision of a 100% valuation allowance against the Company's net
deferred tax asset. The valuation reserve is considered necessary by management
due to the high level of uncertainty surrounding the future realization of tax
benefits from the Company's net operating losses and other deferred tax assets.
The Company exited the leasing business segment effective with the sale of
substantially all of the assets of Matlack Leasing Corporation in November 2000.
Accordingly, no results are reflected for the discontinued operation during the
quarter ended March 31, 2001 compared with earnings of $283,000 in the prior
year quarter.
Net loss for the quarter ended March 31, 2001 was $5,001,000 or $.57 per diluted
share compared with a net loss of $6,564,000 or $.74 per diluted share in the
prior year quarter.
FORM 10-Q
FORWARD-LOOKING STATEMENTS
The Company may make certain forward-looking statements in this Form 10-Q within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
relating to the Company's financial condition, profitability, liquidity,
resources, business outlook, proposed acquisitions or divestitures, market
forces, corporate strategies, consumer preferences, contractual commitments,
legal matters, capital requirements and other matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. 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 substantially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. When words and
expressions such as: "believes," "expects," "anticipates," "estimates," "plans,"
"intends," "objectives," "goals," "aims," "projects," "forecasts," "possible,"
"seeks," "may," "could," "should," "might," "likely," "enable," or similar words
or expressions are used in this Form 10-Q, as well as statements containing
phrases such as: "in the Company's view," "there can be no assurance," "although
no assurance can be given," or "there is no way to anticipate with certainty,"
forward-looking statements are being made in all of these instances.
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: the Company's ability to develop a
plan of reorganization for successful confirmation; the Company's ability to
continue as a going concern; the Company's ability to refinance its existing
indebtedness; potential increases in interest rates; general economic
conditions; competitive factors and pricing pressures; shifts in market demand;
the performance and needs of industries served by the Company; 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.
The Company undertakes no obligation to update publicly or revise any forward-
looking statements as a result of future developments, events or conditions. New
risk factors emerge from time to time and it is not possible for the Company to
predict all such risk factors, nor can the Company assess the impact of all such
risk factors on its business or the extent to which any factor, or combination
of factors, may cause actual results to differ significantly from those forecast
in any forward-looking statements. Given these risks and uncertainties,
investors should not overly rely or attach undue weight to the Company's
forward-looking statements as an indication of its actual future results.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
On March 29, 2001, Matlack Systems, Inc. and all of its wholly owned
subsidiaries filed a voluntary petition seeking protection under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. The filings have been consolidated for the purposes of
joint administration as Case No. 01-1114 (MFW). The cases have been styled as IN
RE: MATLACK SYSTEMS, INC., et al. Reference is made to Notes to the Consolidated
Financial Statements, "Basis of
FORM 10-Q
Presentation" and "Long-Term Debt" as well as Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources for a discussion of the Company's voluntary
petition seeking protection under Chapter 11 of the United States Bankruptcy
Code.
There are various claims and legal actions pending against the Company that are
insured under the Company's public liability and workers' compensation policies
relating to incidents arising out of the Company's bulk trucking, cleaning and
intermodal businesses. In the opinion of management, the reserves established
for these claims and actions are adequate. However, the ultimate resolution of
these claims and actions may be material.
There are various other non-insured claims and legal actions pending against the
Company relating to employment, certification of services and contract issues.
In the opinion of management, the likelihood that the ultimate resolution of
these claims and actions will be material is remote.
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
By letter dated March 28, 2001, the banks declared an event of default and
accelerated the amounts due under the Company's revolving credit agreement.
This action also triggered an event of default under the Company's other
equipment financing obligations resulting in their acceleration as well.
Reference is made to Notes to the Consolidated Financial Statements, "Basis of
Presentation" and "Long-Term Debt" as well as Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources and Part II, Item 1. Legal Proceedings for a
discussion of the Company's voluntary petition seeking protection under Chapter
11 of the United States Bankruptcy Code. Accordingly, no principal or interest
payments will be made on financing obligations incurred by the Company prior to
March 29, 2001 until a plan of reorganization has been confirmed by the
Bankruptcy Court providing the necessary terms of any such payments.
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.
FORM 10-Q
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: June 1, 2001 MATLACK SYSTEMS, INC.
------------------ --------------------------------
(Registrant)
/s/ Michael B. Kinnard
-----------------------------------------------
Michael B. Kinnard
President and Chief Executive Officer
/s/ Patrick J. Bagley
-----------------------------------------------
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer