<PAGE> 1
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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, 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 000-23341
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, 1998, there were
6,990,000 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, 1998 (unaudited) and December 31, 1997 (audited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,061,585 $ 8,616,702
Receivables 11,913,754 13,171,720
Prepaid expenses 2,197,158 2,409,524
Supplies inventory 478,821 503,498
Deferred income taxes 1,581,000 1,581,000
Income taxes receivable -- 683,033
----------- -----------
Total current assets 23,232,318 26,965,477
PROPERTY AND EQUIPMENT, AT COST 76,689,937 75,901,875
Less accumulated depreciation
and amortization 37,004,869 35,242,661
----------- -----------
39,685,068 40,659,214
OTHER ASSETS
Deferred charges 325,701 378,761
Unrecognized net pension obligation 65,307 65,307
----------- -----------
391,008 444,068
----------- -----------
$63,308,394 $68,068,759
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 1998 (unaudited) and December 31, 1997 (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 89,557 $ 89,557
Accounts payable 3,820,507 4,123,703
Accrued liabilities 4,358,064 4,426,519
Accrued claims 3,056,497 2,956,911
----------- -----------
Total current liabilities 11,324,625 11,596,690
LONG-TERM OBLIGATIONS, less current
maturities 1,469,730 6,491,882
DEFERRED INCOME TAXES 6,174,000 6,529,000
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 6,990,000 shares as
of March 31, 1998 and December 31, 1997 12,101,298 12,101,298
Retained earnings 32,238,741 31,349,889
----------- -----------
44,340,039 43,451,187
----------- -----------
$63,308,394 $68,068,759
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Operating revenues $ 25,587,581 $ 23,207,604
------------ ------------
Operating expenses
Salaries, wages and benefits 12,041,556 10,208,648
Operating supplies and expenses 3,713,159 3,452,809
Purchased transportation 3,779,882 3,332,865
Operating taxes and licenses 884,805 888,398
Insurance and claims 933,757 963,603
Depreciation and amortization 1,830,780 1,712,997
Communications and utilities 437,694 448,837
Building rents 501,184 396,156
------------ ------------
Total operating expenses 24,122,817 21,404,313
------------ ------------
Operating income 1,464,764 1,803,291
Other income (expense)
Interest expense (75,353) (298,699)
Other, net 48,441 (4,348)
------------ ------------
(26,912) (303,047)
------------ ------------
Earnings before income taxes 1,437,852 1,500,244
Income taxes 549,000 521,000
------------ ------------
NET EARNINGS $ 888,852 $ 979,244
============ ============
Earnings per common share - basic $ 0.13
============
Weighted-average shares outstanding - basic 6,990,000
============
Earnings per common share - diluted $ 0.13
============
Weighted-average shares outstanding - diluted 7,007,084
============
Pro forma (Note 3)
Earnings before income taxes $ 1,500,244
Income taxes 576,000
------------
Net earnings $ 924,244
============
Earnings per common share - basic $ 0.16
============
Weighted-average shares outstanding - basic 5,820,000
============
Earnings per common share - diluted $ 0.16
============
Weighted-average shares outstanding - diluted 5,820,000
============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 888,852 $ 979,244
----------- -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 1,830,780 1,712,997
Provision for losses on receivables 52,500 52,500
Loss on disposition of
property and equipment 2,944 --
Deferred income taxes (355,000) 197,000
Changes in assets and liabilities
Receivables 1,205,466 100,111
Prepaid expenses 212,366 418,259
Supplies inventory 24,677 65,207
Income taxes receivable 683,033 166,983
Other assets 53,060 153,679
Accounts payable (303,196) (50,653)
Accrued liabilities and claims 31,131 (296,285)
----------- -----------
Total adjustments 3,437,761 2,519,798
----------- -----------
Net cash provided by operating
activities 4,326,613 3,499,042
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (861,778) (528,038)
Proceeds from disposition of property
and equipment 2,200 --
----------- -----------
Net cash used in
investing activities (859,578) (528,038)
----------- -----------
</TABLE>
(Continued)
5
<PAGE> 6
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Distributions to LLC members -- (290,531)
Proceeds from issuance of long-term
obligations 4,275,000 10,310,000
Principal payments on long-term
obligations (9,297,152) (20,403,958)
------------ ------------
Net cash used in financing activities (5,022,152) (10,384,489)
------------ ------------
Net decrease in
cash and cash equivalents (1,555,117) (7,413,485)
Cash and cash equivalents at beginning of period 8,616,702 8,771,887
------------ ------------
Cash and cash equivalents at end of period $ 7,061,585 $ 1,358,402
============ ============
Supplemental cash flow information
Cash paid during the period for
Interest $ 75,000 $ 299,000
Income taxes 4,050 75,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
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, 1997 which are included in
the Company's Annual Report on Form 10-K for such year (the "1997
10-K"). Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated balance
sheet at December 31, 1997, was extracted from the Company's audited
consolidated financial statements contained in the 1997 10-K, and does
not include all disclosures required by generally accepted accounting
principles for annual consolidated financial statements.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Effective August 28, 1997, the Company acquired the membership interests
of Ute Trucking and Leasing LLC, a Utah limited liability company
("Ute"). A limited liability company passes through to its members
essentially all taxable earnings and losses and pays no tax at the
company level. Accordingly, for comparative purposes, a pro forma
provision for income taxes using an effective income tax rate of 38% has
been determined assuming Ute had been taxed as a C Corporation during
the three months ended March 31, 1997.
4. 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 potentially dilutive common shares. Potential common shares
included in dilutive earnings per share calculations include stock
options granted but not exercised.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1998
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings $ 888,852 6,990,000 $ 0.13
EFFECT OF DILUTIVE SECURITIES ========
Stock options -- 17,084
--------- ---------
DILUTED EPS
Net earnings $ 888,852 7,007,084 $ 0.13
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1997
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ---------
<S> <C> <C> <C>
PRO FORMA
BASIC EPS
Net earnings $ 924,244 5,820,000 $ 0.16
EFFECT OF DILUTIVE SECURITIES ========
Stock options -- --
--------- ---------
DILUTED EPS
Net earnings $ 924,444 5,820,000 $ 0.16
========= ========= ========
</TABLE>
7
<PAGE> 8
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, 1997 (the "1997 10-K").
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.
Additional BEAs are being considered for 1999.
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:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Operating revenues 100.0% 100.0%
Operating expenses
Salaries, wages and benefits 47.0 44.0
Operating supplies and expenses 14.5 14.9
Purchased transportation 14.7 14.4
Depreciation and amortization 7.2 7.4
Insurance and claims 3.7 4.2
Operating taxes and licenses 3.5 3.8
Communications and utilities 1.7 1.9
Building rents 2.0 1.7
------- -------
Total operating expenses 94.3 92.3
------- -------
Operating income 5.7 7.7
Other income (expense)
Interest expense (0.3) (1.3)
Other, net 0.2 0.0
------- -------
Earnings before income taxes 5.6 6.4
Income taxes 2.1 2.2
------- -------
Net earnings 3.5% 4.2%
======= =======
</TABLE>
8
<PAGE> 9
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Operating revenues increased 10.3% to $25.6 million for the three months
ended March 31, 1998, compared to $23.2 million for the first three months of
1997. 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 facility in Dallas, Texas. The number of shipments during the first
quarter of 1998 increased by 12.8% to 200,235, compared to 177,545 for the first
quarter of 1997.
Of the $2.4 million increase in operating revenues for the three months
ended March 31, 1998, $476,000 was attributable to the Company's warehousing and
distribution company, MCDS. This represents a decrease in revenues for MCDS from
$587,000 during the first quarter of 1997, which was due to the termination of a
contract with one customer.
As a percentage of operating revenues, salaries, wages and benefits
increased to 47.0% for the first quarter of 1998 from 44.0% for the first
quarter of 1997. This 3% increase was due primarily to a wage increase in the
latter part of 1997, increased staffing in expectation of greater revenue
growth, as well as inefficiencies caused by bad weather in the Pacific Northwest
and California during the first quarter of 1998.
Insurance and claims expense decreased to 3.7% of operating revenues for
the three months ended March 31, 1998 from 4.2 % for the same period in 1997.
Insurance reserves were increased in 1997 to cover two claims, resulting in
higher insurance and claims expense for the first quarter of 1997.
As a percentage of operating revenues, interest expense decreased to .3%
for the first quarter of 1998 from 1.3% for the same period in 1997. This
decrease resulted from the pay down of debt with proceeds from the Company's
initial public offering in the fourth quarter of 1997.
Total operating expenses increased to 94.3% of operating revenues for
the three months ended March 31, 1998 from 92.3% for the same period in 1997.
This increase was primarily due to increased salaries, wages and benefits. Net
earnings decreased 9.2% to $889,000 for the three months ended March 31, 1998,
compared to $979,000 for the same period in 1997. Net earnings per weighted
average share outstanding decreased $.03 to $.13 for the first quarter of 1998,
compared to $.16 for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been funds provided by
operations and bank borrowings. Net cash provided by operating activities was
approximately $4.3 million for the first three months of 1998 compared to $3.5
million for the corresponding period in 1997. Net cash provided by operating
activities is primarily attributable to the Company's earnings before
depreciation and amortization expense.
Capital expenditures totaled approximately $.9 million during the first
three months of 1998 compared to $.5 million in the comparable period of 1997.
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 $5.0 million for the three
months ended March 31, 1998 compared to $10.4 million for the comparable period
of 1997. At March 31, 1998, total borrowings under long-term obligations totaled
approximately $1.6 million.
The Company is a party to a credit agreement with Sanwa Bank California
("Sanwa Bank"). The credit agreement provides for a $5 million revolving line of
credit. Any outstanding amounts under the revolving line of credit accrue
interest at a variable rate established from time to time by Sanwa Bank;
however, the Company may elect to have an advance accrue interest at a fixed
rate quoted by Sanwa Bank subject to certain prepayment restrictions. The credit
agreement is collateralized by the Company's cash and cash equivalents,
receivables, supplies inventory, and all documents, instruments, and chattel
paper now owned or hereafter acquired by the Company. At March 31, 1998 there
was no outstanding balance under the revolving loan agreement. The Company has
not drawn on the revolving line of credit since 1989.
9
<PAGE> 10
The Sanwa Bank credit agreement also provides for term loans
collateralized by equipment. As of March 31, 1998, the amount available for term
loans under the credit agreement was $10.8 million. This amount is reduced by
1/20th each quarter until the year 2002. As of March 31, 1998, the Company had
no term loans outstanding pursuant to the credit agreement.
INFLATION
Inflation has had a minimal effect upon the Company's profitability in
recent years. Most of the Company's operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operation. Although the
Company historically has been able to pass through most increases in fuel prices
and taxes to customers in the form of fuel surcharges or higher rates, the
Company generally must wait for larger carriers to implement fuel surcharges
before the Company can effectively implement fuel surcharges. See Item 1
"Business-Fuel Availability and Cost" in the 1997 10-K. The Company expects that
inflation will affect its costs no more than it affects those of other regional
LTL carriers.
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.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but not be limited, to projections of revenues, income or
loss, capital expenditures, construction or expansion of regional facilities,
acquisitions, plans for growth and future operations, financing needs or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. 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 include, but are not limited to, general economic factors,
availability of employee drivers and independent contractors, capital
requirements, competition, labor relations, fuel price fluctuations,
environmental hazards, seasonality, claims exposure and insurance costs, risks
associated with geographic expansion, government regulation, and dependence upon
key personnel. Further information on these and other factors which could affect
the Company's financial results can be found in the Company's Registration
Statement on Form S-1 (file no. 333-37211) and Prospectus dated November 24,
1997.
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
11
<PAGE> 12
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
------------------------------------------
LYNN H. WHEELER
Vice President of Finance and Chief Financial
Officer (Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 13, 1998
12
<PAGE> 13
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 5,233
<SECURITIES> 1,829
<RECEIVABLES> 12,531
<ALLOWANCES> 617
<INVENTORY> 479
<CURRENT-ASSETS> 23,232
<PP&E> 76,690
<DEPRECIATION> 37,005
<TOTAL-ASSETS> 63,308
<CURRENT-LIABILITIES> 11,325
<BONDS> 0
0
0
<COMMON> 12,101
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,308
<SALES> 25,588
<TOTAL-REVENUES> 25,588
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,123
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 1,438
<INCOME-TAX> 549
<INCOME-CONTINUING> 889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
