<PAGE> 1
===============================================================================
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 September 30, 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 October 31, 1998, there were
6,990,000 outstanding shares of the Registrant's Common Stock, no par value.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
(unaudited)
Receivables
CURRENT ASSETS
Cash and cash equivalents $ 6,717,715 $ 8,616,702
Receivables 14,267,021 13,171,720
Prepaid expenses 1,717,006 2,409,524
Supplies inventory 390,760 503,498
Deferred income taxes 1,649,000 1,581,000
Income taxes receivable - 683,033
----------- ------------
Total current assets 24,741,502 26,965,477
PROPERTY AND EQUIPMENT, AT COST 83,001,839 75,901,875
Less accumulated depreciation
and amortization (39,638,792) (35,242,661)
----------- ------------
43,363,047 40,659,214
OTHER ASSETS
Deferred charges 454,227 378,761
Unrecognized net pension obligation 65,307 65,307
----------- ------------
519,534 444,068
----------- ------------
$68,624,083 $ 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
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 96,320 $ 89,557
Accounts payable 2,696,013 4,123,703
Accrued liabilities 7,385,992 4,426,519
Accrued claims 2,224,837 2,956,911
---------- -----------
Total current liabilities 12,403,162 11,596,690
LONG-TERM OBLIGATIONS, less current
maturities 1,417,179 6,491,882
DEFERRED INCOME TAXES 6,852,098 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 September 30, 1998 and December 31, 1997 12,101,298 12,101,298
Retained earnings 35,850,346 31,349,889
----------- -----------
47,951,644 43,451,187
----------- -----------
$68,624,083 $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
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating revenues $30,721,691 $28,161,498 $ 84,637,011 $77,445,561
----------- ----------- ------------ -----------
Operating expenses
Salaries, wages and benefits 13,356,649 11,898,226 37,990,660 33,004,480
Operating supplies and expenses 4,079,255 4,263,479 11,502,372 11,539,799
Purchased transportation 4,942,967 4,042,463 13,281,088 11,132,355
Operating taxes and licenses 985,181 860,093 2,820,282 2,681,422
Insurance and claims 868,379 1,268,878 2,787,597 3,400,093
Depreciation and amortization 2,054,451 1,726,447 5,875,611 5,155,815
Communications and utilities 505,255 529,453 1,417,207 1,474,323
Building rents 626,313 449,751 1,692,672 1,265,745
----------- ----------- ------------ -----------
Total operating expenses 27,418,450 25,038,790 77,367,489 69,654,032
----------- ----------- ------------ -----------
Operating income 3,303,241 3,122,708 7,269,522 7,791,529
Other income (expense)
Interest expense (35,406) (211,131) (142,425) (772,232)
Other, net 57,931 94,839 238,699 112,688
----------- ----------- ------------ ------------
22,525 (116,292) 96,274 (659,544)
----------- ----------- ----------- ------------
Earnings before income taxes 3,325,766 3,006,416 7,365,796 7,131,985
Income taxes 1,302,369 1,291,000 2,865,339 2,824,000
----------- ----------- ----------- ------------
NET EARNINGS $ 2,023,397 $ 1,715,416 $ 4,500,457 $ 4,307,985
=========== =========== ============ ===========
Earnings per common share - basic $ 0.29 $ 0.64
=========== ============
Weighted-average shares
outstanding - basic 6,990,000 6,990,000
=========== ============
Earnings per common share - diluted $ 0.29 $ 0.64
=========== ============
Weighted-average shares
outstanding - diluted 6,990,000 6,990,000
=========== ============
Pro forma (Note 3)
Earnings before income taxes $ 3,006,416 $ 7,131,985
Income taxes 1,198,000 2,878,000
----------- ===========
Net earnings $ 1,808,416 $ 4,253,985
=========== ===========
Earnings per common share - basic $ 0.31 $ 0.73
=========== ===========
Weighted-average shares
outstanding - basic 5,820,000 5,820,000
=========== ===========
Earnings per common share - diluted $ 0.31 $ 0.73
=========== ===========
Weighted-average shares
outstanding - diluted 5,820,000 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
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 4,500,457 $ 4,307,985
----------- -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 5,875,611 5,155,815
Provision for losses on trade
and other receivables 158,013 157,500
Loss (gain) on disposition of
property and equipment (76,377) (82,288)
Pension cost - 4,343
Deferred income taxes 255,098 170,971
Changes in assets and liabilities
Receivables (1,253,314) (2,695,025)
Prepaid expenses 692,518 497,298
Supplies inventory 112,738 (104,734)
Income taxes receivable 683,033 166,983
Other assets (75,466) (50,396)
Accounts payable (1,427,690) 359,594
Accrued liabilities and claims 2,227,399 2,097,807
---------- ----------
Total adjustments 7,171,563 5,677,868
---------- ----------
Net cash provided by operating 11,672,020 9,985,853
activities
---------- ----------
Cash flows from investing activities
Purchase of property and equipment (8,847,108) (4,930,521)
Proceeds from disposition of property
and equipment 344,041 215,184
----------- ----------
Net cash used in
investing activities (8,503,067) (4,715,337)
----------- ----------
</TABLE>
(Continued)
5
<PAGE> 6
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from financing activities
Distributions to LLC members - (458,001)
Proceeds from issuance of long-term
obligations - 24,915,000
Principal payments on long-term
obligations (5,067,940) (32,733,425)
---------- ------------
Net cash used in financing activities (5,067,940) (8,276,426)
---------- -------------
Net decrease in
cash and cash equivalents (1,898,987) (3,005,910)
Cash and cash equivalents at beginning of period 8,616,702 8,771,887
---------- ------------
Cash and cash equivalents at end of period $6,717,715 $ 5,765,977
========== ============
Supplemental cash flow information
Cash paid during the period for
Interest $ 145,010 $ 734,837
Income taxes 801,864 1,695,100
</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 for the
nine month period ended September 30, 1997 is audited. The interim
consolidated financial information for all other periods 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 period amounts have been reclassified to conform with the
current period'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 and nine month periods ended September 30, 1997.
4. EARNINGS PER SHARE
Basic earnings per common share ("EPS") 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 SEPTEMBER 30, 1998
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings $2,023,397 6,990,000 $0.29
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options - -
---------- ---------
DILUTED EPS
Net earnings $2,023,397 6,990,000 $0.29
========== ========= =====
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ----------
<S> <C> <C> <C>
PRO FORMA
BASIC EPS
Net earnings $1,808,416 5,820,000 $0.31
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options
- -
---------- ---------
DILUTED EPS
Net earnings $1,808,416 5,820,000 $0.31
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings $4,500,457 6,990,000 $0.64
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options
- -
---------- ---------
DILUTED EPS
Net earnings $4,500,457 6,990,000 $0.64
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997
EARNINGS SHARES EARNINGS
(NUMERATOR) (DENOMINATOR) PER-SHARE
----------- ------------- ---------
<S> <C> <C> <C>
PRO FORMA
BASIC EPS
Net earnings $4,253,985 5,820,000 $0.73
=====
EFFECT OF DILUTIVE
SECURITIES
Stock options
- -
---------- ---------
DILUTED EPS
Net earnings $4,253,985 5,820,000 $0.73
========== ========= =====
</TABLE>
8
<PAGE> 9
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.
The Company has identified Cincinnati, Ohio for its next BEA expansion facility
and has targeted the first quarter of 1999 for startup. Additional BEAs are also
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages and benefits 43.5 42.2 44.9 42.6
Operating supplies and expenses 13.4 15.1 13.6 14.9
Purchased transportation 16.1 14.4 15.7 14.4
Operating taxes and licenses 3.2 3.1 3.3 3.5
Insurance and claims 2.8 4.5 3.3 4.3
Depreciation and amortization 6.7 6.1 6.9 6.7
Communications and utilities 1.6 1.9 1.7 1.9
Building rents 2.0 1.6 2.0 1.6
----- ----- ----- -----
Total operating expenses 89.3 88.9 91.4 89.9
----- ----- ----- -----
Operating income 10.7 11.1 8.6 10.1
Other income (expense)
Interest expense (0.1) (0.7) (0.2) (1.0)
Other, net 0.2 0.3 0.3 0.1
----- ----- ----- -----
Earnings before income taxes 10.8 10.7 8.7 9.2
Income taxes 4.2 4.6 3.4 3.6
----- ----- ----- -----
Net earnings 6.6 6.1 5.3 5.6
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Operating revenues increased 9.1% to $30.7 million for the three months
ended September 30, 1998, compared to $28.2 million for the same period in
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 facilities in Dallas, Texas and Chicago, Illinois. The number of
shipments during the third quarter of 1998 increased by 4.2% to 236,500
compared to 227,200 for the third quarter of 1997. The number of shipments and
operating revenues for the third quarter of 1997 reflect increased freight
volumes resulting from a UPS labor strike. Excluding the effects of the strike,
the number of shipments increased approximately 10.9% and operating revenues
increased approximately 11.6% compared to the third quarters of 1997.
Revenues contributed by MCDS increased to $968,000 for the third quarter
of 1998, compared to $950,000 for the third quarter of 1997. The increase was
due primarily to the expanding of service to an existing customer during the
third quarter of 1998.
As a percentage of operating revenues, salaries, wages and benefits
increased to 43.5% for the third quarter of 1998 from 42.2% for the third
quarter of 1997. This increase was due primarily to a wage increase in the
latter part of 1997 and increased staffing to enhance capacity and service
capabilities.
Insurance and claims expense decreased to 2.8% of operating revenues for
the three months ended September 30, 1998 from 4.5% 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 third quarter of 1997.
As a percentage of operating revenues, interest expense decreased to
0.1% for the third quarter of 1998 from 0.7% for the third quarter of 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.
Purchased transportation increased to 16.1% of revenues for the three
months ended September 30, 1998 as compared to 14.4% for the same period in
1997. This increase was primarily attributable to the use of purchased
transportation providing one-way hauling of freight from the Company's new BEA
expansion facilities in Dallas and Chicago into the Company's core service
region for delivery.
Total operating expenses increased to 89.3% of operating revenues for
the three months ended September 30, 1998 from 88.9% for the same period in
1997. This increase was primarily due to increased salaries, wages and benefits.
Net earnings increased 11.9% to $2,023,000 for the three months ended
September 30, 1998, compared to pro forma net earnings of $1,808,000 for the
same period in 1997. Net earnings per share decreased $.02 to $.29 for the third
quarter of 1998, compared to pro forma net earnings per share of $.31 for the
third quarter of 1997, based on weighted average diluted shares outstanding of
6,990,000 and 5,820,000, respectively.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Operating revenues increased 9.3% to $84.6 million for the nine months
ended September 30, 1998, compared to $77.4 million for the same period in 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 facilities in Dallas and Chicago. The number of shipments during the
nine months ended September 30, 1998 increased by 8.3% to 656,600, compared to
606,400 for the same period in 1997.
Revenues contributed by MCDS decreased to $2,036,000 for the nine months
ended September 30, 1998 from $2,324,000 for the same period in 1997. The
decrease was due primarily to the termination of a contract with one customer in
the first quarter of 1998, which resulted in lower revenues for the first and
second quarters of 1998. Revenues from MCDS increased during the third quarter
of 1998 due to the expanding of service to an existing customer.
As a percentage of operating revenues, salaries, wages and benefits
increased to 44.9% for the nine months ended September 30, 1998 from 42.6% for
the same period of 1997. This increase was due primarily to a wage increase in
the latter part of 1997 and increased staffing to enhance capacity and service
capabilities.
10
<PAGE> 11
Insurance and claims expense decreased to 3.3% of operating revenue for
the nine months ended September 30, 1998 from 4.4% for the same period in 1997.
Insurance reserves were increased in 1997 to cover two claims resulting in
higher insurance and claim expense in 1997.
As a percentage of operating revenues, interest expense decreased to .2%
for the nine months ended September 30, 1998 from 1.0% for the same period in
1997. The decrease resulted from the pay down of debt with proceeds from the
Company's initial public offering in the fourth quarter of 1997.
Purchased transportation increased to 15.7% of revenues for the nine
months ended September 30, 1998 as compared to 14.4% for the same period in
1997. This increase was primarily attributable to the use of purchased
transportation providing one-way hauling of freight from the Company's new BEA
expansion facilities in Dallas and Chicago into the Company's core service
region for delivery.
Total operating expenses increased to 91.4% of operating revenues for
the nine months ended September 30, 1998 from 89.9% for the same period in 1997.
This increase was primarily due to increased salaries, wages and benefits.
Net earnings increased 5.8% to $4,500,000 for the nine months ended
September 30, 1998, compared to pro forma net earnings of $4,254,000 for the
same period in 1997. Net earnings per share decreased $.09 to $.64 for the nine
months ended September 30, 1998 compared to pro forma net earnings per share of
$.73 for the same period in 1997, based on weighted average diluted shares
outstanding of 6,990,000 and 5,820,000, respectively.
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 $11.7 million for the first nine months of 1998 compared to $10.0
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 $8.5 million during the first
nine months of 1998 compared to $4.7 million in the comparable period of 1997.
The increase in capital expenditures was primarily due to the timing of the
delivery of revenue equipment. During 1997, a larger percentage of the Company's
capital expenditures for revenue equipment related to equipment delivered in the
fourth quarter of 1997. For the nine months ended September 30, 1998, $.9
million of the $8.5 million of capital expenditures was comprised of computer
equipment.
Net cash used in financing activities was $5.1 million for the nine
months ended September 30, 1998 compared to $8.3 million for the comparable
period of 1997. At September 30, 1998, total borrowings under long-term
obligations totaled approximately $1.5 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 September 30, 1998
there was no outstanding balance under the revolving loan agreement. The Company
has not drawn on the revolving line of credit since 1989.
The Sanwa Bank credit agreement also provides for term loans
collateralized by equipment. As of September 30, 1998, the amount available for
term loans under the credit agreement was $9.1 million. This amount is reduced
by 1/20th each quarter until the year 2002. As of September 30, 1998, the
Company had no term loans outstanding pursuant to the credit agreement.
11
<PAGE> 12
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.
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. The Company expects to complete
the modification of its proprietary software by the end of 1998 and to begin
testing such software in early 1999. 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. Such statements are
based upon the Company's current expectations and may include information with
respect to future revenues, income or loss, capital expenditures, construction
or expansion of regional facilities, 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 risks include, but are not limited to, general
economic factors, changes in market or customer demand, 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, dependence upon key personnel, and other factors
identified from time to time in the Company's press releases and periodic
reports filed with the Securities and Exchange Commission. 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 that involve risks and
uncertainties. Future events and actual results could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements. The Company's forward-looking statements apply only as of the date
made. The Company undertakes no obligation to publicly release the results of
any revisions to forward-looking statements which may be made to reflect events
or circumstances after the date made or to reflect the occurrence of
unanticipated events.
12
<PAGE> 13
PART II. OTHER INFORMATION
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.
13
<PAGE> 14
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.
By /s/ LYNN H. WHEELER
-----------------------------------------------
LYNN H. WHEELER
Vice President of Finance and Chief
Financial Officer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: November 12 1998
14
<PAGE> 15
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
15
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,718
<SECURITIES> 0
<RECEIVABLES> 14,267
<ALLOWANCES> 0
<INVENTORY> 391
<CURRENT-ASSETS> 24,742
<PP&E> 83,002
<DEPRECIATION> 39,639
<TOTAL-ASSETS> 68,624
<CURRENT-LIABILITIES> 12,403
<BONDS> 0
0
0
<COMMON> 12,101
<OTHER-SE> 35,850
<TOTAL-LIABILITY-AND-EQUITY> 47,952
<SALES> 84,637
<TOTAL-REVENUES> 84,637
<CGS> 0
<TOTAL-COSTS> 77,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 7,366
<INCOME-TAX> 2,865
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,500
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
