Page 1 of 9
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 June 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 1-10105
MATLACK SYSTEMS, INC.
(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
(Address of principal executive offices) (Zip Code)
(302) 426-2700
(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 June 30, 1998 was 8,787,362.
<PAGE>
FORM 10-Q Page 2 of 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Basis of Presentation
The accompanying unaudited condensed 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 nine months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended September 30, 1998. 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, 1997.
B. 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):
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
Basic EPS 8,787 8,759 8,787 8,758
Effect of assumed option
exercises 131 58 131 49
Diluted EPS 8,918 8,817 8,918 8,807
No adjustments to net earnings available to common shareholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 3 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues $60,002 $60,918 $183,712 $172,013
Operating expenses 49,406 50,907 155,013 145,397
Depreciation 2,883 3,317 9,235 9,815
Selling and administrative
expenses 5,276 4,515 14,209 13,014
Other income (162) (55) (1,060) (99)
57,403 58,684 177,397 168,127
Operating earnings 2,599 2,234 6,315 3,886
Interest expense 989 780 3,077 2,334
Earnings before income taxes 1,610 1,454 3,238 1,552
Income taxes 805 721 1,489 768
Net earnings $ 805 $ 733 $ 1,749 $ 784
Earnings per share
- Basic $ .09 $ .08 $ .20 $ .09
- Diluted $ .09 $ .08 $ .20 $ .09
Average common shares
outstanding (000)
- Basic 8,787 8,759 8,787 8,758
- Diluted 8,918 8,817 8,918 8,807
Dividends paid per share None None None None
<PAGE>
FORM 10-Q Page 4 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
June 30, September 30,
ASSETS 1998 1997
Current assets
Cash $ 4,422 $ 2,524
Accounts receivable, net of allowance for
doubtful accounts: June-$467;
September-$583 30,182 30,417
Inventories 6,070 5,895
Other current assets 2,891 3,036
Deferred income taxes 783 1,066
Total current assets 44,348 42,938
Property and equipment, at cost, net of
accumulated depreciation of:
June-$128,286; September-$128,216 93,578 99,106
Other assets 455 218
Total assets $138,381 $142,262
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,655 $ 8,320
Accrued liabilities 7,110 9,583
Income taxes payable 994 590
Current maturities of long-term debt 6,684 6,831
Total current liabilities 22,443 25,324
Long-term debt 40,714 42,778
Insurance reserves 2,669 3,176
Other liabilities 1,751 1,860
Deferred income taxes 11,466 11,567
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; issued and
outstanding - None
Common stock, $1 par value,
24,000,000 shares authorized;
issued and outstanding:
June-8,787,362 and September-8,778,149 8,787 8,778
Capital in excess of par value 10,555 10,532
Retained earnings 39,996 38,247
Total shareholders' equity 59,338 57,557
Total liabilities and
shareholders' equity $138,381 $142,262
FORM 10-Q Page 5 of 9
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Nine Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net earnings $ 1,749 $ 784
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 9,252 9,832
Net gain on sale of property and equipment (1,060) (99)
Changes in assets and liabilities:
Accounts receivable 235 (4,303)
Inventories and other assets (268) (508)
Accounts payable and accrued liabilities (3,138) (3,291)
Current and deferred income taxes 585 920
Other, net (615) 1,347
Net cash provided by operating activities 6,740 4,682
Cash flows from investing activities:
Purchase of property and equipment (6,622) (11,258)
Proceeds from sale of property and equipment 3,958 996
Net cash used in investing activities (2,664) (10,262)
Cash flows from financing activities:
Proceeds of long-term debt 42,581 38,200
Repayment of long-term debt (44,792) (33,158)
Exercise of stock options 33 30
Common stock acquired and retired - (76)
Net cash (used in) provided by financing activities (2,178) 4,996
Net increase (decrease) in cash 1,898 (584)
Cash beginning of period 2,524 3,019
Cash end of period $ 4,422 $ 2,435
Supplemental information:
Interest paid $ 2,725 $ 2,373
Income taxes (recovered) paid $ 905 $ (152)
<PAGE>
FORM 10-Q Page 6 of 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Nine Months Ended June 30, 1998 vs. Nine Months
Ended June 30, 1997
Revenues for the nine months ended June 30, 1998 increased by $11,699,000
(6.8%) to $183,712,000 from $172,013,000. The number of loads carried
increased 4.2% while average revenue per load increased 1.3%. Revenues
from the Company's non-bulk trucking subsidiaries increased by 17.7% and
represented more than 15% of revenues in fiscal 1998.
Operating expenses increased by $9,616,000 (6.6%) reflecting the increase
in the level of business. When compared with the first nine months of
fiscal 1997, driver compensation costs increased by $2,499,000, expenses
associated with tank cleaning operations increased by $1,943,000,
maintenance expenses increased by $568,000 and communications expenses
increased by $468,000, all reflecting the higher level of business of the
current fiscal year. Operating expenses as a percentage of revenues
decreased to 84.4% in 1998 from 84.5% in 1997.
Depreciation expense decreased by $580,000 (5.9%) as a larger portion of
the Company's assets have become fully depreciated.
Selling and administrative expenses increased by $1,195,000 (9.2%) mainly
due to the higher level of business and an increase in legal and
professional fees. The Company continued its efforts to control costs.
Selling and administrative expenses were 7.7% of revenues in 1998 and 7.6%
in 1997.
Interest expense for the nine months ended June 30, 1998 increased by
$743,000 (31.8%) due to the higher level of borrowing during the current
fiscal year combined with slightly higher interest rates incurred by the
Company.
The effective income tax rates for the nine months ended June 30, 1998
and 1997 were 46.0% and 49.5%, respectively. Non-deductible expenses and
lower earnings caused the increase in the effective tax rate for fiscal
1997.
Net earnings increased to $1,749,000 or $.20 per diluted share from
$784,000 or $.09 per diluted share in the prior year. The increase in
earnings resulted principally from the higher level of business realized
during the current fiscal year.
Results of Operations: Quarter Ended June 30, 1998 vs. Quarter Ended June
30, 1997
Revenues for the quarter ended June 30, 1998 were $60,002,000 compared
with $60,918,000 reported in the third quarter last year. The decrease of
$916,000 (1.5%) resulted from a decrease in bulk trucking revenues of
approximately 4.7% and an increase in non-bulk trucking revenues of
approximately 18.7%. The increase in the Company's non-bulk trucking
revenues was not sufficient to offset the revenue decline from the domestic
bulk trucking business.
FORM 10-Q Page 7 of 9
Operating expenses decreased by $1,501,000 (2.9%) principally reflecting
the decline in bulk trucking revenues. Operating expenses as a percent of
revenues decreased to 82.3% in 1998 from 83.6% in 1997.
Depreciation expense decreased by $434,000 (13.1%) as a larger portion
of the Company's assets have become fully depreciated.
Selling and administrative expenses increased by $761,000 (16.9%) as a
result of costs associated with the integration of acquisitions made within
the past year, higher expenses related to the growth of the Company's non-
bulk trucking business and the roll-out of the Company's new management
services system. As a percentage of revenues, selling and administrative
expenses were 8.8% and 7.4% in 1998 and 1997, respectively.
Interest expense increased $209,000 (26.8%) primarily caused by a higher
level of borrowings during the current fiscal year compared with last year.
The Company reduced indebtedness by $2,763,000 between March 31, 1998 and
June 30, 1998.
The effective income tax rates for the quarters ended June 30, 1998 and
1997 were 50.0% and 49.6%, respectively.
Net earnings increased to $805,000 or $.09 per diluted share from
$733,000 or $.08 per diluted share in the prior year. The increase in
earnings resulted principally from the higher level of non-bulk trucking
business from which higher margins were realized.
Liquidity and Capital Resources
During the first nine months of fiscal 1998, the Company financed its
capital additions of $6,622,000 with cash provided by operating activities,
which amounted to $6,740,000, and proceeds from the sale of property and
equipment of $3,958,000. At June 30, 1998, a total of $4,600,000 was
available to the Company under its revolving credit facility.
Otherwise, there have been no material changes in the Company's financial
condition and its liquidity and capital resources since September 30, 1997.
For further details, see the Company's 1997 Annual Report to Shareholders
on Form 10-K for the year ended September 30, 1997.
Forward-Looking Statements
The Company may make forward-looking statements relating to anticipated
financial performance, business prospects, acquisitions or divestitures,
new products, market forces, commitments and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order 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 materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. Forward-looking statements typically contain
words such as "anticipates", "believes", "estimates", "expects",
"forecasts", "predicts", or "projects", or variations of these words,
suggesting that future outcomes are uncertain.
FORM 10-Q Page 8 of 9
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: general economic conditions,
competitive factors and pricing pressures, shift 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as described below, there are no material legal proceedings to
which the Company or any of its subsidiaries is a party. Certain
subsidiaries of the Company are involved in ordinary routine litigation
incidental to the operation of its business.
Matlack, Inc. ("Matlack") contributed to a multi-employer pension plan
under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), known as the Central States, Southeast and Southwest Areas
Pension Fund (the "Pension Fund"), for certain of its union employees. In
April 1991, Matlack closed five terminals in Texas and Louisiana that were
contributing to the Pension Fund but continued to make contributions to the
Pension Fund at various other terminals. More than six years later, on December
28, 1997, the Pension Fund made a demand on Matlack for $3,700,593,
alleging that it was liable under ERISA for a partial withdrawal from the
Pension Fund. On June 9, 1998, Matlack initiated arbitration due to the
Pension Fund's failure to respond to Matlack's request for review which was
filed March 30, 1998. The Pension Fund has since brought an action in the
United States District Court for the Northern District of Illinois, Eastern
Division, seeking to collect interim payments prior to the decision of the
arbitrator. The Company denies that it incurred any withdrawal liability
due to its terminal closures in 1991, believes that the Pension Fund's
claims are frivolous and without merit, both substantively and
procedurally, and intends to vigorously defend itself.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
FORM 10-Q Page 9 of 9
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.
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: August 4, 1997 MATLACK SYSTEMS, INC.
(Registrant)
/s/ G. J. Trippitelli
G. J. Trippitelli
President and Chief Executive Officer
/s/ Patrick J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer
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