Page 1 of 8
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, 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 March 31, 1998 was 8,787,362.
FORM 10-Q Page 2 of 8
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 six months ended March 31, 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 Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Basic EPS 8,787 8,759 8,786 8,758
Effect of assumed option
exercises 151 43 130 43
Diluted EPS 8,938 8,802 8,916 8,801
No adjustments to net income available to common stockholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 3 of 8
Item 1. Financial Statements
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 six months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending 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.
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Revenues $61,201 $56,538 $123,710 $111,095
Operating expenses 52,413 47,895 105,607 94,490
Depreciation 3,085 3,286 6,352 6,498
Selling and administrative
expenses 4,564 4,142 8,933 8,499
Other (income) (505) (30) (898) (44)
59,557 55,293 119,994 109,443
Operating earnings 1,644 1,245 3,716 1,652
Interest expense 1,049 814 2,088 1,554
Earnings before income taxes 595 431 1,628 98
Income taxes 250 108 684 47
Net earnings $ 345 $ 323 $ 944 $ 51
Earnings per share
- Basic $ .04 $ .04 $ .11 $ .01
- Diluted $ .04 $ .04 $ .11 $ .01
Average common shares
outstanding (000)
- Basic 8,787 8,759 8,786 8,758
- Diluted 8,938 8,802 8,916 8,801
Dividends paid per share None None None None
<PAGE>
FORM 10-Q Page 4 of 8
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
March 31, September 30,
ASSETS 1998 1997
Current assets
Cash $ 2,333 $ 2,524
Accounts receivable, net of allowance for
doubtful accounts: March-$465;
September-$583 31,140 30,417
Inventories 5,933 5,895
Other current assets 3,737 3,036
Deferred income taxes 773 1,066
Total current assets 43,916 42,938
Property and equipment, at cost, net of
accumulated depreciation of:
March-$126,429; September-$128,216 96,324 99,106
Other assets 447 218
Total assets $140,687 $142,262
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,809 $ 8,320
Accrued liabilities 7,528 9,583
Income taxes payable 793 590
Current maturities of long-term debt 6,795 6,831
Total current liabilities 22,925 25,324
Long-term debt 43,366 42,778
Insurance reserves 2,761 3,176
Other liabilities 1,867 1,860
Deferred income taxes 11,234 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:
March-8,787,362 and September-8,778,149 8,787 8,778
Capital in excess of par value 10,555 10,532
Retained earnings 39,192 38,247
Total shareholders' equity 58,534 57,557
Total liabilities and
shareholders' equity $140,687 $142,262
<PAGE>
FORM 10-Q Page 5 of 8
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Six Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 944 $ 51
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 6,352 6,509
Net gain on sale of property and equipment (898) (44)
Changes in assets and liabilities:
Accounts receivable (723) (2,626)
Inventories and other assets (968) (1,346)
Accounts payable and accrued liabilities (2,566) (2,244)
Current and deferred income taxes 163 458
Other, net (408) 1,744
Net cash provided by operating activities 1,896 2,502
Cash flows from investing activities:
Purchase of property and equipment (5,771) (9,310)
Proceeds from sale of equipment 3,099 772
Net cash used in investing activities (2,672) (8,538)
Cash flows from financing activities:
Proceeds of long-term debt 32,081 27,400
Repayment of long-term debt (31,529) (21,696)
Exercise of stock options 33 20
Common stock acquired and retired - (76)
Net cash provided by financing activities 585 5,648
Net decrease in cash (191) (388)
Cash beginning of period 2,524 3,019
Cash end of period $ 2,333 $ 2,631
Supplemental information:
Interest paid $ 1,722 $ 1,417
Income taxes paid (recovered) $ 521 $ (411)
<PAGE>
FORM 10-Q Page 6 of 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Six Months Ended March 31, 1998 vs. Six Months
Ended March 31, 1997
Revenues for the first six months ended March 31, 1998 increased by
$12,615,000 (11.4%) from $111,095,000 to $123,710,000. The number of loads
carried increased 8.9% while the average miles per load increased 2.3%.
Revenues from the Company's non-bulk trucking subsidiaries increased by
17.6% and represented almost 15% of revenues for the period.
Operating expenses increased by $11,117,000 (11.8%) reflecting the
increase in loads carried. When compared with the first six months of
fiscal 1997, driver compensation costs increased by $3,641,000, expenses
associated with tank cleaning operations increased by $1,447,000,
maintenance expenses increased by $597,000 and communications expenses
increased by $496,000, all reflecting the higher level of business of the
current fiscal year. Operating expenses as a percentage of revenues
increased to 85.4% in 1998 from 85.1% in 1997.
Depreciation expense decreased by $146,000 (2.2%) as a larger portion of
the Company's assets have become fully depreciated.
Selling and administrative expenses increased by $434,000 (5.1%) mainly
due to the higher level of business. The Company continued its efforts to
control costs. Selling and administrative expenses were 7.2% of revenues
in 1998 and 7.7% in 1997.
Interest expense for the six months ended March 31, 1998 increased by
$534,000 (34.4%) reflecting the Company's higher level of indebtedness when
compared with the same period last year.
The effective income tax rates for the six months ended March 31, 1998
and 1997 were 42.0% and 48.0%, respectively. Non-deductible expenses and
lower earnings caused the increased effective tax rate for fiscal 1997.
Net earnings increased to $944,000 or $.11 per diluted share from $51,000
or $.01 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 March 31, 1998 vs. Quarter Ended
March 31, 1997
Revenues for the quarter ended March 31, 1998 were $61,201,000 compared
with $56,538,000 reported in the second quarter last year. The increase of
$4,663,000 (8.2%) was primarily attributable to higher demand for
transportation services in the chemical industry and the impact of recent
acquisitions. The number of loads carried increased by 5.2%. Non-bulk
trucking revenues continued to increase and were more than 15% of total
revenues for the quarter ended March 31, 1998.
Operating expenses increased by $4,518,000 (9.4%) reflecting the increase
in loads carried and the related increase in tank cleaning services.
Drivers' compensation increased by $1,070,000, insurance expense increased
by $1,072,000, tank cleaning expenses increased by $517,000 and
communications expenses increased by $292,000 when compared with the second
quarter of fiscal 1997. In general, the increased operating expenses
FORM 10-Q Page 7 of 8
reflected the continued higher level of business. Despite the increased
business, fuel costs decreased by $296,000 reflecting lower fuel prices.
Operating expenses as a percent of revenues increased to 85.6% in 1998 from
84.7% in 1997.
Depreciation expense decreased by $201,000 (6.1%) as a larger portion of
the Company's assets have become fully depreciated.
Selling and administrative expenses increased by $422,000 (10.2%) mainly
due to the higher level of business. Administrative expenses were higher
than normal during the second quarter as due diligence expenses associated
with the possible merger with Apollo Management, L.P. were incurred.
Selling and administrative expenses were 7.5% of revenues in 1998 and 7.3%
in 1997.
Interest expense increased by $235,000 (28.9%) and reflected a higher
level of borrowings when compared with last year. Higher cash flow from
operations enabled the Company to reduce indebtedness by $3,434,000 between
December 31, 1997 and March 31, 1998.
The effective income tax rates for the quarters ended March 31, 1998 and
1997 were 42.0% and 25.1%, respectively. The low level of income tax
benefit recorded in the first fiscal quarter of 1997 reduced the effective
tax rate for the second fiscal quarter of 1997.
Net earnings increased to $345,000 or $.04 per diluted share from
$323,000 or $.04 per diluted share in the prior year.
Liquidity and Capital Resources
During the first six months of fiscal 1998, the Company financed its net
capital additions of $2,672,000 primarily from cash provided by operating
activities of $1,896,000 and available cash. At March 31, 1998, a total of
$4,200,000 was available to the Company under its revolving credit
facility. Cash flow from operations is expected to be in excess of capital
expenditures during the second half of the fiscal year.
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
FORM 10-Q Page 8 of 8
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on January 29,
1998. With regard to Proposal No. 1 of the NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 29, 1998 to elect two Class III
Directors to the Board of Directors, John W. Rollins and Henry B. Tippie
were elected. At the meeting, 7,559,839 and 7,560,401 affirmative votes
were cast for John W. Rollins and Henry B. Tippie, respectively. There
were no votes case against either nominee and 22,087 and 21,525 votes were
withheld from John W. Rollins and Henry B. Tippie, respectively.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4 - Amendment to Rights Agreement
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On March 11, 1998, the Company filed a report on Form 8-K which
reported the details of a Letter of Intent entered into by the
Company and other related information. No financial statements were
filed with the Form 8-K, however, the following exhibits accompanied
the filing:
99.A Letter of Intent, dated February 25, 1998, by and between
Matlack Systems, Inc. and Apollo Management, L.P.
99.B Press release dated February 25, 1998
99.C Option Agreement, dated February 25, 1998, by and among
Rollins Properties, Inc., Apollo Management, L.P. and
Palestra Acquisition Corp.
99.D Support Agreement #1, dated February 25, 1998, by and among
John W. Rollins, Sr., John W. Rollins, Jr. and Henry B.
Tippie, Apollo Management L.P. and Palestra Acquisition Corp.
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: April 30, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,333
<SECURITIES> 0
<RECEIVABLES> 31,605
<ALLOWANCES> 465
<INVENTORY> 5,933
<CURRENT-ASSETS> 43,916
<PP&E> 222,753
<DEPRECIATION> 126,429
<TOTAL-ASSETS> 140,687
<CURRENT-LIABILITIES> 22,925
<BONDS> 43,366
0
0
<COMMON> 8,787
<OTHER-SE> 49,747
<TOTAL-LIABILITY-AND-EQUITY> 140,687
<SALES> 123,710
<TOTAL-REVENUES> 123,710
<CGS> 0
<TOTAL-COSTS> 111,959
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,088
<INCOME-PRETAX> 1,628
<INCOME-TAX> 684
<INCOME-CONTINUING> 944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 944
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
AMENDMENT NO. 1
TO
RIGHTS AGREEMENT
BETWEEN
MATLACK SYSTEMS, INC.
AND
REGISTRAR AND TRANSFER COMPANY
This Amendment No. 1 dated as of the 13th day of February, 1998
amending that certain Rights Agreement (the "Rights Agreement") dated
as of June 14, 1989 between Matlack Systems, Inc. (the "Company") and
Registrar and Transfer Company (the "Rights Agent").
WHEREAS, Section 26 to the Rights Agreement provides that as long
as the Rights defined in and created by the Rights Agreement (the
"Rights") are redeemable, the Company may in its sole and absolute
discretion, and the Rights Agent shall if the Company so directs,
supplement or amend any provision of the Rights Agreement without the
approval of any holders of the Rights or the Common Stock of the
Company (the "Common Stock"), provided that no such supplement or
amendment shall be made which changes the Redemption Price (as defined
in the Rights Agreement), the Final Expiration Date (as defined in the
Rights Agreement) or the number of shares of Common Stock for which a
Right is exercisable; and
WHEREAS, the Company wishes to provide the Board of Directors with
discretion in redeeming the Rights; and
WHEREAS, the Company and the Rights Agent wish to amend the
Agreement to reflect the foregoing desire:
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms used
herein which are defined in the Agreement shall have the meanings given
them in the Agreement.
2. Amendments.
(a) Section 1 of the Agreement is hereby amended by
inserting a new clause "(kk)," reading as follows:
"Exempt Transaction" shall mean a
share exchange, consolidation, merger or
other transaction in respect of which
the Board of Directors has waived the
application of either Section 13 or
Section 11 (a) (ii), whichever is
applicable, pursuant to the provisions
of Section 23 (c)."
(b) Section 1(aa) of the Agreement is hereby amended by
inserting the following language after the word "hereof":
", provided however that a Section 11
(a) (ii) Event shall not include an
Exempt Transaction."
(c) Section 1 (cc) of the Agreement is hereby amended by
inserting the following language after the word "hereof":
", provided however that a Section 13
Event shall not include an Exempt
Transaction."
(d) Section 23 of the Agreement is hereby amended by adding
a new clause (c) to the end of the Section, reading as follows:
"The Board of Directors may, until
a Triggering Event shall have occurred,
upon written notice (including notice by
telecopy) to the Rights Agent, determine
to waive the application of either
Section 13 or Section 11 (a) (ii),
whichever is applicable, to a Triggering
Event."
3. Representations and Warranties of the Company.
The Company represents and warrants to the Rights Agent that
(i) this Amendment No. 1 is permitted under the terms of the Rights
Agreement, and (ii) this Amendment No. 1 does not change the Redemption
Price, the Final Execution Date or the number of shares of Common Stock
for which a Right is exercisable under the Rights Agreement.
4. Effect. Except as expressly modified hereby, all terms and
provisions of the Agreement remain unamended and in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to the Rights Agreement to be duly executed, all as of the day
and year first above written.
Matlack Systems, Inc.
By: /s/ John W. Rollins, Jr.
Chairman of the Board
Registrar and Transfer Company
By: /s/ Thomas L. Montrone
President and CEO
