Page 1 of 10
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, 1999
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, 1999 was 8,814,434.
<PAGE>
FORM 10-Q Page 2 of 10
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.
Certain prior year amounts have been reclassified to conform with the
current period's presentation. Operating results for the quarter and nine
months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended September 30, 1999. 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, 1998.
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,
1999 1998 1999 1998
Basic EPS 8,814 8,787 8,814 8,787
Effect of assumed option
exercises - 131 - 131
Diluted EPS 8,814 8,918 8,814 8,918
No adjustments to net earnings available to common shareholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 3 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
($000 Omitted Except for Per Share Amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues $50,567 $60,002 $156,717 $183,712
Operating expenses 44,926 49,406 137,490 153,913
Depreciation 2,778 2,883 8,554 9,235
Selling and administrative
expenses 5,560 5,276 15,819 15,309
Other income (854) (162) (1,257) (1,060)
52,410 57,403 160,606 177,397
Operating earnings (loss) (1,843) 2,599 (3,889) 6,315
Interest expense 928 989 2,810 3,077
Earnings (loss) before income
taxes (benefit) (2,771) 1,610 (6,699) 3,238
Income taxes (benefit) (1,013) 805 (2,454) 1,489
Net earnings (loss) $(1,758) $ 805 $ (4,245) $ 1,749
Earnings (loss) per share
- Basic $ (.20) $ .09 $ (.48) $ .20
- Diluted $ (.20) $ .09 $ (.48) $ .20
Average common shares
outstanding (000)
- Basic 8,814 8,787 8,814 8,787
- Diluted 8,814 8,918 8,814 8,918
Dividends paid per share None None None None
<PAGE>
FORM 10-Q Page 4 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
June 30, September 30,
ASSETS 1999 1998
Current assets
Cash $ 2,268 $ 5,477
Accounts receivable, net of allowance for
doubtful accounts: June-$957;
September-$668 30,776 29,831
Inventories 6,296 6,382
Other current assets 2,596 4,179
Refundable income taxes 1,950 -
Deferred income taxes 1,889 1,572
Total current assets 45,775 47,441
Property and equipment, at cost, net of
accumulated depreciation of:
June-$135,295; September-$130,600 88,630 94,382
Other assets 3,190 1,440
Total assets $137,595 $143,263
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,020 $ 6,846
Accrued liabilities 11,926 13,583
Income taxes payable - 1,393
Current maturities of long-term debt 1,908 2,588
Total current liabilities 19,854 24,410
Long-term debt 50,313 47,446
Insurance reserves 5,040 5,015
Other liabilities 1,461 1,266
Deferred income taxes 9,504 9,486
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-8,814,434 and September-8,809,634 8,814 8,809
Capital in excess of par value 10,619 10,597
Retained earnings 31,990 36,234
Total shareholders' equity 51,423 55,640
Total liabilities and
shareholders' equity $137,595 $143,263
FORM 10-Q Page 5 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Nine Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net earnings (loss) $(4,245) $ 1,749
Adjustments to reconcile net earnings (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 8,554 9,252
Net gain on sale of property and equipment (1,181) (1,060)
Changes in assets and liabilities:
Accounts receivable (745) 235
Inventories and other assets 1,349 (268)
Accounts payable and accrued liabilities (2,483) (3,138)
Current and deferred income taxes (3,642) 585
Other, net 219 (615)
Net cash (used in) provided by operating activities (2,174) 6,740
Cash flows from investing activities:
Purchase of property and equipment (5,152) (6,622)
Proceeds from sale of property and equipment 1,902 3,958
Net cash used in investing activities (3,250) (2,664)
Cash flows from financing activities:
Proceeds of long-term debt 47,400 42,581
Repayment of long-term debt (45,213) (44,792)
Exercise of stock options 28 33
Net cash provided by (used in) financing activities 2,215 (2,178)
Net (decrease) increase in cash (3,209) 1,898
Cash beginning of period 5,477 2,524
Cash end of period $ 2,268 $ 4,422
Supplemental and noncash information:
Interest paid $ 2,779 $ 2,725
Income taxes paid $ 1,188 $ 905
Notes receivable from asset disposals included in:
Accounts receivable $ 200 $ -
Other assets $ 1,825 $ -
FORM 10-Q Page 6 of 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Nine Months Ended June 30, 1999 vs. Nine Months
Ended June 30, 1998
Revenues for the nine months ended June 30, 1999 decreased by $26,995,000
(14.7%) to $156,717,000 from $183,712,000. The number of loads carried
decreased 21.9% while average miles per load increased 5.1%. Revenue per
load carried increased by 5.8% over the same period of last year. Overall
revenues from the Company's non-bulk trucking subsidiaries decreased by
7.9% when compared with the prior year. This revenue decline included a
23.5% decrease from Matlack International, Inc.
Operating expenses decreased by $16,423,000 (10.7%) and reflected the
decreased level of business. Drivers' wages decreased by $6,835,000, fuel
expense decreased by $3,229,000, purchased transportation decreased by
$4,602,000 and tank cleaning expense decreased by $619,000, all reflecting
the lower level of business. Operating expenses as a percentage of
revenues increased to 87.7% in 1999 from 83.8% in 1998.
Depreciation expense decreased by $681,000 (7.4%) reflecting the
disposition of property and equipment both during fiscal 1998 and the first
nine months of fiscal 1999.
Other income of $1,257,000 represents principally the net gain derived
from the disposal of property and equipment during the current fiscal year.
The sale, during the first quarter of fiscal 1999, of a significant portion
of the facility owned by Bayonne Terminals, Inc. accounted for $154,000 of
the gain. Third quarter results reflected a gain of $570,000 from the sale
of tractors and a gain of $240,000 from the sale of a facility.
Selling and administrative expenses increased by $510,000 (3.3%) and as
a percentage of revenue, were 10.1% in 1999 and 8.3% in 1998. Bad debt
expense for the nine-month period increased by $310,000.
Interest expense decreased by $267,000 (8.7%) reflecting lower borrowing
rates on an increased level of borrowing when compared with the same period
of last year.
The rate of income tax benefit for the nine months of fiscal 1999 was
36.6% compared with an effective tax rate last year of 46.0%.
The net loss for the first nine months of fiscal 1999 was $4,245,000 or
$.48 per diluted share. The loss reflects the Company's lower level of
business during the first nine months of the current fiscal year.
Results of Operations: Quarter Ended June 30, 1999 vs. Quarter Ended June
30, 1998
Revenues for the quarter ended June 30, 1999 were $50,567,000 compared
with $60,002,000 reported in the third quarter last year. The decrease of
$9,435,000 (15.7%) was principally due to continued lower demand for
transportation services in the chemical industry. The number of loads
carried decreased by 20.4%. During the quarter, revenue per load increased
by 7.6%, miles per load increased by 6.9% while revenue per mile remained
essentially flat. Matlack International, Inc.'s revenues for the third
quarter declined by 43.4%. Overall, non-bulk trucking revenues decreased
FORM 10-Q Page 7 of 10
by 16.7% and reflected the continued weak demand for the Company's
services.
Operating expenses decreased by $4,480,000 (9.1%) and reflected the
decrease in revenues. Drivers' wages decreased by $1,112,000, fuel expense
decreased by $463,000, purchased transportation decreased by $2,029,000 and
tank cleaning expense decreased by $228,000, all reflecting the lower level
of business. When compared with the third quarter of the prior year,
maintenance expense increased by $378,000. Operating expenses as a percent
of revenues increased to 88.8% in 1999 from 82.3% in 1998.
Other income of $854,000 principally reflects the net gain derived from
the sale of property and equipment during the quarter, as previously
discussed.
Depreciation expense decreased by $105,000 (3.6%) reflecting both the
disposition of property and equipment during fiscal 1998 and fiscal 1999 to
date and the fact that a larger portion of the Company's assets have become
fully depreciated.
Selling and administrative expenses increased by $284,000 (5.4%) and, as
a percentage of revenue, were 11.0% in 1999 and 8.8% in 1998. An increase
in bad debt expense of $105,000 was noted during the quarter.
Interest expense decreased $61,000 (6.2%) reflecting lower borrowing
rates on an increased level of borrowings during the current fiscal year
compared with the same period of last year.
The rate of income tax benefit for the third quarter of fiscal 1999 was
36.6% compared with an effective income tax rate last year of 50.0%.
The net loss for the third quarter of fiscal 1999 was $1,758,000 or $.20
per diluted share. The loss reflects the continued lower level of business
experienced by the Company.
Liquidity and Capital Resources
During the first nine months of fiscal 1999, the Company purchased
property and equipment for $5,152,000 and used cash of $2,174,000 for
operating activities. Cash was provided from the sale of property and
equipment of $1,902,000, from financing activities of $2,215,000 and a
reduction in cash balances of $3,209,000.
During the third quarter of fiscal 1999, the Company's cash balance
decreased by $624,000 as the result of purchasing property and equipment of
$1,029,000 less the proceeds realized from the sale of property and
equipment of $907,000, repaying indebtedness of $366,000 and using $136,000
from operating activities. Based on the Company's internal projections,
cash flow from operating activities for the fourth quarter of fiscal 1999
is expected to be positive and capital expenditures for the purchase of
property and equipment less the proceeds from the sale of property and
equipment is expected to be approximately $1,000,000.
The Company had no commitments for equipment or facilities at June 30,
1999. However, on August 3, 1999, the Company placed an order with a
tractor supplier for the lease of 100 sleeper tractors to replace older
FORM 10-Q Page 8 of 10
models in its fleet. Delivery is expected to take place over the next
year.
The Company believes that current cash balances, availability under its
credit facility, as amended, proceeds from the sale of excess equipment or
facilities and its ability to generate funds internally should be
sufficient to fund capital expenditures and increases in working capital
required to accommodate current levels of business activity. The credit
facility mentioned above is the Company's $75,000,000 Credit Agreement. It
contains certain financial covenants, including those relating to the
maintenance of a minimum net worth, a minimum fixed charge coverage ratio
and a maximum leverage ratio, as defined in the Credit Agreement. On
August 10, 1999, the Credit Agreement was amended to revise the financial
covenants effective June 30, 1999 and to secure amounts outstanding. As a
result of this amendment, the Company was in compliance with all the
financial covenants as of June 30, 1999. Based on current projections, it
is likely that the Company will remain in compliance with the revised terms
of the Credit Agreement for the quarter ending September 30, 1999.
Otherwise, there have been no material changes in the Company's financial
condition and its liquidity and capital resources since September 30, 1998.
For further details, see the Company's 1998 Annual Report to Shareholders
on Form 10-K for the year ended September 30, 1998.
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.
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.
FORM 10-Q Page 9 of 10
Year 2000 ("Y2K") Readiness Disclosure
The Company is aware of the issues related to the approach of the year
2000 and has assessed and investigated what steps must be taken to ensure
that its critical systems and equipment will function appropriately after
the turn of the century. The Company has completed a review of each of its
core systems to determine their Y2K compliance. As a result, the Company
replaced its Service Management System with one designed to be Y2K-
compliant from inception. The remaining core systems are vendor-supplied
and maintained systems where the Company has received Y2K-compliant
upgrades and is in various stages of implementation and testing. The
Company has completed the implementation of its Service Management System
and continues activities toward making all other non-core systems Y2K-
compliant by September 30, 1999. The Service Management System replacement
is expected to cost approximately $4,400,000 of which $4,000,000 had been
expended as of June 30, 1999.
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its transportation equipment and to
provide dispatch and routing information to its drivers. The Company has
been informed that the software utilized by Qualcomm and the Company is
fully Y2K-compliant. A failure of the satellite communication system could
have a materially adverse effect on the Company's results of operations.
The Company is relying on the contingency plan established by Qualcomm to
prevent the interruption of business. As an additional backup, the Company
plans to use its existing telephone systems to dispatch its equipment and
provide support to its drivers in the event of a complete satellite system
failure. In addition, the Company utilizes Comdata to allow drivers to
purchase fuel outside of the Company's terminal locations. The Company has
been informed that Comdata's systems associated with fuel purchases are
Y2K-compliant. The Company also interacts with many of its vendors through
electronic data interchange (EDI). Although the Company is Y2K-compliant
in its EDI applications, it cannot and does not guarantee the Y2K
compliance of its business partners' systems. However, as part of the
Company's contingency planning, programs are in place which permit the
Company to deal with its EDI business partners in a non-EDI environment, if
necessary. Therefore, the failure of any such business partners to achieve
Y2K compliance should not have a material adverse effect upon the Company's
operations.
The Company has completed its initial contingency plan to deal with Y2K
issues. However, due to the complexity and widespread nature of such
issues, the contingency planning process of necessity must be an ongoing
one and one which might require further modification as more information
becomes known regarding (1) the Company's own systems and facilities, and
(2) the status and changes therein of the Y2K compliance efforts of outside
suppliers and vendors. Management believes that the Company's current
state of readiness, the nature of the Company's business, and the
availability of the contingency plan minimizes Y2K risks. Management does
not foresee significant liability to third parties if one or more of the
Company's systems are not Y2K-compliant. As significant Y2K uncertainties
remain outside the control of the Company, at this time the Company is
unable to determine a most reasonably likely worst case scenario.
Through June 30, 1999, the Company has incurred, in addition to the
Service Management System costs noted above, $340,000 of internal staff
costs necessary to review and further Y2K compliance of its core operating
FORM 10-Q Page 10 of 10
systems. All Y2K costs have been and will continue to be funded from cash
flows from operations. The Company expects the total costs associated with
its Y2K readiness program to aggregate approximately $400,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and legal actions pending against the Company.
In the opinion of management, based on the advice of Klaus M. Belohoubek,
the Company's in-house General Counsel, the outcome of such claims and
litigation will not have a material adverse effect upon the Company's
financial position or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
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
(a) Exhibits
Exhibit 4(a) Instrument defining rights of security holders.
Matlack Systems,Inc. Rights Agreement as filed as an Exhibit to
Registration Statement on Form 8-A filed by the Company on June
30, 1999 is incorporated herein by reference.
Exhibit 27 - Financial Data Schedule
(b) 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 13, 1999 MATLACK SYSTEMS, INC.
(Registrant)
/s/ Michael B. Kinnard
Michael B. Kinnard
President and Chief Operating Officer
/s/ Patrick J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer
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<CASH> 2,268
<SECURITIES> 0
<RECEIVABLES> 31,733
<ALLOWANCES> 957
<INVENTORY> 6,296
<CURRENT-ASSETS> 45,775
<PP&E> 223,925
<DEPRECIATION> 135,295
<TOTAL-ASSETS> 137,595
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0
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<COMMON> 8,814
<OTHER-SE> 42,609
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<TOTAL-COSTS> 146,044
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