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 December 31, 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 December 31, 1999 was 8,814,434.
FORM 10-Q Page 2 of 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
In Thousands, Except Per Share Amounts
Quarter Ended
December 31,
1999 1998
Revenues $53,258 $54,231
Expenses
Operating 44,133 47,623
Depreciation and amortization 2,561 3,201
Selling and administrative 4,923 5,412
Other (income) expense (118) 132
51,499 56,368
Operating earnings (loss) 1,759 (2,137)
Interest expense 1,417 934
Earnings (loss) before income taxes (benefit) 342 (3,071)
Income taxes (benefit) 202 (1,136)
Net earnings (loss) $ 140 $(1,935)
Earnings (loss) per share
Basic $ .02 $ (.22)
Diluted $ .02 $ (.22)
Average common shares outstanding
Basic 8,814 8,813
Diluted 8,817 8,813
Dividends paid per share None None
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 3 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
In Thousands, Except Share and Per Share Amounts
December 31, September 30,
ASSETS 1999 1999
Current assets
Cash $ 635 $ 2,837
Accounts receivable, net of allowance for
doubtful accounts: December-$1,432;
September-$1,284 40,806 34,330
Inventories 5,916 6,007
Other current assets 2,083 1,592
Refundable income taxes 2,631 2,631
Deferred income taxes 2,928 3,752
Total current assets 54,999 51,149
Property and equipment, at cost, net of
accumulated depreciation of:
December-$131,260; September-$131,296 81,974 86,074
Other assets 1,983 1,958
Total assets $138,956 $139,181
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,913 $ 11,035
Accrued liabilities 17,042 19,583
Current maturities of long-term debt 6,727 5,309
Total current liabilities 29,682 35,927
Long-term debt 57,013 51,189
Self-insurance reserves 5,265 5,265
Other liabilities 3,106 2,429
Deferred income taxes 4,149 4,770
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: December-8,814,434 and
September-8,814,434 8,814 8,814
Capital in excess of par value 10,620 10,620
Retained earnings 20,307 20,167
Total shareholders' equity 39,741 39,601
Total liabilities and
shareholders' equity $138,956 $139,181
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 4 of 10
MATLACK SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
In Thousands
Quarter Ended
December 31,
1999 1998
Cash flows from operating activities:
Net earnings (loss) $ 140 $(1,935)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 2,561 3,200
Net gain on sale of property and equipment (120) (16)
Changes in assets and liabilities:
Accounts receivable (6,476) (45)
Inventories and other assets (556) (1,824)
Accounts payable and accrued liabilities (7,663) (4,467)
Current and deferred income taxes 203 (2,170)
Other, net 677 911
Net cash used in operating activities (11,234) (6,346)
Cash flows from investing activities:
Purchase of property and equipment (1,946) (1,734)
Proceeds from the sale of property
and equipment 3,736 247
Net cash provided by (used in)
investing activities 1,790 (1,487)
Cash flows from financing activities:
Proceeds of long-term debt 18,900 16,300
Repayment of long-term debt (11,658) (13,566)
Exercise of stock options - 28
Net cash provided by financing activities 7,242 2,762
Net decrease in cash (2,202) (5,071)
Cash beginning of period 2,837 5,477
Cash end of period $ 635 $ 406
Supplemental and noncash information:
Interest paid $ 1,312 $ 936
Income taxes paid $ - $ 1,034
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
FORM 10-Q Page 5 of 10
MATLACK SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited 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 ended December 31,
1999 are not necessarily indicative of the results that may be expected
for the year ended September 30, 2000. 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, 1999.
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
December 31,
1999 1998
Basic EPS 8,814 8,813
Effect of options 3 - (1)
Diluted EPS 8,817 8,813
(1) The effect of options was not considered as it would have been
anti-dilutive.
No adjustments to net income available to common stockholders were
required during the periods presented.
Segment Information
The Company's operations are classified into two reportable
business segments based on differences in their operations. The
Company's principal business is the transportation of bulk commodities
in tank trailers and tank containers for chemical and dry bulk
shippers. In connections with this transportation service, the Company
may provide, when required, intermodal transportation services and tank
cleaning. The Company is also in the business of leasing tank
trailers, tank containers and other associated specialized equipment
primarily to customers in the chemical and food industries and its
suppliers.
FORM 10-Q Page 6 of 10
Following is a tabulation of business segment information for the
first quarter of fiscal 1999 and 2000, respectively.
Bulk Corporate
(In thousands) Transportation Leasing and Other Consolidated
Quarter ended
December 31, 1998
Revenues
External customers $ 51,057 $ 3,148 $ 26 $ 54,231
Intersegment 88 45 (133) -
Total revenues 51,145 3,193 (107) 54,231
Segment profit (loss)
before income taxes (3,643) 820 (248) (3,071)
Total assets 131,428 15,144 (7,013) 139,559
Capital expenditures 739 986 9 1,734
Depreciation and
amortization 2,864 328 9 3,201
Interest expense 894 40 - 934
Quarter ended
December 31, 1999
Revenues
External customers $ 51,159 $ 2,062 $ 37 $ 53,258
Intersegment 30 97 (127) -
Total revenues 51,189 2,159 (90) 53,258
Segment profit (loss)
before income taxes (338) 750 (70) 342
Total assets 130,515 16,390 (7,949) 138,956
Capital expenditures 1,916 30 - 1,946
Depreciation and
amortization 2,069 487 5 2,561
Interest expense 1,309 108 - 1,417
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations: Quarter Ended December 31, 1999 vs. Quarter
Ended December 31, 1998
Revenues for the quarter ended December 31, 1999 decreased by
$973,000 (1.8%) to $53,258,000 compared with $54,231,000 during the same
quarter last year. The Company's decision to substantially reduce its
international presence accounted for $2,203,000 of the quarter-to-
quarter decrease in revenues. In addition, leasing revenues from
external customers declined by $1,086,000 during the first fiscal
quarter of 2000. This decline resulted from the fact that leasing
revenues in the quarter ended December 31, 1998 included the benefit of
approximately $1,200,000 of opportunity revenues, which resulted from
bad weather in Puerto Rico. After considering the effects of lost
revenues when compared with the same quarter of last year, overall
revenues from the remaining base level of the bulk transportation
business have increased.
Operating expenses decreased by $3,490,000 (7.3%) and reflected the
results of decisions made by the Company's management to shut down
FORM 10-Q Page 7 of 10
marginal and unprofitable operations and to reduce overall operating
expenses. All major operating cost categories, except fuel, were lower
in the first quarter of fiscal 2000 when compared with the same quarter
of the prior year. As a percentage of revenue, operating expenses were
82.9% in 1999 and 87.8% in 1998.
Depreciation and amortization expense decreased by $640,000 (20.0%)
reflecting both the disposition of property and equipment during fiscal
1999 and the first quarter of fiscal 2000 and the fact that a larger
portion of the Company's assets have become fully depreciated.
Selling and administrative expenses decreased by $489,000 (9.0%)
principally as a result of cost containment measures recently
implemented to more properly align the Company's infrastructure with the
level and mix of business currently available. As a percentage of
revenue, selling and administrative expenses were 9.2% in 1999 and 10.0%
in 1998.
Interest expense increased by $483,000 reflecting higher borrowing
rates and an increased level of indebtedness when compared with the same
period of last year.
The effective income tax rate in the first quarter of fiscal 2000 was
59.1% compared with an effective rate of benefit last year of 37.7%.
Non-deductible expenses caused the high effective income tax rate for
the first quarter of fiscal 2000.
Net earnings for the quarter were $140,000 or $.02 per diluted share.
The net earnings improvement, when compared with the prior year, reflect
management's efforts to contain costs and generate additional profitable
business.
Liquidity and Capital Resources
During the first quarter of fiscal 2000, the Company's operating
activities required a cash outflow of $11,234,000. Historically, the
Company incurs a net cash outflow from operating activities during the
first quarter due to the inclusion of annual payments for insurance
premiums and certain other operating expenses. During the first quarter
of fiscal 2000, slower than normal collections of accounts receivable
also adversely affected cash provided by operating activities. During
the first quarter, the Company reached agreement with several insurance
companies in which the Company sought coverage for environmental costs
associated with certain Company-owned sites. As a result of this
settlement, the Company received $4,108,000 of which $1,148,000 was
received in December and $2,960,000 was received in early January.
Capital expenditures in the first quarter of fiscal 2000 were
$1,946,000 compared with $1,734,000 last year. Proceeds from the sale
of property and equipment were $3,736,000, primarily the result of
selling three terminals. The Company anticipates purchasing equipment
in 2000 to replace older fully depreciated equipment. It is expected
that total capital expenditures for transportation equipment in 2000
FORM 10-Q Page 8 of 10
will be between $5,000,000 and $6,000,000. The Company also expects to
make modest capital expenditures for transportation service facilities
in fiscal 2000.
The Company anticipates that its currently available funds, cash
generated from operations, cash realized from the sale of property and
equipment, income tax refunds, insurance settlements and available
borrowing capacity under its amended credit agreement will be sufficient
to meet cash and working capital requirements, including anticipated
capital expenditures, through the end of fiscal 2000.
The source of the available borrowing capacity is the Company's
$75,000,000 bank credit facility, which had $56,900,000 outstanding at
December 31, 1999. Under this facility, borrowings are restricted to
the net book value of available equipment and eligible accounts
receivable less outstanding letters of credit. At December 31, 1999, a
total of $3,851,000 was available to the Company under this facility.
The Company was in compliance with the covenants under this facility
at December 31, 1999. On December 20, 1999, the bank group amended the
credit facility and reset ratios and modified the requirements on
certain covenants for the four quarters beginning with the quarter ended
December 31, 1999 through the quarter ending September 30,2000. This
amendment also limits capital expenditures, prohibits quarterly losses
and increases the cost to the Company for outstanding borrowings. The
amendment permits additional advances for working capital and other
corporate needs. The credit agreement expires on August 19, 2000, but
may be renewed on a year-to-year basis thereafter upon agreement of the
parties thereto. Termination of the agreement would result in the
repayment of the outstanding balance over a period of 48 months in equal
monthly installments. Based on current operating projections, it is
expected that the Company will be in compliance with these modified
covenants during fiscal year 2000. Further, it is expected that overall
indebtedness will decrease by between $3,000,000 and $5,000,000 in 2000.
The Company had commitments for transportation equipment purchases of
$1,097,000 at December 31, 1999.
Otherwise, there were no material changes in the Company's financial
condition and its liquidity and capital resources since September 30,
1999.
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
FORM 10-Q Page 9 of 10
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, particularly the chemical industry, 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.
Year 2000 ("Y2K") Issues
As of the filing date of this Form 10-Q, the Company's business
operations have not been materially impacted by Y2K matters. The
Company will continue to monitor its operations for possible Y2K
information technology programming issues.
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 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.
FORM 10-Q Page 10 of 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: February 14, 2000 MATLACK SYSTEMS, INC.
(Registrant)
/s/ Michael B. Kinnard
Michael B. Kinnard
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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