<PAGE> 1
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 SECURITY
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: 0-24180
-------------------------------------------------------
MTL Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3239073
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
(X) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
( ) Yes ( ) No
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1998
- ------------------------------ ----------------------------------
(Common Stock, $.01 par value) 1,700,000
<PAGE> 2
MTL INC. AND SUBSIDIARIES
INDEX
Part I Financial Information Page No.
Item 1 Financial Statements (unaudited)
Condensed consolidated balance sheets -
June 30, 1998 and December 31, 1997 3-4
Condensed consolidated statements of income -
three months and six months ended June 30, 1998
and 1997 5
Condensed consolidated statements of cash flows -
six months ended June 30, 1998 and 1997 6
Notes to condensed consolidated financial
statements 7-9
Item 2 Management's Discussion and Analysis
Of Financial Condition and Results
of Operations
Management's discussion and analysis of financial
condition and results of operations 10-12
Part II Other Information
Item 1 Legal proceedings 13
Item 6 Exhibits
Reports on Form 8-K 13
Signatures 14
<PAGE> 3
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) *
----------- ------------
<C> <C>
<S>
ASSETS
Current Assets
Cash $ 3,188 $ 1,377
Accounts receivable 42,004 40,152
Allowance for doubtful accounts (2,352) (1,980)
Current maturities of other receivables 1,163 1,163
Notes receivable 635 547
Inventories 679 958
Prepaid expenses 1,192 2,822
Prepaid tires 4,469 4,324
Income tax receivable 3,719 -
Deferred income taxes 3,034 2,686
Other 128 127
--------- ---------
Total Current assets 57,859 52,176
Property, plant and equipment 222,534 211,530
Less - accumulated depreciation and
amortization (83,555) (75,020)
--------- ----------
138,979 136,510
Other Assets 11,582 5,350
--------- ---------
$208,420 $194,036
======== ========
</TABLE>
<PAGE> 4
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) *
---------- ----------
<C> <C>
<S>
Current Liabilities
Current maturities of indebtedness $ 659 $ 2,307
Accounts payable and accrued expenses 16,952 15,201
Independent contractors payable 4,975 6,432
Other current liabilities 4,994 4,906
Income tax payable 90 798
------- -------
Total Current liabilities 27,670 29,644
Long term debt, less current maturities 199,568 52,433
Capital lease obligations, less current
maturities 207 358
Other long term obligations 4,345 5,065
Deferred income taxes 27,494 27,004
Commitments and contingent liabilities
Redeemable common stock (30,239) 1,210 -
Stockholders' equity
Common stock 17 45
Additional paid-in-capital 92,809 30,459
Retained earnings 45,534 49,241
Stock recapitalization (189,579) -
Other stockholders' equity (455) (213)
Note receivable (400) -
-------- --------
Total stockholders' equity (Deficit) (52,074) 79,532
--------- --------
$208,420 $194,036
======== ========
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) - (In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
------- -------- -------- --------
<C> <C> <C> <C>
<S>
Operating Revenues
Transportation $137,767 $129,727 $ 70,589 $66,889
Other 10,855 9,462 5,654 4,916
-------- -------- -------- --------
148,622 139,189 76,243 71,805
Operating Expenses
Purchased transportation 91,433 88,065 47,086 45,587
Depreciation and amortization 9,916 8,051 5,020 4,180
Compensation - options 13,433 - 13,433 -
Other operating expenses 35,894 32,870 18,112 16,522
--------- -------- -------- --------
Operating income (loss) (2,054) 10,203 (7,408) 5,516
Interest expense, net 3,305 1,555 2,537 818
Other expense (16) (19) (9) (9)
--------- --------- -------- ---------
Income (loss) before taxes (5,343) 8,667 (9,936) 4,707
Income taxes (2,259) 3,578 (4,143) 1,952
--------- --------- -------- --------
Net income (loss) before
extraordinary item (3,084) 5,089 (5,793) 2,755
Extraordinary item, net of tax 623 - 623 -
--------- --------- -------- ---------
Net income (loss) $(3,707) $ 5,089 $ (6,416) $ 2,755
Per Share Data: ======== ======== ======== ========
Basic earnings per share
Net income before
extraordinary item $(.74) $ 1.12 $(1.51) $ 0.61
Extraordiary item (.15) - ( .16) -
------ ------ ------- -------
Net earnings per share $(.89) $ 1.12 $(1.67) $ 0.61
====== ====== ======= =======
Average shares outstanding 4,144 4,529 3,839 4,531
======= ======= ======= =======
Diluted earnings per share
Net income before
extraordinary item N/A $ 1.09 N/A $ 0.59
Extraordinary item N/A _ N/A _
------ ------ ------ ------
Net earnings per share N/A $ 1.09 N/A $ 0.59
====== ====== ====== =======
Average shares outstanding N/A 4,687 N/A 4,689
====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
------- ------
<C> <C>
<S>
Cash provided by (used for)
Operating activities:
Net income (loss) ($ 3,707) $ 5,089
Adjustments for non cash charges 10,058 10,179
Changes in assets and liabilities (4,996) (2,953)
-------- --------
Net cash provided by operating
activities 1,355 12,315
Investing activities:
Advance to investee - (332)
Other investments - (533)
Capital expenditures (13,547) (12,280)
Proceeds from asset dispositions 882 381
Other 453 -
-------- --------
Net cash used for investing
activities (12,212) (12,764)
Financing activities:
Proceeds from issuance of long
term debt 200,107 4,852
Payment of obligations (54,498) (3,002)
Issuance of common stock 62,333 115
Recapitalization expenditures (189,579) -
Deferred financing costs (6,803) -
Other 1,199 -
-------- --------
Net cash provided by
financing activities 12,759 1,965
------- -------
Net Increase in cash 1,902 1,516
Effect of exchange rate changes on cash (91 (108)
Cash, beginning of period 1,377 695
--------- ---------
Cash, end of period $ 3,188 $ 2,103
======== ========
Cash payments for:
Interest $ 3,688 $ 1,821
Income taxes $ 1,536 $ 1,363
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
FORM 10-Q
Item 1. Financial Statements
MTL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed, consolidated financial statements of MTL
Inc. (the Company) have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and notes 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.
For further information, refer to the consolidated financial statements and
notes thereto for the year ended December 31, 1997, included in the Company's
Form 10-K dated March 23, 1998.
Operating results for the quarter ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
2. RECAPITALIZATION:
On June 9, 1998, the Company completed the transactions contemplated by an
agreement with Sombrero Acquisition Corporation (Sombrero), an affiliate of
Apollo Management L.P.(Apollo), pursuant to which Sombrero merged with and
into the Company. According to the terms of the merger agreement, the stock-
holders of the Company (other than certain management shareholders) received
$40.00 per share in cash. The total transaction value was approximatley
$250.0 million, including payment for outstanding stock options and payment of
approximately $51.0 million in debt.
The transaction was accounted for as a leveraged recapitalization. The effect
of the recapitalization on stockholders' equity can be summarized as follows:
<TABLE>
<CAPTION>
Shareholders' Equity or (Deficit)
---------------------------------
<C>
<S>
Balance December 31, 1997 $ 79,532
Year to date loss as of June 30, 1998 (3,707)
Equity investment - New 62,333
Recapitalization expenditures (189,579)
Other (653)
---------
Balance June 30, 1998 $ (52,074)
=========
</TABLE>
The recapitalization was funded by a cash equity investment of approximately
$62.3 million from Apollo, members of the Company's existing management and
third party financing sources. $140.0 million of senior subordinated debt was
used to finance the acquisition along with $60.0 million dollars of senior
secured bank debt. Additionally, a $100 million revolving credit facility is
available to the Company for working capital and acquisition purposes.
(PAGE>8
FORM 10 - Q
ITEM 1 - Financial Statements
MTL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
3. PROPOSED ACQUISITION:
On June 24, 1998, the Company announced it had entered into an agreement
and plan of merger with Chemical Leaman Corporation ("CLC") and the
shareholders of CLC. This transaction is expected to close no later than
October 31, 1998, however, an earlier closing date is anticipated.
The closing of this acquisition is subject to certain financing arrangements
and other conditions.
On June 27,1998 the Company initiated a tender offer to purchase CLC's
10 3/8 % senior notes due 2005 at a puchase price equal to:
(i) the present value on the payment date of $1,051.88 per note (the amount
payable on June 15, 2001, which is the first date on which the notes are
redeemable)("the Earliest Redemption Date")) and all future interest payments
payable up to the Earliest Redemption Date, determined on the basis of a
yield to the Earliest Redemption Date equal to the sum of (x) the yield on
the 5 5/8 percent U.S. Treasury Notes due May 15, 2001, based on the bid
price for such security as of 2:00 p.m., New York City time, on August 19,
1998, the third business day immediately preceeding the scheduled expiration
date of the tender offer, plus (y) 75 basis points less (ii) a consent payment
of $20.00 per $1,000.00 principal amount on notes for which a valid consent to
certain matters relating to the notes is received in connection with the
tender offer.
The sources of funds to consumate the merger are expected to include
additional loans of approximately $235.0 million, preferred equity of
approximately $20.0 million and common equity of approximately $12.0 million.
The Company is currently in the process of securing the required financing.
This transaction will be accounted for as a purchase.
4. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets for annuual financial statements.
<PAGE>9
FORM 10- Q
ITEM 1 - Financial Statements
MTL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(continued)
The Company adopted SFAS 130 in 1998 and accordingly, Comprehensive Income is
as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30,
1998 1997 1998 1997
------- -------- ------- --------
<C> <C> <C> <C>
<S>
Net Income or (loss) $(3,707) $5,089 $(6,416) $ 2,755
Other comprehensive income, net of tax:
Foreign currency translation adjustments (242) (45) (261) (27)
-------- ------- -------- --------
Comprehensive Income or (loss) $(3,949) $5,044 $(6,677) $ 2,728
======== ======= ======== ========
</TABLE>
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Standards No.131 (SFAS 131) "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
segments. The Company has not considered the the effects of SFAS 131 on the
consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The effect of SOP 98-1
has not been determined at this time.
<PAGE>10
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITON AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1998 COMPARED TO THE SECOND QUARTER 1997
The Company's operating results for the second quarter of 1998 were materially
effected by the recapitalization accounting resulting from the June 9, 1998
transaction with an affiliate of Apollo Management L.P. The total pretax
charge to earnings relating primarily to cost of payouts to the holders of
existing stock options was,$16.2 million.The impact on earnings is as follows:
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, 1998 June 30, 1998
---------------- -----------------
<C> <C>
<S>
Net income (loss) before
extraordinary item $(3,084) $(5,793)
Recapitalization expenses; net of tax 8,788 8,788
-------- --------
Net income excluding recapitalization
expense $ 5,704 $ 2,995
======== ========
</TABLE>
The following discussion compares the 1998 results exclusive of the
aforementioned nonrecurring charges to income.
The Company's operating results are affected by shipments for the bulk
chemical industry. Shipments of chemical products are in turn affected by
many other industries, including consumer and industrial products, automotive,
paint and coatings, and paper, and tend to vary with changing economic
conditions. The Company also participates in the shipment of bulk food
products through its food-grade division. The volumes of food products and
certain other consumer products tend to be subject to fewer fluctuations due
to swings in economic activity.
For the quarter ended June 30, 1998, revenues totaled $76.2 million, a 6.2%
increase over revenues of $71.8 million for the same period in 1997. The
Company attributes its increased revenue to sustained strength in chemical
industry shipments nationwide and continued implementation of both its
affiliate and core carrier strategies.
<PAGE> 11
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
(continued)
For the quarter ended June 30, 1998, operating income totaled $6.0 million,
representing a 9.4% increase compared to $5.5 million for the same period in
1997. This increase is primarily due to the increase in sales. The operating
ratio decreased by 0.24% due to continued cost containment emphasis.
Net interest increased to $2.5 million in the quarter ended June 30 1998,
from $0.8 million in the quarter ended June 30, 1997. This increase is the
result of the increased debt arising from the leveraged recapitalization
including $0.6 million in bridge financing fees.
Pretax income for the quarter ended June 30, 1998, totaled $5.2 million, a
10.3% increase compared to $4.7 million for the same period in 1997. Pretax
income increased primarily due to the increase in operating income year to
year.
For the quarter ended June 30, 1998, the Company's net income, excluding
recapitalization related expenses, was $3.0 million compared with $2.8
million for the same period last year.
Weighted average shares outstanding decreased from 4,689,000 in the second
quarter of 1997 to 3,839,000 in the second quarter of 1998 due to the
recapitalization. As of June 30, 1998, a total of 1,700,000 shares were
outstanding.
<PAGE> 12
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
MTL INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company's primary sources of liquidity are funds provided by operations
and borrowings under various credit arrangements with financial institutions.
Net cash provided by operating activities totaled $1.4 million for the six
months ended June 30, 1998, versus $12.3 million for the same period in 1997,
reflecting additional cash charges in 1998 relating to the recapitalization.
The cash provided by financing activities totaled $12.8 million during
the six month period ended June 30, 1998, compared to $2.0 million during
the comparable period in 1997.
Capital used for investing activities totaled $12.2 million for the six month
period ended June 30, 1998, compared to $12.8 million used for the comparable
1997 period. Capital was used primarily to acquire additional revenue
equipment to expand the Company's operations.
As a result of the leveraged recapitalization transaction, the Company has
significantly increased its outstanding long term debt and anticipates
additional debt and equity being required to consumate the proposed Chemical
Leaman acquisition. The Company is currently in the process of securing
the additional debt and equity required.
On June 27, 1998 the Company inititiated a tender offer to purchase Chemical
Leamans 10 3/8 % Senior Notes due 2005, as more fully discussed in Note 3
to the financial statements on page 8.
The Company maintains a $110,000,000 revolving credit facility with a group
of banks maturing in June of 2004. As of June 30, 1998, the Company has
available $100.0 million under this revolving credit facility. Additionally,
the Company has a $50.0 million, six year Term Loan Facility in place along
with $100.00 million in 10% senior subordinated notes due in 2006 and $40.0
million in floating interest rate subordinated term securities also due in
2006.
The Company's management believes that borrowings under these loan agreements,
together with available cash and internally generated funds, will be
sufficient to fund MTL's continued growth and meet its working capital
requirements for the foreseeable future.
<PAGE> 13
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to Item 3 on page 11 of the Company's Form 10-K for the
year ended December 31, 1997. There have been no material changes in the
Company's legal proceedings since this filing.
ITEM 4. Submission of Matters to a Vote of Security Holders
A special meeting of shareholders was held June 4, 1998 at which
time the shareholders approved and adopted the Agreement and Plan
of Merger dated February 10, 1998.
ITEM 6. (a) Exhibits: 27 Financial Data Schedule (for SEC use only)
2.1 Agreement and Plan of Merger dated February 10, 1998.
(Incorporated by reference to Form 8-K filed February 25, 1998)
2.2 Proxy Statement dated May 4, 1998 relating to the special
meeting of shareholders held June 4, 1998.(Incorporated by
reference)
(b) Reports on Form 8-K:
1.In a Form 8-K dated June 29, 1998, the Company reported closing
a purchase agreement wherein an affiliate of Apollo Management
L.P. merged with and into the Company and the shareholders of the
Company, other than certain shareholders as reported therein,
received consideraion of $40.00 per share in cash. Additionally,
under item 5, the Company reported entering into an agreement
and plan of merger with Chemical Leaman Corporation (CLC)
through a wholly-owned subsidairy of the Company.
2. In a Form 8-K dated July 27, 1998, the Company reported
entering into an amendment to the merger agreement with
Chemical Leaman Corporation through a wholly-owned subsidiary
of the Company. In addition, the Company announced the
commencement of its tender offer for the 10 3/8 % Senior
Notes of CLC.
<PAGE> 14
Signatures
MTL INC.
-------------------------------------------
August 5, 1998 /S/ CHARLES J. O'BRIEN, JR.
-------------------------------------------
CHARLES J. O'BRIEN, JR., (CEO, PRESIDENT)
(DULY AUTHORIZED OFFICER)
August 5, 1998 /S/ RICHARD J. BRANDEWIE
-------------------------------------------
RICHARD J. BRANDEWIE, (TREASURER)
(PRINCIPAL FINANCIAL OFFICER)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3188
<SECURITIES> 0
<RECEIVABLES> 42004
<ALLOWANCES> 2352
<INVENTORY> 679
<CURRENT-ASSETS> 57859
<PP&E> 222534
<DEPRECIATION> 83555
<TOTAL-ASSETS> 208420
<CURRENT-LIABILITIES> 27670
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> (51727)
<TOTAL-LIABILITY-AND-EQUITY> 208420
<SALES> 148622
<TOTAL-REVENUES> 148322
<CGS> 0
<TOTAL-COSTS> 150676
<OTHER-EXPENSES> (16)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3305
<INCOME-PRETAX> (5343)
<INCOME-TAX> (2259)
<INCOME-CONTINUING> (3084)
<DISCONTINUED> 0
<EXTRAORDINARY> 623
<CHANGES> 0
<NET-INCOME> (3707)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> 0
</TABLE>
