ITEM 1. BUSINESS.
The Registrant, Matlack Systems, Inc., together with its subsidiaries (herein collectively referred to as the "Company" unless the context indicates otherwise) is a specialized logistics and transportation company that provides transportation of bulk commodities in tank trailers and tank containers to the nation's leading chemical and dry bulk shippers. Concomitantly, the Company provides intermodal transportation services, trailer leasing, international bulk transportation, tank, intermediate bulk and ISO container cleaning services, logistics management services and dedicated contract carriage services to the chemical industry. The Company operates approximately 1,100 tractors and 2,800 trailers out of approximately 100 facilities located in 37 states and four Canadian provinces. During fiscal 1997, the Company passed its seventh quality audit by American Bureau of Shipping Quality Evaluations, Inc. with all locations and logistics services being ISO 9002 certified. There have been no significant changes in the business operations of the Company since September 30, 1996.
The Company, through its operating subsidiaries, provides the transportation and logistics services described below. Many of the adjunct services provided complement the Company's bulk transportation services. Matlack, Inc. ("Matlack"), the Company's major operating subsidiary, is one of the nation's largest bulk trucking companies providing liquid and dry bulk transportation primarily to the chemical industry throughout North America.
In terms of revenues, Matlack is one of the largest companies in the country engaged in highway transportation of bulk commodities primarily in tank trailers. Matlack is one of the few nationwide interstate tank truck carriers authorized to transport chemicals and other dry and liquid products in bulk. Matlack also operates on an intrastate basis in 37 states.
During fiscal years 1994 and 1995, the Company replaced a significant portion of its tractor fleet by acquiring, either through lease or purchase, 900 Mack 1995 conventional tractors. All of these tractors were equipped with anti-lock brakes and "electronic engines" which enabled the feeding of real-time operating information via satellite communications. This fleet replacement program lowered fuel, maintenance and insurance expenses while providing the Company with additional service capability and flexibility. In fiscal 1996, the Company balanced the size of its tractor fleet to more closely match the then current market conditions. During fiscal 1997, the Company acquired by lease 133 tractors. As a result of the fleet replacement program and the acquisition of additional power units, as described above, the average age of the Company's power fleet is approximately 2.5 years.
Capital expenditures made by the Company for the acquisition of new and used trailers during fiscal 1997, 1996 and 1995 were $9,952,000 (366 units), $2,767,000 (118 units) and $9,349,000 (217 units), respectively. The number of trailers available for use in the Company's operations at the end of fiscal years 1997, 1996 and 1995 were 2,800, 2,600 and 2,700, respectively. A tank trailer typical of those used by the Company in its operations measures 43 feet in length, 8.5 feet in width and 12 feet in height. Tank holding capacity normally ranges between 5,000 and 7,000 gallons with a payload capacity of up to 55,000 pounds. The Company also utilizes vans in its operations. Typical specifications for a van trailer are 48 feet in length, 8.5 feet in width and 13 feet in height. The Company's trailers have an average age of 10.3 years and a useful life expectancy of 20 years.
The Company believes that it maintains its fleet of tractors and trailers in above average condition for the industry. Maintenance of revenue equipment is performed by 76 mechanics employed by the Company. In addition, the Company utilizes outside repair facilities for certain of its tank repairs. In fiscal 1997, the Company expended approximately $7,700,000 for fleet maintenance. This amount included mechanics compensation and the costs associated with both internal and external repairs of revenue equipment.
Matlack is subject to regulation by the U.S. Department of Transportation and various state regulatory agencies. As a common and contract carrier by motor vehicle, Matlack holds certificates of public convenience and necessity issued by the regulatory agencies. These certificates define the commodities that the holder is authorized to transport and the points of origin and destination for carriers of such commodities. In Canada, the Company has terminals in Toronto and Sarnia, Ontario; Montreal, Quebec; Vancouver, British Columbia and Leduc, Alberta and it holds operating licenses under which it may transport various commodities into and out of certain Canadian Provinces via specific border entry points from the United States. To the best of its knowledge, Matlack is in compliance with federal regulations and those of the various state and provincial regulatory agencies where it operates.
The business of the Company is generally not subject to seasonal variations, however, highway transportation activities can be adversely affected depending on the severity of the weather in the various sections of the country during the winter months. No customer accounts for more than 7% of the Company's consolidated revenues.
For the most part, Matlack's competition consists of those bulk carriers having operating authority in the relevant jurisdictions. Competition is based primarily on service, rates and convenience. Competition in the bulk trucking industry formerly was restricted and was based primarily on a carrier's ability to obtain certificates of public convenience and necessity to transport defined commodities in specific geographic areas. Since the passage of the Motor Carrier Act of 1980, many bulk carriers have obtained authority to serve expanded geographic areas on an interstate basis, which, together with excess capacity, has resulted in the intensification of price competition.
To the extent that competition is based on service and convenience, the number and location of Matlack's terminals, together with its ability to clean tank trailers (through Brite-Sol Services, Inc.) places Matlack in a favorable position to increase its business. Management believes that Matlack's fleet of trailers is one of the largest and most diversified in the tank truck industry. Matlack's network of strategically located terminal facilities is, in management's opinion, one of the largest and the best in the industry.
Matlack's largest competitors in the tank truck industry, based upon a comparison of gross revenues, are Trimac Limited, MTL Inc. and Chemical Leaman Tank Lines, Inc. In addition, there are approximately 190 other recognized competitors operating in the various regions where Matlack has operating authority.
The Company believes that its contractual arrangements and business policies are adequate in securing rate increases to recover rising costs and expenses to the extent permitted by competitive circumstances, which remain intense. Unusual increases in fuel costs can generally be offset by fuel surcharges to customers. Accordingly, while inflation has had some impact on the Company's operations during the last three fiscal years, competition within the industry has been a major factor in establishing the rates that the Company can charge for its services.
The Company also provides truck transportation services through Safeway Chemical Transportation, Inc. This subsidiary provides truckload van services utilizing specialized trailers to transport packaged chemicals and waste. In addition, through Matlack Leasing Corporation, the Company leases tank trailers, tank containers and other specialized equipment primarily to the chemical industry and its suppliers. This subsidiary may also provide customers with equipment design assistance.
Through Matlack Bulk Intermodal Services, Inc., the Company enables customer product delivery by combining the economy of bulk rail and the flexibility of bulk truck transportation. This service is provided through a nationwide system of 30 rail transfer facilities.
Brite-Sol Services, Inc. operates 36 facilities nationwide that provide full-service cleaning, both internal and external, of tank trucks, vans, tank containers, intermediate bulk containers, ISO tank containers and other containers and vehicles. This subsidiary also provides hose and pump cleaning and tank and container maintenance and repairs. The Company's tank cleaning facilities are ISO 9002 certified and operate in compliance with all applicable federal and state EPA and OSHA requirements. Cleaning procedures utilize systematized work processes to assure continued compliance with all environmental regulations. Customized cleaning programs are frequently established to meet specific customer requirements. After cleaning, valves are vacuum tested to reduce chances of leaking and related possible product release. Waste water is pre-treated to ensure environmental safety and to reduce levels of waste. Container cleaning procedures also ensure the proper handling and disposal of heels and effluents. Further, the Company's cleaning network is operated by a team of experienced tank cleaning professionals and is supported by centrally located technical staff to ensure maintenance of the highest level of quality required by ISO 9002 standards.
The Company also provides logistics management consulting services through CPI Logistics, Inc. In addition, the Company markets dedicated fleet operation services through Specialized Dedicated Fleets, Inc. and through Matlack International, Inc. the Company provides international land and sea transportation services primarily utilizing tank containers.
In the normal course of its business, Matlack is subject to numerous state and federal environmental laws and regulations and also is exposed to the cost and risk of transporting and handling materials and wastes characterized as hazardous by various regulatory agencies. Matlack has received notices from the United States Environmental Protection Agency ("EPA") or a comparable state agency indicating that it has been named at 21 sites as a potentially responsible party ("PRP") with respect to the cleanup of hazardous wastes at such waste disposal sites. At a majority of these sites, the Company has resolved its liability by settling with one or more of the governmental agencies or PRP groups involved. As is typical in such settlements, certain claims, such as those relating to natural resource damages or site cleanup cost overruns, could still be made in later years.
The Company maintains sudden and accidental pollution insurance coverage providing protection against claims which may arise from accidents involving spills or contamination. In addition, the Company has purchased an Environmental Impairment Liability insurance policy that provides coverage and protection for non-sudden pollution claims.
With regard to public liability and workers' compensation claims, the Company retains a specific portion of insurable risks. Retention levels are currently $500,000. Reserves are established for claims incurred plus an estimate for claims incurred but not reported. Reserve requirements are evaluated and established utilizing historical trends, the Company's experience, claim severity and other factors.
A total of 1,059 persons were employed by the Company at September 30, 1997. Operating personnel, essentially all of which were covered under various collective bargaining agreements, included 503 drivers, 76 mechanics and 100 tank cleaners. In addition to the operating personnel employed by the Company, the services of leased operators are utilized to supplement driver requirements necessary to meet customer service needs. The Company's 380 support personnel included dispatchers and individuals serving in clerical, administrative and executive capacities. The Company believes that its relationships with its employees are excellent.
ITEM 2.
ITEM 2. PROPERTIES.
The Company maintains its headquarters in space leased from Rollins Properties, Inc., a wholly-owned subsidiary of Rollins Truck Leasing Corp., at 2200 Concord Pike, Wilmington, Delaware. The Company's principal properties consist of land and buildings used in its bulk trucking, cleaning and intermodal service business. Matlack owns or leases approximately 100 truck terminals in 37 states and five terminals in four Canadian provinces.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are various ordinary routine claims and legal actions pending against the Company. With regard to claims relating to hazardous waste sites at which the Company has been named a PRP, the Company maintains an Environmental Legal Liability insurance policy that provides coverage and protection against such claims. In the opinion of management, based on the advice of counsel, it is only remotely likely that the ultimate resolution of these claims and actions will be material.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
For the fiscal years ended September 30, 1997 and 1996, the range of share prices for the Common Stock on the New York Stock Exchange is as follows:
1997 1996 Fiscal Quarter High Low High Low First $7 1/2 $6 1/4 $10 1/2 $8 1/4 Second 7 1/4 6 1/8 $ 9 3/4 $7 7/8 Third 8 1/2 5 13/16 $ 9 3/8 $8 Fourth 8 5/8 7 1/4 $ 8 3/8 $7 3/8
No dividends have been paid since the Company became publicly held in January of 1989.
At September 30, 1997, there were 1,639 holders of record of the Common Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources The Company's operations require periodic investment in equipment and facilities. Capital expenditures are typically funded by the cash flows from operations, which were $8.7 million in 1997, $11.2 million in 1996 and $14.6 million in 1995 and, when required, loans from various financial institutions. The 1997 net capital spending of $22.7 million, up from $7.6 million in 1996, included expenditures in September 1997 of $5.5 million for the purchase of certain assets of a former bulk trucking company and $4.3 million for the purchase of a lease portfolio of specialty tank trailers. The large increase in capital spending in the fourth quarter of 1997 increased indebtedness during the quarter by approximately $8.5 million. Total indebtedness at September 30, 1997 was $49.6 million compared with $36.1 million at the end of the previous year. Based on the relationship with current lenders, the Company expects to continue to be able to obtain required financing at market rates and under satisfactory terms and conditions.
At September 30, 1997, the Company had commitments of $1.7 million to purchase transportation equipment. As necessary, additional funds are available to the Company from its unsecured revolving credit facility and from other financial institutions who have expressed an interest in providing equipment financing. The revolving credit agreement with two banks provides for an aggregate commitment of $40.0 million to meet equipment financing needs and letter of credit requirements. The agreement expires on March 31, 1998, but may be renewed on a year-to-year basis thereafter upon agreement of the parties thereto. At September 30, 1997, a total of $.6 million was available under the revolving credit facility.
In the normal course of its business, Matlack is subject to numerous state and federal environmental laws and regulations and also is exposed to the cost and risk of transporting and handling materials and wastes characterized as hazardous by various regulatory agencies. Matlack has received notices from the United States Environmental Protection Agency ("EPA") and others indicating that it is a "potentially responsible party" with respect to the cleanup of hazardous wastes at several waste disposal sites. Matlack has been named as a defendant in several lawsuits brought under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for recovery of costs associated with the cleanup of waste disposal sites. In addition, Matlack has responded to various governmental requests, principally those of the EPA pursuant to CERCLA, for information with respect to possible disposition of waste materials attributable to it at various waste disposal sites. Based on information currently available, the Company's management believes its ultimate liability at these sites will not have a material adverse effect upon the Company.
Results of Operations Fiscal Year 1997 vs. 1996 Revenues for 1997 increased by $6.8 million (3.0%) to $231.7 million from the $224.9 million reported in 1996. For the year, total revenue miles of the Company's bulk trucking business increased by 6.0% while the number of loads carried remained essentially flat. Revenues from the Company's non-bulk trucking operations increased by 12.8%.
Fourth quarter revenue growth represented 83.7% of the total year's revenue increase. Overall, revenues for the fourth quarter of 1997 increased by $5.7 million to $59.7 million from $54.0 million reported for the fourth quarter of 1996. The number of loads carried during the fourth quarter increased by 4.8% compared with the same quarter last year. This increase resulted from a more favorable supply/demand balance within the bulk trucking industry. For the fourth quarter, the Company's overall revenue increase of 10.5% resulted principally from an increase in volume of 5.0% with the remainder being attributed to a favorable mix.
Operating expenses increased by $4.1 million (2.2%) reflecting the increase in revenues. Operating expenses were 83.6% of revenues in 1997 and 84.3% of revenues in 1996. For the fourth quarter of 1997, operating expenses were 81.1% of revenues compared with 85.1% of revenues in the fourth quarter of 1996. The percentage improvement for both the year and the fourth quarter resulted from the increase in revenues discussed above and the closure of several marginal terminals in early 1997. Fuel costs increased by $2.0 million during 1997 reflecting the increased level of business and higher fuel prices. Outside repairs and parts expense increased by $1.5 million reflecting the higher level of business. Driver and mechanic compensation increased during the year by $1.2 million. The above noted operating expense increases and other operating expense increases, which amounted to $.8 million, were offset by a reduction in insurance expenses of $1.5 million.
Depreciation expense increased by $1.2 million (10.0%) to $13.1 million in 1997 compared with $11.9 million in 1996. The installation of the Qualcomm satellite communication systems in the tractors resulted in increased depreciation of approximately $.7 million. Completion and start-up of an integrated information system throughout the Company accounted for the other $.5 million of the depreciation increase. The acquisition of certain assets in September 1997, as described above, had no impact upon depreciation during the current year.
Selling and administrative expenses remained essentially unchanged between 1997 and 1996. As a percentage of revenue, these expenses were 7.8% and 8.1% in 1997 and 1996, respectively. The stabilization of these expenses resulted from cost containment efforts and the elimination of a regionalized management structure related to the Company's operations.
The effective income tax rate in 1997 was 49.0%. The rate of income tax benefit in 1996 was 13.3%. The high effective income tax rate and the low effective rate of benefit was caused by the impact that non-deductible expenses had upon the tax computations.
The Company's net earnings for the year were $1.9 million or $.21 per share compared with a net loss of $1.5 million or a loss of $.17 per share in 1996. The improvement in net earnings resulted from the increased level of business particularly in the fourth quarter of the year. Operating earnings as a percentage of revenues improved to 3.0% in 1997 from 2.3% (exclusive of the special charge of $4.0 million) in 1996.
Fiscal Year 1996 vs. 1995 Revenues for 1996 decreased by $11.4 million (4.8%) to $224.9 million from the $236.3 million reported in 1995. Total revenue miles decreased by 5.7% in 1996 while the number of loads carried decreased by 7.0% compared with the prior year. The Company's ancillary service revenues increased during the current year but were not sufficient to offset the decline experienced in domestic bulk trucking revenues.
Operating expenses decreased by $3.4 million (1.8%) reflecting the decrease in revenues and a significant reduction in the Company's utilization of leased operators. Operating expenses were 84.3% of revenues in 1996 and 81.7% of revenues in 1995.
During the fourth quarter of 1996, the Company recorded a special charge of $4.0 million ($2.4 million after tax benefit or $.28 per share). The charge included costs associated with a reduction in the tractor fleet reflecting the weak business conditions of the bulk trucking industry, provision for closing certain terminals, the operation of which was no longer cost-effective and related costs of $1.4 million. Also included in the charge was $1.9 million related to reserves for medical, disability, workers' compensation and other insurance claims which continue to be evaluated and $.7 million for third party claims.
Depreciation expense increased by $1.8 million (17.8%) principally due to the increase in capital expenditures associated with the Company's tractor replacement program and several major new facilities completed in 1995.
Selling and administrative expenses decreased by $.5 million (2.7%) reflecting the lower level of business. These expenses were 8.1% and 7.9% of revenue in 1996 and 1995, respectively.
Interest expense decreased by $.3 million (9.4%) due to a reduction of borrowings and lower interest rates during 1996.
The rate of income tax benefit in 1996 was 13.3%. The low effective rate of benefit was caused by the impact that non-deductible expenses had upon the tax computations. The effective income tax rate in 1995 was 41.1%.
The Company's net loss for the year was $1.5 million or $.17 per share compared with net earnings of $6.6 million or $.74 per share in 1995. Exclusive of the special charge, the Company reported net earnings of $1.0 million or $.11 per share.
Impact of Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement, which is effective in fiscal 1998, simplifies the standards for computing earnings per share ("EPS") by replacing the presentation of primary EPS with a presentation of basic EPS. The Company has determined that SFAS 128 will not have a material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires that comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of this standard on October 1, 1998, will not impact results of operations or financial condition.
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company, the Independent Auditors' Report and the financial statement schedules included in this report are shown on the Index to the Consolidated Financial Statements and Schedules.
ITEM 9.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 29, 1998.
Executive Officers of the Registrant. As of October 31, 1997, the Executive Officers of the registrant were:
Name Position Age Term of Office
Patrick J. Bagley Vice President-Finance and 50 7/88 to date Treasurer and Director
Michael B. Kinnard Vice President-General Counsel 39 6/94 to date and Secretary
John W. Rollins, Jr. Chairman of the Board 55 7/88 to date
G. J. Trippitelli President and Chief Executive 54 7/88 to date Officer and Director
Eugene C. Bonacci Senior Vice President and 57 10/96 to date Chief Operating Officer
Eugene C. Bonacci was employed by the Company in 1982 as Vice President of Operations. In 1996, he became Senior Vice President and Chief Operating Officer.
Michael B. Kinnard has been Vice President-General Counsel and Secretary to the Company since 1994. Mr. Kinnard also serves as Vice President-General Counsel and Secretary to Rollins Truck Leasing Corp. and Vice President-General Counsel to Dover Downs Entertainment, Inc. Prior to 1995, Mr. Kinnard was a partner in the law firm of Baker, Worthington, Crossley, Stansberry & Woolf (now known as Baker, Donelson, Bearman & Caldwell).
The Company's Executive Officers are elected for the ensuing year and until their successors are elected.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 29, 1998.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item 12 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 29, 1998.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended September 30, 1997, the following officers and/or directors of the Company were also officers and/or directors of Laidlaw Environmental Services, Inc. (formerly Rollins Environmental Services, Inc.); Patrick J. Bagley, Michael B. Kinnard, William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie.
The following officers and/or directors of the Company were also officers and/or directors of Rollins Truck Leasing Corp.; Patrick J. Bagley, Michael B. Kinnard, William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns directly and of record 11.7% of the outstanding shares of Common Stock of Rollins Truck Leasing Corp. at October 31, 1997.
The description of transactions between the Company and Laidlaw Environmental Services, Inc. and between the Company and Rollins Truck Leasing Corp. appears under the caption "Transactions with Related Parties" of this 1997 Annual Report on Form 10-K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements - See accompanying Index to Consolidated Financial Statements and Schedules.
(2) Financial Statement Schedules - See accompanying Index to Consolidated Financial Statements and Schedules.
(3) Exhibits: (3) (a) Articles of Incorporation and By-Laws of Matlack Systems, Inc. as filed with Registration Statement No. 33-23524 dated August 5, 1988 are incorporated herein by reference.
(3) (b) By-Laws of Matlack Systems, Inc. as last amended on January 30, 1997.
(4) (a) Credit Agreements and Amendments, see Exhibit 10.
(b) Rights Agreement dated as of June 14, 1989 as filed as an Exhibit to Registration Statement on Form 8-A filed by Registrant on June 15, 1989 is incorporated herein by reference.
(10) (a) Master Credit Agreement dated as of March 27, 1996 between Matlack (DE), Inc. et al, Bank of America Illinois and First Union National Bank, as filed with the Company's report on Form 10-K dated November 27, 1996, is incorporated herein by reference.
(b) Credit Agreement dated as of March 27, 1996 between Matlack (DE), Inc. et al and Bank of America Illinois, as filed with the Company's report on Form 10-K dated November 27, 1996, is incorporated herein by reference.
(c) Credit Agreement dated as of May 22, 1996 between Matlack (DE), Inc. et al and First Union National Bank, as filed with the Company's report on Form 10-K dated November 27, 1996, is incorporated herein by reference.
(d) First Amendment dated August 9, 1996 to the Master Credit Agreement between Matlack (DE), Inc. et al, Bank of America Illinois and First Union National Bank dated March 27, 1996, as filed with the Company's report on Form 10-K dated November 27, 1996, is incorporated herein by reference.
(e) Second Amendment dated February 7, 1997 to the Master Credit Agreement between Matlack (DE), Inc. et al, and Bank of America Illinois and First Union National Bank dated March 27, 1996.
(f) Third Amendment dated September 2, 1997 to the Master Credit Agreement between Matlack (DE), Inc. et al, and Bank of America National Trust and Savings Association successor by merger to Bank America Illinois and First Union National Bank dated March 27, 1996.
(g) First Amendment dated February 7, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and Bank of America Illinois dated March 27, 1996.
(h) Second Amendment dated September 2, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and Bank of America National Trust and Savings Association successor by merger to Bank of America Illinois dated March 27, 1996.
(i) First Amendment dated August 29, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and First Union National Bank dated March 27, 1996.
(j) Second Amendment dated November 14, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and First Union National Bank dated March 27, 1996.
(k) Matlack Systems, Inc. 1988 Stock Option Plan as filed with Registration Statement No. 33-23524 dated August 5, 1988 is incorporated herein by reference.
(l) Matlack Systems, Inc. 1995 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 25, 1996, is incorporated hereby by reference.
(21) Matlack Systems, Inc. Subsidiaries at September 30, 1997.
(27) Matlack Systems, Inc. Financial Data Schedule at September 30, 1997.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by Matlack Systems, Inc. during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: December 2, 1997 Matlack Systems, Inc. (Registrant)
BY: /s/ G. J. Trippitelli G. J. Trippitelli President and Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Patrick J. Bagley Director, Patrick J. Bagley Vice President-Finance December 2, 1997 and Treasurer Chief Financial Officer Chief Accounting Officer
/s/ John W. Rollins, Jr. Director, December 2, 1997 John W. Rollins, Jr. Chairman of the Board
/s/ John W. Rollins Director December 2, 1997 John W. Rollins
/s/ Henry B. Tippie Chairman of the Executive December 2, 1997 Henry B. Tippie Committee and Director
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated
Independent Auditors' Report on Financial Statements and Financial Statement Schedules
Consolidated Statement of Earnings for the years ended September 30, 1997, 1996 and 1995
Consolidated Balance Sheet at September 30, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended September 30, 1997, 1996 and 1995
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules
Matlack Systems, Inc. (Parent) Schedule I - Condensed Financial Information
Balance Sheet at September 30, 1997 and 1996
Statement of Earnings for the years ended September 30, 1997, 1996 and 1995
Statement of Cash Flows for the years ended September 30, 1997, 1996 and 1995
Note to the Financial Statements
Matlack Systems, Inc. and Subsidiaries Consolidated
Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 1997, 1996 and 1995
Any financial statement schedules otherwise required have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Independent Auditors' Report
The Shareholders and Board of Directors Matlack Systems, Inc.
We have audited the consolidated financial statements of Matlack Systems, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Matlack Systems, Inc. and subsidiaries as of September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania October 28, 1997
CONSOLIDATED STATEMENT OF EARNINGS Year Ended September 30, 1997 1996 1995 Revenues $231,709,000 $224,866,000 $236,257,000
Expenses Operating 193,784,000 189,653,000 193,131,000 Special charge - 4,000,000 - Depreciation 13,106,000 11,917,000 10,079,000 Selling and administrative 18,155,000 18,197,000 18,708,000 Other income (218,000) (101,000) (110,000) 224,827,000 223,666,000 221,808,000
Operating earnings 6,882,000 1,200,000 14,449,000 Interest expense 3,184,000 2,903,000 3,238,000
Earnings (loss) before income taxes (benefit) 3,698,000 (1,703,000) 11,211,000 Income taxes (benefit) 1,812,000 (226,000) 4,610,000 Net earnings (loss) $ 1,886,000 $ (1,477,000) $ 6,601,000
Earnings (loss) per share $ .21 $ (.17) $ .74
Common shares and equivalents outstanding 8,856,000 8,812,000 8,907,000
The Notes to the Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEET
September 30, 1997 1996 ASSETS
Current assets Cash $ 2,524,000 $ 3,019,000 Accounts receivable, net of allowance for doubtful accounts: 1997-$583,000; 1996-$414,000 30,417,000 24,282,000 Inventories 5,895,000 5,439,000 Other current assets 3,036,000 2,907,000 Refundable income taxes - 1,114,000 Deferred income taxes 1,066,000 1,885,000 Total current assets 42,938,000 38,646,000
Property and equipment, net 99,106,000 89,267,000 Other assets 218,000 214,000 Total assets $142,262,000 $128,127,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities Accounts payable $ 8,320,000 $ 10,047,000 Accrued liabilities 9,583,000 10,174,000 Income taxes payable 590,000 - Current maturities of long-term debt 6,831,000 6,213,000 Total current liabilities 25,324,000 26,434,000
Long-term debt 42,778,000 29,878,000 Insurance reserves 3,176,000 1,716,000 Other liabilities 1,860,000 2,023,000 Deferred income taxes 11,567,000 12,400,000
Commitments and contingencies (see Notes to the Consolidated Financial Statements)
Shareholders' equity: Common stock, $1.00 par value Outstanding: 1997-8,778,149 shares; 1996-8,762,116 shares 8,778,000 8,762,000 Additional paid-in capital 10,532,000 10,553,000 Retained earnings 38,247,000 36,361,000 Total shareholders' equity 57,557,000 55,676,000 Total liabilities and shareholders' equity $142,262,000 $128,127,000
The Notes to the Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, 1997 1996 1995
Cash flows from operating activities Net earnings (loss) $ 1,886,000 $(1,477,000) $ 6,601,000 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Special charge - 4,000,000 - Depreciation and amortization 13,127,000 11,921,000 10,079,000 Net gain on sale of equipment (217,000) (102,000) (110,000) Changes in assets and liabilities: Accounts receivable (6,135,000) 406,000 2,697,000 Inventories and other assets (589,000) 841,000 849,000 Accounts payable and accrued liabilities (2,318,000) (2,317,000) (6,970,000) Current and deferred income taxes 1,690,000 (615,000) 2,174,000 Other, net 1,297,000 (1,424,000) (750,000) Net cash provided by operating activities 8,741,000 11,233,000 14,570,000
Cash flows from investing activities Purchase of property and equipment (24,024,000) (7,895,000) (28,474,000) Proceeds from the sale of equipment 1,275,000 263,000 2,822,000 Net cash used in investing activities (22,749,000) (7,632,000) (25,652,000)
Cash flows from financing activities Proceeds of long-term debt 64,599,000 37,960,000 41,002,000 Repayment of long-term debt (51,081,000) (41,008,000) (32,319,000) Exercise of stock options 71,000 46,000 205,000 Common stock acquired and retired (76,000) (425,000) - Net cash provided by (used in) financing activities 13,513,000 (3,427,000) 8,888,000
Net (decrease) increase in cash (495,000) 174,000 (2,194,000) Cash beginning of period 3,019,000 2,845,000 5,039,000 Cash end of period $ 2,524,000 $ 3,019,000 $ 2,845,000
Supplemental information Interest paid $ 3,242,000 $ 2,861,000 $ 3,233,000 Income taxes paid $ 122,000 $ 389,000 $ 2,436,000
The Notes to the Consolidated Financial Statements are an integral part of these statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Organization and Accounting Policies Organization - Matlack Systems, Inc., together with its subsidiaries, is a specialized logistics and transportation company that provides transportation of bulk commodities in tank trailers and tank containers to the nation's leading chemical and dry bulk shippers. In addition to specialized trucking, the Company provides intermodal transportation services, trailer leasing, dedicated contract carriage services, international bulk transportation, tank cleaning services and logistics management services to the chemical industry.
Consolidation - The consolidated financial statements include the accounts of all subsidiaries with appropriate elimination of intercompany transactions and balances.
Revenue recognition - The Company recognizes revenue when shipments are delivered.
Earnings per share - Earnings per share are computed assuming the conversion of all potentially dilutive securities, namely options to purchase shares of the Company's stock.
Inventories - Inventories of transportation equipment parts and supplies are valued at the lower of first-in, first-out cost or market. Tires on vehicles, including new or recapped replacement tires, are valued at cost and are written off over the expected aggregate useful life which approximates two to three years.
Property and equipment - Property and equipment are recorded at cost. Depreciation is provided on a straight-line basis net of salvage or residual values. Gain or loss on the sale or retirement of property and equipment is included in other income in the Consolidated Statement of Earnings. Repairs and maintenance are expensed as incurred. Improvements that extend the original life of the assets are capitalized and depreciated over the remaining lives of the assets.
Claims and insurance reserves - The Company retains a specific portion of insurable risks with regard to public liability and workers' compensation claims. Retention levels are currently $500,000. Reserves are established for claims incurred plus an estimate for claims incurred but not reported. Reserve requirements are evaluated and established utilizing historical trends, the Company's experience, claim severity and other factors. Claims estimated to be paid within one year have been classified in accrued liabilities with the balance reflected as non-current insurance reserves.
Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair values of financial instruments - The carrying amounts reported in the balance sheet for current assets and current liabilities approximate their fair value at September 30, 1997.
Stock-based compensation - The Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," on October 1, 1996. SFAS No. 123 defines a fair-value based method of accounting for stock- based compensation plans, however, it allows the continued use of the intrinsic value method under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." The Company has elected to continue to use the intrinsic value method.
Impairment of long-lived assets - Periodically, the Company evaluates whether the remaining useful life of long-lived assets requires revision and assesses the recoverability of remaining unamortized balances. Should factors indicate that an asset should be evaluated for possible impairment, an estimate of the asset's cash flow is utilized in evaluating fair value. Should an impairment be determined, the impaired asset's value would be adjusted and a charge to operations would be recognized. To date, no impairment losses have been recognized.
Special Charge During the fourth quarter of 1996, the Company recorded a special charge of $4,000,000 ($2,432,000 after tax benefit or $.28 per share). The charge included costs associated with a reduction in the tractor fleet reflecting the weak business conditions of the bulk trucking industry, provision for closing certain terminals, the operation of which was no longer cost-effective, and related costs of $1,350,000. Also included in the charge was $1,900,000 related to reserves for medical, disability, workers' compensation and other insurance claims which continue to be evaluated and $750,000 for third party claims.
Property and Equipment The Company's property and equipment accounts are as follows:
Useful September 30, 1997 1996 Lives Land $ 13,865,000 $ 13,861,000 Transportation equipment 144,619,000 137,434,000 4 to 12 years Transportation service facilities 68,838,000 63,830,000 5 to 40 years Less accumulated depreciation (128,216,000) (125,858,000) $ 99,106,000 $ 89,267,000
The Company had commitments for the purchase of transportation equipment of $1,718,000 at September 30, 1997.
Long-Term Debt Long-term debt is as follows: September 30, 1997 1996 Revolving credit agreement - $40,000,000 line $31,800,000 $17,700,000
Equipment financing obligations due banks and other financial institutions with equipment pledged as security at interest rates ranging from 6.5% to 8.0%, payable in installments to 2005 16,455,000 16,170,000
Real estate mortgage obligations, at interest rates ranging from 6.0% to 8.0%, with land and buildings with a carrying value of $5,061,000 pledged as collateral, payable in installments over various periods to 2001 1,354,000 2,221,000
Less amounts due within one year (6,831,000) (6,213,000) $42,778,000 $29,878,000
The revolving credit agreement is unsecured but, at the option of the banks, amounts outstanding under the agreement may be secured with unpledged equipment and accounts receivable. Interest rates on borrowings under the agreement averaged 7.7% at September 30, 1997. The agreement requires the maintenance of certain financial ratios, restricts the payment of dividends and regulates payments to affiliated companies. The credit agreement expires on March 31, 1998 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 loan balance over a period of 48 months in equal monthly installments. Otherwise, no repayments are required unless the financing value of the equipment and accounts receivable falls below the outstanding principal balance of the loan.
The aggregate amounts of maturities for all indebtedness during the next five fiscal years are as follows: 1998-$6,831,000; 1999- $5,998,000; 2000-$1,901,000; 2001-$1,056,000 and 2002-$1,011,000.
Based upon borrowing rates available to the Company for long-term debt with similar terms and maturities, the carrying amounts approximate the fair value of such financial instruments.
Accrued Liabilities Accrued liabilities are as follows: September 30, 1997 1996
Employee compensation $ 5,128,000 $ 3,722,000 Insurance reserves 1,223,000 2,577,000 Taxes other than income 1,450,000 1,394,000 Other 1,782,000 2,481,000 $ 9,583,000 $10,174,000
The following table summarizes information regarding stock options outstanding and exercisable at September 30, 1997:
Options Outstanding Options Exercisable Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price
$2.42-$3.00 51,015 1.1 yrs. $2.80 45,516 $2.85 $6.38-$9.25 754,579 5.5 yrs. $7.39 263,755 $7.59
In June 1997, the Company modified the terms with regard to 363,979 outstanding options, with exercise prices ranging from $8.92 to $11.33, by amending the exercise price per share to $7.50, the then current market value.
At September 30, 1997, a total of 186,879 shares of common stock were available for future grants.
Lease Commitments The Company leases certain of its transportation service and administrative facilities, office space and transportation equipment. These leases are classified as operating leases and expire on various dates during the next nine years. Minimum future payments required under operating leases having non-cancelable terms in excess of one year as of September 30 are considered in the lease commitments.
Total rent expense incurred under operating leases for the fiscal years ended September 30, 1997, 1996 and 1995 amounted to $12,917,000, $14,643,000 and $13,732,000, respectively.
Minimum future payments are as follows:
Year Ending September 30, 1998 $ 9,338,000 1999 8,050,000 2000 5,460,000 2001 2,202,000 2002 559,000 Later years 178,000 Total minimum payments required $25,787,000
Income Taxes The tax provisions (benefit) for the three years ended September 30, 1997 are comprised as follows:
Year Ended September 30, 1997 1996 1995 Current: Federal $1,078,000 $(223,000) $2,270,000 State 472,000 77,000 556,000 Deferred: Federal 328,000 (68,000) 1,469,000 State (66,000) (12,000) 315,000 Total income taxes (benefit) $1,812,000 $(226,000) $4,610,000
A reconciliation of the tax provisions (benefit) for the three years ended September 30, 1997 with amounts calculated by applying the statutory federal income tax rate for those years to earnings (loss) before income taxes (benefit) is as follows:
Year Ended September 30, 1997 1996 1995 Federal tax $1,294,000 $(596,000) $3,924,000 State taxes, net of federal benefit 264,000 43,000 567,000 Non-deductible business expenses 286,000 294,000 298,000 Other (32,000) 33,000 (179,000) Total income taxes (benefit) $1,812,000 $(226,000) $4,610,000
The tax effect of temporary differences which comprise the current and non-current deferred income tax amounts shown on the balance sheet are as follows: September 30, 1997 1996 Depreciation $12,822,000 $12,808,000 Expenses deductible when paid (1,973,000) (2,334,000) Other (348,000) 41,000 Deferred income taxes, net $10,501,000 $10,515,000
Pension Plans The Company maintains a noncontributory pension plan for eligible employees not covered by pension plans under collective bargaining agreements. Pension costs for this plan are funded in accordance with the provisions of the Internal Revenue Code. The Company also maintains a nonqualified, noncontributory defined benefit pension plan for certain employees to restore pension benefits reduced by federal income tax regulations. The cost associated with the plan is determined using the same actuarial methods and assumptions as those used for the Company's qualified pension plan.
The components of net periodic pension cost are as follows:
Year Ended September 30, 1997 1996 1995 Service cost $ 558,000 $ 545,000 $ 510,000 Interest cost 698,000 686,000 591,000 Return on plan assets (2,495,000) (1,004,000) (1,309,000) Net amortization and deferral 1,584,000 280,000 772,000 Net periodic pension cost $ 345,000 $ 507,000 $ 564,000
The following table sets forth the funded status and the amount recognized in the Company's balance sheet for the plans:
September 30, 1997 1996 Actuarial present value of accumulated benefit obligation: Vested $ 8,216,000 $7,733,000 Non-vested 436,000 271,000 $ 8,652,000 $8,004,000
Projected benefit obligation $10,150,000 $9,651,000 Plan assets at market value 11,889,000 9,239,000 Projected benefit obligation (under) in excess of plan assets (1,739,000) 412,000 Unrecognized gain 3,219,000 1,141,000 Unrecognized prior service cost (94,000) (104,000) Unrecognized overfunding at adoption 48,000 65,000 Accrued pension liability $ 1,434,000 $1,514,000
The discount rate, the rate of assumed compensation increase and the expected long-term rate of return on assets for 1997, 1996 and 1995 were 8.0%, 5.0% and 9.0%, respectively.
At September 30, 1997, the assets of the pension plans were invested 70% in equity securities and 18% in fixed income securities and the balance in other short-term interest bearing accounts.
Effective October 1, 1994, the Company established a defined contribution 401(k) plan which permits participation by substantially all employees not represented under a collective bargaining agreement.
The Company expensed payments to multi-employer pension plans required by collective bargaining agreements of $3,367,000 in 1997, $3,248,000 in 1996 and $3,082,000 in 1995. The actuarial present value of accumulated plan benefits and net assets available for benefits to employees under these plans are not available.
Transactions with Related Parties Certain directors and officers of the Company are also directors and officers of Rollins Truck Leasing Corp.
The Company purchased materials, administrative services, insurance and rented office space from Rollins Truck Leasing Corp., its subsidiaries and affiliates. The aggregate cost of these materials, services and rents, which have been included in operating expenses or selling and administrative expenses, as appropriate, in the Consolidated Statement of Earnings, was $3,600,000 in 1997, $3,542,000 in 1996 and $3,286,000 in 1995.
In connection with a note payable to Rollins Truck Leasing Corp. (which was repaid in March of 1995), the Company incurred interest expense that was paid to Rollins Truck Leasing Corp. of $272,000 in 1995.
Certain directors of the Company are also directors of Laidlaw Environmental Services, Inc. (formerly Rollins Environmental Services, Inc.) which, prior to May 16, 1997, was a related party.
The Company provided transportation services to Laidlaw Environmental Services, Inc. and realized revenues therefrom of $5,203,000 for the period through May 15, 1997, $13,916,000 in 1996 and $13,265,000 in 1995.
An officer of the Company is the trustee of an employee benefits trust, which provides certain insurance and health care benefits to employees of the Company. Contributions to the trust, which were charged to operating or selling and administrative expenses, as appropriate, were $2,262,000 in 1997, $2,598,000 in 1996 and $2,567,000 in 1995.
In the opinion of management of the Company, the foregoing transactions were effected at rates that approximate those the Company would have realized or incurred had such transactions been effected with independent third parties.
Commitments and Contingencies In the normal course of its business, Matlack is subject to numerous state and federal environmental laws and regulations and is also exposed to the cost and risk of transporting and handling materials and wastes characterized as hazardous by various regulatory agencies. Matlack has received notices from the United States Environmental Protection Agency ("EPA") and others indicating that it is a "potentially responsible party" with respect to the cleanup of hazardous wastes at several waste disposal sites. Matlack has been named as a defendant in several lawsuits brought under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for recovery of costs associated with the cleanup of waste disposal sites. In addition, Matlack has responded to various governmental requests, principally those of the EPA pursuant to CERCLA, for information with respect to possible disposition of waste materials attributable to it at various waste disposal sites.
Where losses are probable, provision has been made based on available information with respect to the cost of all such claims. In determining the Company's liability with respect to such claims, consideration is given to the total cost to remediate the site, the Company's contribution of waste at the site, the participation of other responsible parties and all other relevant circumstances of the claim. All claims and litigations are reviewed to determine the likelihood that their ultimate resolution would have a material adverse effect upon the Company.
Matlack is involved in ordinary routine litigation incidental to the operation of its business. In the opinion of management, based on the advice of counsel, it is only remotely likely that the ultimate resolution of these claims and actions will be material.
Quarterly Results (Unaudited) December March June September 1997 31 31 30 30 Revenues $54,557,000 $56,538,000 $60,918,000 $59,696,000 Gross profit $ 4,750,000 $ 5,357,000 $ 6,694,000 $ 8,018,000 Earnings (loss) before income taxes (benefit) $ (333,000) $ 431,000 $ 1,454,000 $ 2,146,000 Net earnings (loss) $ (272,000) $ 323,000 $ 733,000 $ 1,102,000 Earnings (loss) per share $ (.03) $ .04 $ .08 $ .12 Revenues $55,562,000 $57,666,000 $57,600,000 $54,038,000 Gross profit $ 5,807,000 $ 6,527,000 $ 5,922,000 $ 1,040,000(1) Earnings (loss) before income taxes (benefit) $ 469,000 $ 1,164,000 $ 622,000 $(3,958,000)(1) Net earnings (loss) $ 274,000 $ 629,000 $ 270,000 $(2,650,000)(1) Earnings (loss) per share $ .03 $ .07 $ .03 $ (.30)(1)
(1) Includes special charge of $4,000,000 ($2,432,000 after-tax benefit or $.28 per share).
SCHEDULE I - Condensed Financial Information
MATLACK SYSTEMS, INC. BALANCE SHEET ($000 Omitted)
Assets September 30, 1997 1996 Current assets Cash $ 578 $ 273 Accounts receivable from subsidiaries - 4 Other current assets 44 97 Refundable income taxes 98 - Total current assets 720 374
Investments in subsidiaries, at equity* 59,388 57,448 Total assets $60,108 $57,822
Liabilities and Shareholders' Equity
Current liabilities Accounts payable $ 24 $ 12 Accrued liabilities 408 271 Income taxes payable - 247 Total current liabilities 432 530
Advance from subsidiary* 1,896 1,364 Other liabilities 63 53 Deferred income taxes 160 199
Shareholders' equity Common stock $1 par value, 24,000,000 shares authorized; issued and outstanding: 1997: 8,778,149; 1996: 8,762,116 8,778 8,762 Additional paid-in capital 10,532 10,553 Retained earnings 38,247 36,361 Total shareholders' equity 57,557 55,676 Total liabilities and shareholders' equity $60,108 $57,822
* Eliminated in consolidation.
The Note to the Financial Statements is an integral part of these statements.
SCHEDULE I - Condensed Financial Information (continued)
MATLACK SYSTEMS, INC. STATEMENT OF EARNINGS ($000 Omitted)
Year Ended September 30, 1997 1996 1995
Revenues: Dividends from subsidiaries $ 504 $ 720 $ 250
Administrative expenses 38 116 110
Earnings before income taxes (benefits) 466 604 140
Income tax (benefits) (14) (17) 84
Net earnings of Matlack Systems, Inc. 480 621 56
Equity in undistributed net earnings (loss) of subsidiaries 1,406 (2,098) 6,545
Net earnings (loss) $ 1,886 $(1,477) $ 6,601
The Note to the Financial Statements is an integral part of these statements.
SCHEDULE I - Condensed Financial Information (continued)
MATLACK SYSTEMS, INC. STATEMENT OF CASH FLOWS ($000 Omitted)
Year Ended September 30, 1997 1996 1995
Cash flows from operating activities: Earnings prior to equity in subsidiaries' undistributed earnings (loss) $ 480 $ 621 $ 56
Adjustments to reconcile earnings to net cash provided by operating activities: Changes in assets and liabilities: Accounts receivable 4 (4) - Accounts payable and accrued liabilities 149 139 47 Current and deferred income taxes (384) 107 152 Other, net 62 102 (129) Net cash provided by operating activities 311 965 126
Cash flows from investing activities - - -
Cash flows from financing activities: Exercise of stock options 71 46 205 Common stock acquired and retired (76) (425) - Capital contribution to subsidiary (534) (438) (2,178) Advance from subsidiary 533 107 1,257 Net cash used in financing activities (6) (710) (716)
Net increase (decrease) in cash 305 255 (590)
Cash beginning of period 273 18 608
Cash end of period $ 578 $ 273 $ 18
Supplemental information:
Income taxes paid $ 530 $ 119 $ 1,743
The Note to the Financial Statements is an integral part of these statements.
SCHEDULE I - Condensed Financial Information (continued)
MATLACK SYSTEMS, INC. Note to the Financial Statements
Accounting Policies
The accounting policies of the Company and its subsidiaries are set forth in the Organization and Accounting Policies note in the consolidated financial statements of this 1997 Annual Report on Form 10-K.
The Company's principal source of earnings is dividends paid by its subsidiaries. Certain loan agreements restrict payments to the Company by its subsidiaries. Net assets of subsidiaries not restricted under such loan agreements totaled $6,909,000 at September 30, 1997. The Company also realizes cash receipts by assessing subsidiaries for federal taxes on income and expends cash in payment of such taxes on a consolidated basis. Tax assessments are based on the amount of federal income taxes which would be payable (recoverable) by each subsidiary company based on its current year's earnings (loss) reduced by that subsidiary's applicable portion of any consolidated credits utilized currently in the consolidated federal income tax return.
Matlack Systems, Inc.
Exhibits to Form 10-K
For Fiscal Year Ended September 30, 1997
Index to Exhibits
Exhibit (3)(b) By-Laws of Matlack Systems, Inc. as last amended on January 30, 1997.
Exhibit (10)(e) Second Amendment dated February 7, 1997 to the Master Credit Agreement between Matlack (DE), Inc. et al, and Bank of America Illinois and First Union National Bank dated March 27, 1996.
Exhibit (10)(f) Third Amendment dated September 2, 1997 to the Master Credit Agreement between Matlack (DE), Inc. et al, and Bank of America National Trust and Savings Association successor by merger to Bank of America Illinois and First Union National Bank dated March 27, 1996.
Exhibit (10)(g) First Amendment dated February 7, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and Bank of America Illinois dated March 27, 1996.
Exhibit (10)(h) Second Amendment dated September 2, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and Bank of America National Trust and Savings Association successor by merger to Bank of America Illinois dated March 27, 1996.
Exhibit (10)(i) First Amendment dated August 29, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and First Union National Bank dated March 27, 1996.
Exhibit (10)(j) Second Amendment dated November 14, 1997 to the Credit Agreement between Matlack (DE), Inc. et al, and First Union National Bank dated March 27, 1996.
Exhibit 21 Matlack Systems, Inc. Subsidiaries at September 30, 1997
Exhibit 27 Matlack Systems, Inc. Financial Data Schedule at September 30, 1997
Exhibit 21
Matlack Systems, Inc. Subsidiaries at September 30, 1997
Jurisdiction of Name Incorporation
Matlack (DE), Inc. Delaware
Bayonne Terminals, Inc. Pennsylvania
Matlack International, Inc. Delaware