10-Q 1 a2056552z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 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 000-23341 MOTOR CARGO INDUSTRIES, INC. (Exact name of registrant as specified in its charter) UTAH 87-0406479 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 845 West Center Street North Salt Lake, Utah 84054 (801) 936-1111 (Address of principal executive offices and telephone number) 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. Yes /X/ No / / APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On July 31, 2001, there were 6,473,140 outstanding shares of the Registrant's Common Stock, no par value. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2001 (unaudited) and December 31, 2000 (audited) ASSETS

The accompanying notes are an integral part of these statements. 2 MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED June 30, 2001 (unaudited) and December 31, 2000 (audited) LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these statements. 3 MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS

The accompanying notes are an integral part of these statements. 4 MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued) 5 MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

NONCASH INVESTING AND FINANCING ACTIVITIES During 2001, the Company recorded a $787,695 noncash application of advances made in 2000 for the purchase of real property. Additionally, the Company recorded a $239,750 noncash transfer from receivables to real property. During 2001, in connection with the vesting of 5,000 shares pursuant to a restricted stock agreement, the Company recognized compensation expense of $33,750. During 2000, in connection with the vesting of 5,000 shares pursuant to a restricted stock agreement, the Company recognized compensation expense of $23,750. The accompanying notes are an integral part of these statements. 6 MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The interim consolidated financial information included herein is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to the fair presentation of the consolidated financial position, results of operations, and cash flows for the interim periods. The consolidated financial statements should be read in conjunction with the Notes to consolidated financial statements included in the audited consolidated financial statements for Motor Cargo Industries, Inc. (the "Company") for the year ended December 31, 2000 which are included in the Company's Annual Report on Form 10-K for such year (the "2000 10-K"). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 2000, was extracted from the Company's audited consolidated financial statements contained in the 2000 10-K, and does not include all disclosures required by accounting principles generally accepted in the United States of America for annual consolidated financial statements. 2. EARNINGS PER SHARE Basic earnings per common share ("EPS") are based on the weighted average number of common shares outstanding during each period. Diluted earnings per common share are based on shares outstanding (computed under basic EPS) and potentially dilutive common shares. Potential common shares included in dilutive earnings per share calculations include stock options granted but not exercised. A reconciliation of weighted-average shares outstanding is presented below:

7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze the Company's consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 10-K"). OVERVIEW Motor Cargo Industries, Inc. (the "Company") is a regional less-than-truckload ("LTL") carrier which provides transportation and logistics services to shippers within the western United States, including Arizona, California, Colorado, Idaho, New Mexico, Oregon, Texas, Utah and Washington. The Company transports general commodities, including consumer goods, packaged foodstuffs, electronics, computer equipment, apparel, hardware, industrial goods and auto parts for a diversified customer base. The Company offers a broad range of services, including expedited scheduling and full temperature-controlled service. Through its wholly-owned subsidiary, MC Distribution Services, Inc. ("MCDS"), the Company also provides customized logistics, warehousing and distribution management services. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of operating revenues represented by certain items in the Company's statements of earnings:

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Operating revenues increased 9.5% to $34.8 million for the three months ended June 30, 2001, compared to $31.8 million for the same period in 2000. The increase was primarily attributable to increased tonnage from existing and new customers. The tonnage hauled during the second quarter of 2001 increased 10.2% to 149,279 tons, compared to 135,518 tons for the same quarter of 2000. The number of shipments during the second quarter of 2001 8 increased by 2.2% to 248,700, compared to 243,300 for the second quarter of 2000. The average revenue per shipment increased to $135 for the second quarter 2001, compared to $126 for the same quarter of 2000. Revenues contributed by MCDS increased 16.8% to $1.3 million for the second quarter of 2001, compared to $1.1 million for the second quarter of 2000. The increase was due primarily to increased volume with two customers. As a percentage of operating revenues, salaries, wages and benefits increased to 51.3% for the second quarter of 2001 from 48.8% for the second quarter of 2000. This increase of 2.5 percentage points was primarily the result of three factors: (1) a repricing of stock options in 1999 necessitated variable stock option accounting treatment as required by generally accepted accounting principles, resulting in a charge to salaries in the amount of approximately $203,000, or 0.6% of revenue, to reflect appreciation in the Company's stock price during the second quarter of 2001. (2) approximately one percentage point of the 2.5 percentage point increase was attributable to an increase in employee wages and benefits associated with shifting to the use of more Company drivers and less use of purchased transportation, which resulted in a corresponding reduction in the expense incurred by the Company for purchased transportation, and (3) an increase in group medical expenses comprised approximately one percentage point of the 2.5 percentage point increase. Purchased transportation decreased to 8.3% of revenues for the three months ended June 30, 2001 as compared to 9.3% for the same period in 2000. A reduction of 1.6 percentage points was attributable to the replacement of a portion of purchased transportation with Company drivers and equipment. Corresponding increases were incurred in expense categories related to drivers and equipment such as wages, benefits, operating supplies and expenses, licenses and taxes. The reduction in purchased transportation resulting from the increased use of Company drivers and equipment was partially offset by an increase in purchased transportation, as a percentage of revenues, of approximately 0.6 percentage points, which was attributable to the lease of trailers under a long-term lease arrangement. Operating supplies and expenses increased to 16.3% of operating revenues for the quarter ended June 30, 2001 compared to 16.1% for the same period in 2000. Additional fuel costs represented approximately 0.8% of revenue for the second quarter of 2001, which included additional costs equal to approximately 0.4% of revenue attributable to increased fuel prices compared to the second quarter of 2000. Although the Company has implemented a fuel surcharge to reduce the impact of rising fuel costs, increased fuel prices can nevertheless have an adverse effect on the operations and profitability of the Company due to the difficulty of imposing and collecting the surcharge. Additional fuel costs related to the increased use of fuel, primarily attributable to the replacement of a portion of purchased transportation with Company drivers and equipment, represented approximately 0.4% of revenue for the second quarter of 2001. The increase in operating supplies and expenses due to higher fuel costs was partially offset by reductions in other operating expenses during the second quarter of 2001. The most significant decrease in operating supplies and expenses resulted from a decrease in commissions to agents due to the conversion of two independent agent facilities to Company operated service centers during the second half of 2000. Insurance and claims expense increased to 3.1% of revenue for the second quarter 2001 compared to 2.4% for the same quarter 2000. This increase was attributable to an increase in premiums for re-insurance, as well as increased charges related to liability and cargo claims for which the Company is self-insured. Building rents decreased to 2.2% of revenue for the second quarter of 2001 as compared to 2.7% for the same quarter of 2000. This decrease was due primarily to lease payments during 2000 for unused facilities in Chicago, Illinois, Benicia, California and Boise, Idaho. These leases have now terminated. Total operating expenses increased to 92.8% of operating revenues for the three months ended June 30, 2001 from 91.6% for the same period in 2000. Net earnings, excluding the special charge for variable stock option accounting, increased 2.5% to $1.7 million ($0.26 per weighted average diluted share) for the three months ended June 30, 2001, compared to $1.6 million ($0.24 per weighted average diluted share) for the same period in 2000. Including the effect of the approximately $203,000 charge for the accounting treatment of variable stock options, net earnings decreased 9 approximately 9.9% to $1.5 million ($0.23 per weighted average diluted share) for the second quarter of 2001, compared to the second quarter of 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Operating revenues increased 8.9% to $67.7 million for the six months ended June 30, 2001, compared to $62.2 million for the same period in 2000. The increase was attributable to increased tonnage, as well as an improved yield during the first three months of 2001 due to increased rates and a reduction in lower yield freight as a percentage of total tonnage. Tonnage increased 9.0% to 286,905 tons during the six months ended June 30, 2001, compared to 263,340 tons for the same period of 2000. The number of shipments during the six months ended June 30, 2001 increased 1.4% to 482,369, compared to 475,668 for the same period in 2000. Revenue per shipment increased 7.1% to $135, compared to $126 in 2000. Revenues for MCDS increased 21.8% to $2.7 million for the six months ended June 30, 2001 from $2.2 million for the same period in 2000. The increase was due primarily to increased volume with two customers. As a percentage of operating revenues, salaries, wages and benefits increased to 52.1% for the six months ended June 30, 2001, from 49.8% for the same period of 2000. This increase of 2.3 percentage points was due primarily to an increase in employee wages and benefits associated with shifting to the use of more Company drivers and less use of purchased transportation. The use of more Company drivers resulted in a reduction in the expense incurred by the Company for purchased transportation. A charge of approximately $203,000, or 0.3% of revenue, to reflect appreciation in the Company's stock price under variable stock option accounting treatment, also contributed to the increase. In addition, group medical expenses increased approximately 0.9% of revenue during the first half of 2001, compared to 2000. Purchased transportation decreased to 8.2% of revenues for the six months ended June 30, 2001 as compared to 9.4% for the same period in 2000. A reduction of 1.9 percentage points was attributable to the replacement of a portion of purchased transportation with Company drivers and equipment. Corresponding increases were incurred in expense categories related to drivers and equipment such as wages, benefits, operating supplies and expenses, licenses and taxes. The reduction in purchased transportation resulting from the increased use of Company drivers and equipment was partially offset by an increase in purchased transportation, as a percentage of revenues, of approximately 0.6 percentage points, which was attributable to the lease of trailers under a long-term lease arrangement. Operating supplies and expenses remained flat at 16.2% of operating revenues both the six months ended June 30, 2001 and 2000. While the increased price of fuel represented approximately 0.6% of revenue increase for the six months ended June 30, 2001, it was offset equally by reduced commissions paid to agents contributed by the conversion of two independent agent facilities to Company operated service centers during the second half of 2000. Building rents decreased to 2.3% of revenue for the six months ended June 30, 2001 as compared to 2.8% for the same period of 2000. This decrease was due primarily to lease payments during 2000 for unused facilities in Chicago, Illinois, Benicia, California and Boise, Idaho. These leases have now terminated. Total operating expenses decreased to 93.4% of operating revenues for the six months ended June 30, 2001 from 93.9% for the same period in 2000. Net earnings, before the special charge of approximately $203,000 for variable options, increased 23.3% to $2,845,000 ($0.44 per weighted average diluted share) for the six months ended June 30, 2001, compared to $2,307,000 ($0.34 per weighted average diluted share) for the same period in 2000. After the charge of $203,000 for the treatment of variable options net earnings was reduced to $2,642,000 ($0.41 per weighted average diluted share). LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are funds provided by operations and bank borrowings. Net cash provided by operating activities was approximately $9.2 million for the first six months of 2001, compared to $8.1 10 million for the corresponding period in 2000. Net cash provided by operating activities is primarily attributable to the Company's earnings before depreciation and amortization expense. Capital expenditures totaled approximately $6.9 million during the first six months of 2001, compared to $4.1 million in the comparable period of 2000. Net cash used in financing activities was $3.9 million for the six months ended June 30, 2001, compared to $7.7 million for the comparable period of 2000. At June 30, 2001, total borrowings under long-term obligations totaled approximately $4.2 million, compared to $8.1 million as of June 30, 2000. The Company's long-term obligations consist primarily of amounts outstanding under a revolving line of credit, as described below. The Company is a party to a loan agreement with Zions First National Bank ("Zions") that provides for a revolving line of credit in an amount not exceeding $5 million. The loan agreement provides for the issuance of letters of credit and may be used for this purpose, as well as to fund the working capital needs of the Company. As of June 30, 2001, there was no outstanding balance under this revolving line of credit. Zions has also provided a second revolving line of credit to the Company in an amount not to exceed $20 million. The Company intends to use amounts available under this credit facility primarily to purchase equipment used in operations and for other corporate purposes. At June 30, 2001 the outstanding balance under this facility was approximately $3 million. The outstanding balance under this facility fluctuates as the Company draws on the line of credit or repays outstanding amounts. Amounts outstanding under this facility are generally classified as long-term obligations provided that they are not due within 12 months. The Company and Zions have periodically amended the facility to extend the maturity date, as necessary, in order to continue to permit amounts outstanding under this facility to be classified as long-term obligations. If the Company is unable to further extend the maturity date of this facility on acceptable terms, the Company will seek to obtain similar financing from other sources. All amounts outstanding under the two loan facilities described above accrue interest at a variable rate established from time to time by Zions. The Company does have the option, however, to request that specific advances accrue interest at a fixed rate quoted by Zions, subject to certain prepayment restrictions. All amounts outstanding under the two loan facilities are collateralized by the Company's inventory, chattel paper, accounts receivable and equipment now owned or hereafter acquired by the Company. The Company's management believes that its net cash provided by operating activities and its existing lines of credit are sufficient to fund capital expenditures and any other significant obligations for the foreseeable future. SEASONALITY The Company experiences some seasonal fluctuations in freight volume. Historically, the Company's shipments decrease during the winter months. In addition, the Company's operating expenses historically have been higher in the winter months due to decreased fuel efficiency and increased maintenance costs for revenue equipment in colder weather. CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION Certain information set forth in this report contains "forward-looking statements" within the meaning of federal securities laws. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions by the Company and other information that is not historical information. When used in this report, the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. Additional forward-looking statements may be made by the Company from time to time. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are also expressly qualified by these cautionary statements. The Company's forward-looking statements are based upon the Company's current expectations and various assumptions. The Company's expectations, beliefs and projections are expressed in good faith and are believed by 11 the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs and projections will result or be achieved or accomplished. The Company's forward-looking statements apply only as of the date made. Except as required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. There are a number of risks and uncertainties that could cause actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements contained in this report. These risks include, but are not limited to, economic factors and fuel price fluctuations, the availability of employee drivers and independent contractors, risks associated with geographic expansion, capital requirements, claims exposure and insurance costs, competition and environmental hazards. Each of these risks and certain other uncertainties are discussed in more detail in the 2000 10-K. There may also be other factors, including those discussed elsewhere in this report, that may cause the Company's actual results to differ from the forward-looking statements. Any forward-looking statements made by or on behalf of the Company should be considered in light of these factors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not use financial instruments for trading purposes and is not a party to any derivative financial instruments or derivative commodity instruments. The Company is exposed to a variety of market risks, including the effects of changes in interest rates and fuel prices. The Company's short-term and long-term financing is generally at variable rates; however, these obligations may be repaid or converted to a fixed rate at the Company's option. 12 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of the Company was held on June 6, 2001. At the meeting: 1. The following persons were elected as Directors of the Company to serve until the next Annual Meeting or until their successors are elected and qualified.

2. The selection of Grant Thornton LLP as independent auditors to audit the Consolidated Financial Statements of the Company and its subsidiaries for the year ending December 31, 2001 was ratified by the shareholders as follows: ~~Votes For: 5,766,647 Votes Against: 50 Abstentions: 600~~

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report. None (b) No report on Form 8-K was filed during the quarter for which this report is filed. 13 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. MOTOR CARGO INDUSTRIES, INC. /s/ Lynn H. Wheeler ------------------------------------------- LYNN H. WHEELER Vice President of Finance and Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer) Date: August 10, 2001 14

MOTOR CARGO INDUSTRIES INC 10-Q