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 October 31, 1995
----------------------------
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 0-14821
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MAIL BOXES ETC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0010260
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6060 Cornerstone Ct. West, San Diego, California 92121
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 455-8800
---------------
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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, No Par Value 11,150,769
- -------------------------- ---------------------------------
(Class) (Outstanding at October 31, 1995)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 31, April 30,
ASSETS 1995 1995
----------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,461,159 $390,841
Restricted cash - franchisee deposits 1,202,392 1,613,569
Short-term investments 13,035,751 10,036,718
Accounts receivable, net 6,822,640 6,723,128
Receivable from National Media Fund 1,050,000 1,600,000
Inventories 773,358 983,095
Current portion of notes receivable 8,232,730 6,065,275
Current portion of net investment in
sales-type and direct financing leases 2,477,686 2,488,654
Deferred income taxes 1,453,583 1,453,583
Re-acquired area and center rights held
for resale 761,186 1,015,744
Other current assets 1,354,716 1,005,482
----------- -----------
TOTAL CURRENT ASSETS 39,625,201 33,376,089
Notes receivable, net 10,511,619 11,429,381
Net investment in sales-type and direct
financing leases 8,344,645 8,839,949
Property and equipment, net 5,485,452 5,615,060
Excess of cost over assets acquired, net 469,380 498,078
Reacquired area rights 2,952,922 3,030,670
Deferred income taxes 651,322 651,322
Other assets 651,044 852,555
----------- -----------
TOTAL ASSETS $68,691,585 $64,293,104
=========== ===========
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
October 31, April 30,
CURRENT LIABILITIES: 1995 1995
<S> <C> <C>
Accounts payable $2,155,233 $1,151,375
Franchisee deposits 1,771,571 2,152,904
Royalties, referrals and commissions
payable 2,296,956 2,448,624
Accrued employee expenses and related
taxes 1,432,540 1,462,933
Other accrued expenses 1,821,870 1,173,580
Income taxes payable --- 717,381
Current maturities of debt and notes
payable 1,177,853 1,704,848
---------- ----------
TOTAL CURRENT LIABILITIES 10,656,023 10,811,645
Long-term debt, net of current
maturities 1,359,866 1,336,627
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
10,000,000 shares authorized,
with none issued and outstanding --- ---
Common stock, no par value,
40,000,000 shares authorized,
with 11,150,769 and 11,058,387 shares
issued outstanding at October 31,
1995 and April 30, 1995, respectively 15,271,790 14,454,524
Retained earnings 41,403,906 37,690,308
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 56,675,696 52,144,832
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $68,691,585 $64,293,104
=========== ===========
* See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended Six months ended
10/31/95 10/31/94 10/31/95 10/31/94
----------- ----------- ------------ ------------
<S>
Revenue: <C> <C> <C> <C>
Royalty and marketing fees $6,837,971 $5,219,744 $13,301,457 $10,048,731
Franchise fees 2,642,425 2,674,469 4,421,984 4,184,684
Sales of supplies and equipment 3,426,895 3,253,123 5,884,755 5,058,112
Interest income on leases and other 1,679,420 1,328,527 3,363,378 2,540,662
Company centers 510,541 351,882 928,977 721,383
----------- ----------- ------------ ------------
Total revenues 15,097,252 12,827,745 27,900,551 22,553,572
Cost and Expenses:
Franchise operations 3,168,090 2,619,162 6,241,693 5,060,147
Franchise development 1,687,589 1,535,513 2,951,112 2,549,422
Cost of supplies and equipment sold 2,866,606 2,585,957 4,807,145 3,965,387
Marketing 953,858 1,112,842 2,085,695 2,129,691
General and administrative 2,606,047 2,006,419 5,050,747 3,776,009
Company centers 521,197 364,713 945,972 706,768
----------- ----------- ------------ ------------
Total cost and expenses 11,803,387 10,224,606 22,082,364 18,187,424
Operating Income 3,293,865 2,603,139 5,818,187 4,366,148
Interest on investments and other 142,445 71,904 276,325 190,813
----------- ----------- ------------ ------------
Income before provision for income taxes 3,436,310 2,675,043 6,094,512 4,556,961
Provision for income taxes 1,344,912 1,087,999 2,380,914 1,855,988
----------- ----------- ------------ ------------
Net income $2,091,398 $1,587,044 $3,713,598 $2,700,973
=========== =========== ============ ============
Net income per common share: $ .18 $ .14 $ .33 $ .24
=========== =========== ============ ============
Weighted average common and common
equivalent shares outstanding 11,487,690 11,326,327 11,362,318 11,444,527
=========== =========== ============ ============
* See accompanying notes.
</TABLE>
<TABLE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended October 31,
1995 1994
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<S>
OPERATING ACTIVITIES: <C> <C>
Net income $3,713,598 $2,700,973
Adjustments to reconcile net income to net
cash provided from (used in) operating
activities:
Depreciation and amortization 511,695 518,518
Gain on sale of equipment under sales-type
lease agreements (361,059) (313,264)
Changes in assets and liabilities:
Restricted cash 411,177 35,994
Accounts and notes receivable (1,349,205) (2,999,551)
Receivable from National Media Fund 550,000 (2,516,267)
Assets leased to franchisees and
inventories (817,891) (806,482)
Re-acquired area and center rights 254,558 (29,781)
Other current assets (349,234) 169,630
Other assets 201,511 (110,361)
Accounts payable 1,003,858 885,162
Franchisee deposits (381,333) 63,693
Royalties, referrals and commissions payable (151,668) (279,533)
Accrued employee expenses and related taxes (30,393) 255,314
Other accrued expenses 648,290 226,749
Income taxes payable (717,381) 849,440
------------ -----------
Net cash flows provided from (used in)
operating activities 3,136,523 (1,349,766)
INVESTING ACTIVITIES:
Net change in short-term investments (2,999,033) 932,542
Additions to property and equipment (166,112) (216,687)
Principal payments received on sales-type
leases 1,894,959 1,625,397
Re-acquired area rights -- (514,960)
------------ -----------
Net cash flows provided from (used in)
investment activities (1,270,186) 1,826,292
FINANCING ACTIVITIES:
Borrowings under revolving loan 1,300,000 3,000,000
Repayments under revolving loan (1,850,000) (464,324)
Repayments on notes payable (63,285) (11,837)
Repurchase of common shares (220,339) (3,160,673)
Proceeds from the issuance of common
shares 909,093 272,400
Other changes in equity 128,512 --
------------ -----------
Net cash flows provided from (used in)
financing activities 203,981 (364,434)
Increase in cash and cash equivalents 2,070,318 112,092
Cash and cash equivalents at beginning of
period 390,841 251,055
------------ -----------
Cash and cash equivalents at end of period $2,461,159 $363,147
============ ===========
Supplemental Disclosure for Cash Flow
Information:
Cash paid during the period for income
taxes $3,431,462 $1,038,387
Interest 84,570 58,712
Supplemental Schedule with Non-Cash
Investment and Financing Activities:
Equipment sold under sales-type
agreements $1,388,687 $1,118,800
Additions to debt for acquisition of
equipment 109,530 --
* See accompanying notes.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
MAIL BOXES ETC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
ITEM 1. BASIS OF PRESENTATION:
----------------------
NOTE 1. PRESENTATION
------------
The condensed consolidated balance sheet as of October 31,
1995, the condensed consolidated statements of income for the
three-month periods and six-month periods ended October 31, 1995
and 1994, and the condensed consolidated statements of cash flows
for the six-month periods then ended have been prepared by the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, and cash flows have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the 1995 Annual Report
on Form 10-K. The results of operations for the quarter and the
six months ended October 31, 1995 are not necessarily indicative of
the operating results for the full year.
Certain reclassifications have been made to prior period
balances to conform to current period presentations.
NOTE 2. LITIGATION
----------
The company has become subject to various lawsuits and claims
from its franchisees and employees in the course of conducting its
business. The company intends to vigorously defend these actions
and believes that the ultimate resolution will not have a material
adverse effect on the company's financial condition or liquidity.
However, there can be no assurance that an unfavorable result would
not have a material adverse effect on the company's results of
operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS:
- ----------------------
Three months ended October 31, 1995 compared to Three months ended
- ------------------------------------------------------------------
October 31, 1994:
- -----------------
Revenues for Mail Boxes Etc. ("MBE" or the "Company") for the
three months ended October 31, 1995, increased by $2,269,507 or 18%
from the same quarter of the prior year. Revenues from royalty and
marketing fees increased by $1,618,227 or 31% over the prior
period. The increase in royalty and marketing fees is due to the
approximately 16% same-store sales increase experienced by the
network during the second quarter of FY 96 and the increased
number of centers in operation to 2,894 at October 31, 1995,
compared with 2,517 at October 31, 1994. The increase in
same-store sales is due in part to increased customer counts
responding to our expanding national media campaign, and the
introduction of new profit centers such as No-Limit Shipping and
Color Copying. Revenue from franchise fees decreased slightly
by $32,044 or 1%. Revenues from individual domestic franchise fees
decreased by $479,000 or 21% compared to the three months ended
October 31, 1994 as the result of the sale of 80 new Individual
Franchises sold in the second quarter of FY 96 as compared to 105
during the second quarter of FY 95. Individual franchise sales
cannot be predicted and may vary from quarter to quarter. During
the second quarter of FY 96 MBE sold Master Licenses for the
countries of Israel, Egypt, Jordan, Syria, and Lebanon. The aggregate
fees received were $515,000. MBE believes that master license sales
may be a less significant source of revenue during the remainder of
FY 96 and beyond and that the timing of these sales will not be
predictable. The remainder of this revenue category includes
international sales of individual and area franchises by master
licensees for $45,766 and transfer and renewal fees of $241,109
which represents a 10% increase over same period in FY 95.
Revenues from the sale of supplies and equipment increased by
$173,772 or 5% because there were more individual centers opened
during the second quarter of FY 96 compared with that of FY 95 (85
compared to 62). Interest income on leases and other increased by
$350,893 or 26% as compared to the three months ended October 31,
1994. The major components of this revenue category include
interest income earned on leases and notes receivable, late fees,
finance charges, and various administrative fees. Interest on
notes receivable increased by $141,113 or 38% because of additional
financing for franchisees. Administrative fees on national vendor
contracts increased 79% as the transaction volumes increased.
Revenues from the Company owned and operated centers increased by
$158,659 or 45% because a third center was added in November, 1994.
Cost and expenses for the three months ended October 31, 1995
increased by $1,578,781 or 15% when compared to the three months
ended October 31, 1994. The increase in franchise operations
expense was $548,928 or 21% over FY 95 and resulted primarily from
the increase in royalties paid to area franchisees for their share
of the royalty income, which they earn, in part by providing
ongoing support to the network. These costs will generally
increase in the same manner as the network's royalty revenue
growth. Royalties paid to area franchisees increased by $527,663
or 25% over second quarter FY 95. This increase is directly
related to the increase in royalty fees booked during the second
quarter of FY 96. Franchise development expenses increased by
$152,076 or 10%. The increase reflects increased domestic and
international sales efforts, designed to strengthen this program
during the next few years.
Cost of supplies and equipment increased by $280,649 or 11%.
This increase is due to the increase in sales of supplies and
equipment as discussed earlier. The gross margin decreased
from 21% to 16% because of the product mix.
Marketing expenses decreased by $158,984 or 14% when compared
to the second quarter ended October 31, 1994 because last year's
expenses reflect an extraordinary contribution by the Company to
the national advertising program. General and administrative
expenses increased by $599,628 or 30% over the second quarter of FY
95. This increase is primarily attributed to the growth of
franchise centers in operation, and an increase in the reserves.
These expenses will continue to grow with domestic and
international growth of the Network. As of October 31, 1995, there
were 2,507 MBE centers operating in the USA and 387 MBE centers
operating outside the USA for a total of 2,894 worldwide.
The Company centers' cost and expenses increased by $156,484
or 43%. The Company centers' combined operating margin was
negative in second quarter FY 96. One of the primary objectives of
the Company centers is to develop and test new products and
services. As a result, their operating expenses are higher than
might be experienced by a typical owner-operated franchise.
Other income (interest on investments and other) increased by
$70,541 or 98% for the quarter ended October 31, 1995, compared to
the quarter ended October 31, 1994. This increase is due to the
increase in short-term investments.
Net income increased by $504,354 or 32% in second quarter FY
96. Earnings per share increased from $.14 to $.18 or 29%.
<PAGE>
Six months ended October 31, 1995 compared to Six months ended
- --------------------------------------------------------------
October 31, 1994:
- -----------------
Revenues for the six months ended October 31, 1995 increased
by $5,346,979 or 24% over the prior year's same period. Revenues
from royalty and marketing fees increased by $3,252,726 or 32% over
the prior period because of the increased number of centers in
operation and the increase in the same store sales as noted
earlier. Revenues from franchise fees increased by $237,300 or 6%.
Revenues from individual domestic franchise fees decreased by
$284,200 or 8% during the first six months FY 96 when compared to
the same period FY 95. This decrease is due to the sale of fewer
new individual franchises, 145 centers in the first half of
1995 compared to 161 in the same period of 1994. Revenues from
master license fees increased by $440,000 because of sale of master
licenses to five new countries as discussed earlier. The remainder
of this revenue category includes international sales of individual
and area franchises for $154,453, and transfer and renewal fees for
$455,031 which represents a 35% increase as compared to the first
half of FY 95.
Revenues from the sale of supplies and equipment increased by
$826,643 or 16%. This increase was due to the opening of more
centers in the first half of FY 96. During the first six months of
FY 96, 156 centers opened as compared to 120 centers in the same
period of FY 95. Interest income on leases and other increased by
$822,716 or 32%. The major components of this revenue category
include interest income on leases, interest on notes receivable,
finance charges, late fees, and various administrative fees.
Interest income on notes receivable increased by $307,020 or 44%
during the first six months of FY 96 as compared to the first six
months of FY 95 because of MBE's expanded financing to promote
network growth. Administration fees on national vendor contracts
increased by $126,912 or 110% over the same period of FY 95.
Revenues from the company owned and operated centers increased by
$207,594 or 29% as compared to the same period in FY 95 due to the
reasons cited earlier.
Costs and expenses for the six months ended October 31, 1995
increased by $3,894,940 or 21% when compared to the six months
ended October 31, 1994. The increase in franchise operations
expense was $1,181,546 or 23%. This increase is mostly due to the
increase in royalties paid to area franchisees. Total royalties
paid were $5,041,662 for the six months ended October 31, 1995
compared to $3,993,794 in the same period last year. This increase
(26%) is lower than the 32% increase in royalty fees booked in the
first six months of 1995 because no royalties are paid out on
company owned areas.
Franchise development expenses increased by $401,690 or 16%
for the six months ended October 31, 1995. Costs of supplies and
equipment increased by $841,758 or 21% as compared to the six
months ended October 31, 1994. This increase is due to the
increase in sale of supplies and equipment. Gross margin decreased
from 22% to 18% due to the product mix and a higher increase in
cost of sales than increase in revenues.
Marketing expenses remained virtually the same when compared to the
six months ended October 31, 1994.
Administrative expenses increased by $1,274,738 or 34% over
the prior six months period ended October 31, 1994. This increase
is due to the growth of franchise centers in operation and unusual
items as discussed before. The company centers' costs increased by
$239,204 or 34%. This increase is due to the increase in the
revenues and also to the addition of the third company owned center
in November 1994.
Other income (interest on investments and other) increased by
$85,512 or 45% for the six months ended October 31, 1995, compared
to the six months ended October 31, 1994, due primarily to the
increase in short-term investments.
Net income increased by $1,012,625 or 37% and earnings per
share increased by 38% for the six months ended October 31, 1995
compared to the six months ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital at October 31, 1995 was $28,969,178 compared
to $22,564,444 at April 30, 1995. The Company believes it has
adequate financial resources for its present and projected
operating requirements. The Company has become subject to various
lawsuits and claims from its franchisees and employees in the
course of conducting its business. The Company intends to
vigorously defend these actions and believes that the ultimate
resolution will not have a material adverse effect on the Company's
financial condition or liquidity. However, there can be no
assurance that an unfavorable result would not have a material
adverse effect on the Company's operating results.
ITEM 6. REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed during the quarter ended
October 31, 1995.
<PAGE>
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.
MAIL BOXES ETC.
-----------------------------
Registrant
By: Gary S. Grahn Date: December 11, 1995
---------------------------- --------------------------
Gary S. Grahn
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<PERIOD-TYPE> 6-MOS
<CASH> 3,664
<SECURITIES> 13,036
<RECEIVABLES> 29,707
<ALLOWANCES> 3,090
<INVENTORY> 773
<CURRENT-ASSETS> 39,625
<PP&E> 9,332
<DEPRECIATION> 3,847
<TOTAL-ASSETS> 68,692
<CURRENT-LIABILITIES> 10,656
<BONDS> 0
0
0
<COMMON> 15,272
<OTHER-SE> 41,404
<TOTAL-LIABILITY-AND-EQUITY> 68,692
<SALES> 5,885
<TOTAL-REVENUES> 27,901
<CGS> 4,807
<TOTAL-COSTS> 22,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,095
<INCOME-TAX> 2,381
<INCOME-CONTINUING> 3,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,714
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
