<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-14810
MARK VII, INC.
--------------
(Exact name of Registrant as specified in its charter)
Missouri 43-1074964
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
965 Ridge Lake Boulevard, Suite 103
Memphis, Tennessee 38120
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 767-4455
10100 N.W. Executive Hills Boulevard, Suite 200, Kansas City, Missouri
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(Former address)
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.
Class Outstanding at November 9, 1995
---------------------------- -------------------------------
Common stock, $.10 par value 4,862,261 Shares
<PAGE> 2
MARK VII, INC. AND SUBSIDIARIES
Form 10-Q -- For the Quarter Ended September 30, 1995
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
September 30, 1995 and October 1, 1994 3
b) Consolidated Statements of Income--Nine Months Ended
September 30, 1995 and October 1, 1994 4
c) Consolidated Balance Sheets--September 30, 1995 and
December 31, 1994 5
d) Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and October 1, 1994 6
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------------
SEPT. 30, 1995 OCT. 1, 1994
-------------- ------------
<S> <C> <C>
OPERATING REVENUES $114,852 $111,386
TRANSPORTATION COSTS 97,582 95,520
-------- --------
NET REVENUES 17,270 15,866
OPERATING EXPENSES:
Salaries and related costs 4,111 3,436
Selling, general and administrative 9,054 8,703
Equipment rents 1,368 983
Depreciation and amortization 277 453
-------- --------
Total Operating Expenses 14,810 13,575
-------- --------
OPERATING INCOME 2,460 2,291
INTEREST AND OTHER EXPENSE, NET 103 155
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,357 2,136
PROVISION FOR INCOME TAXES 979 879
-------- --------
NET INCOME $ 1,378 $ 1,257
======== ========
EARNINGS PER SHARE
$ .27 $ .26
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 5,071 4,910
======== ========
</TABLE>
See "Notes to Consolidated Financial Statements."
3
<PAGE> 4
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
SEPT. 30, 1995 OCT. 1, 1994
-------------- ------------
<S> <C> <C>
OPERATING REVENUES $332,340 $314,193
TRANSPORTATION COSTS 282,329 271,579
-------- --------
NET REVENUES 50,011 42,614
OPERATING EXPENSES:
Salaries and related costs 12,025 9,818
Selling, general and administrative 26,841 23,800
Equipment rents 3,908 2,729
Depreciation and amortization 840 1,002
-------- --------
Total Operating Expenses 43,614 37,349
-------- --------
OPERATING INCOME 6,397 5,265
INTEREST AND OTHER EXPENSE, NET 414 377
-------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 5,983 4,888
PROVISION FOR INCOME TAXES 2,465 2,032
-------- --------
INCOME FROM CONTINUING OPERATIONS 3,518 2,856
LOSS ON DISCONTINUED OPERATIONS, LESS INCOME TAX
BENEFIT OF $1,054,000 - (1,286)
-------- --------
NET INCOME $ 3,518 $ 1,570
======== ========
EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .71 $ .58
Loss on discontinued operations - (.26)
-------- --------
Net income $ .71 $ .32
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,975 4,908
======== ========
DIVIDENDS PAID - -
</TABLE>
See "Notes to Consolidated Financial Statements."
4
<PAGE> 5
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPT. 30, 1995 DEC. 31, 1994
-------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 165 $ 1,246
Accounts receivable, net of allowance 49,247 51,188
Notes and other receivables, net of allowance 6,595 5,748
Current deferred income taxes 497 1,732
Other current assets 980 643
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Total current assets 57,484 60,557
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DEFERRED INCOME TAXES 771 1,110
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NET PROPERTY AND EQUIPMENT 4,367 5,078
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INTANGIBLES AND OTHER ASSETS 4,508 3,651
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PROPERTY HELD FOR SALE 3,330 3,330
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$70,460 $73,726
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accrued transportation expenses $36,604 $33,646
Accrued income taxes - 471
Other current and accrued liabilities 4,048 2,966
Borrowings under line of credit - 8,546
Net current liabilities of discontinued operations 1,311 2,708
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Total current liabilities 41,963 48,337
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LONG-TERM OBLIGATIONS 728 1,916
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CONTINGENCIES AND COMMITMENTS (Notes 2 and 4)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued and outstanding 4,888,461 shares and
4,781,234 shares, respectively 489 478
Paid-in capital 27,536 26,769
Retained deficit (256) (3,774)
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Total shareholders' investment 27,769 23,473
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$70,460 $73,726
======= =======
</TABLE>
See "Notes to Consolidated Financial Statements."
5
<PAGE> 6
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------------
SEPT. 30, 1995 OCT. 1, 1994
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,518 $ 1,570
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Loss on discontinued operations - 1,286
Depreciation and amortization 840 1,002
Amortization of intangibles 249 163
Provision for doubtful accounts and notes receivable 560 408
Non-current deferred income taxes 339 2
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable 1,381 (11,030)
Accrued transportation 2,958 6,845
Accrued income taxes 764 508
Other, net (1,010) (800)
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Net cash provided by (used for) operating activities 9,599 (46)
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INVESTING ACTIVITIES:
Additions to property and equipment, net (129) (1,801)
Net investment in discontinued operations (1,397) (371)
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Net cash used for investing activities (1,526) (2,172)
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FINANCING ACTIVITIES:
Proceeds received from exercise of stock options 778 46
Net borrowings (repayments) under line of credit (8,546) 3,776
Repayments of long-term obligations (1,386) (303)
Other - (29)
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Net cash provided by (used for) financing activities (9,154) 3,490
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Net increase (decrease) in cash and cash equivalents (1,081) 1,272
Cash and cash equivalents:
Beginning of period 1,246 291
------- --------
End of period $ 165 $ 1,563
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 309 $ 506
Income taxes 1,392 747
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Direct financing under capital lease obligations $ - $ 2,416
</TABLE>
See "Notes to Consolidated Financial Statements."
6
<PAGE> 7
MARK VII, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
The consolidated financial statements include Mark VII, Inc. and its
wholly owned subsidiaries, collectively referred to herein as "the
Company". The principal operations of the Company are conducted by
its transportation services subsidiary, Mark VII Transportation
Company, Inc. ("Mark VII"). As a result of the sale of substantially
all of the assets of the Company's truckload subsidiaries completed on
October 3, 1994 (the "Asset Sale"), the operations of MNX Carriers,
Inc., ("Carriers"), and its subsidiaries (Missouri-Nebraska Express,
Inc. ("Mo-Neb"), MNX Trucking, Inc. and MNX Transport, Inc.) are
reported as a discontinued operation in these consolidated financial
statements.
The condensed, consolidated financial statements included herein have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). In management's opinion, these
financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
results of operations for the interim periods presented. Pursuant to
SEC rules and regulations, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from these statements unless significant changes
have taken place since the end of the most recent fiscal year. For
this reason, the condensed, consolidated financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's 1994 Annual Report on
Form 10-K.
The results for the three and nine months ended September 30, 1995 are
not necessarily indicative of the results for the entire year 1995.
(2) CREDIT FACILITY:
The Company has a $20 million line of credit. This line bears
interest at 1/2% over the bank's prime rate and expires on July 31,
1997. The line is secured by accounts receivable and other assets of
Mark VII and is guaranteed by the Company. The available line of
credit at September 30, 1995 was $12.8 million. Letters of credit
totaling $7.2 million have been issued to secure insurance deductibles
and purchases of operating services. The line of credit has no
restrictions on intercompany advances among the Company's
subsidiaries.
The line of credit requires that the Company earn annual consolidated
income from continuing operations of $2 million and maintain minimum
consolidated tangible net worth of $19 million in 1995, $21 million in
1996 and $23 million thereafter and obtain approval from the lender
prior to paying dividends.
The following is a summary of data on the line of credit:
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
------------------------ ------------------------
1995 1994 1995 1994
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Balance outstanding at end of period $ - $14,853 $ - $14,853
Average amount outstanding 2 5,985 2,069 6,475
Maximum period end balance outstanding - 14,853 9,310 14,853
Interest rate at end of period - 8.25% - 8.25%
Weighted average interest rate 9.33% 7.95% 9.35% 7.28%
</TABLE>
7
<PAGE> 8
(3) EARNINGS (LOSS) PER SHARE:
Earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the period.
Reported earnings per share amounts include common equivalents relating
to dilutive stock options of 183,000 and 154,000 for the third quarter
and nine months ended September 30, 1995, respectively, and 131,000 and
145,000 for the third quarter and nine months ended October 1, 1994,
respectively.
(4) JOINT VENTURE:
The Company has guaranteed $1 million of a $5 million line of credit to
provide working capital for ERX Logistics ("ERX"). ERX is a partnership
formed by Mark VII and a warehousing and distribution company to provide
contract management services for a number of regional distribution
centers for one of the Company's largest customers. The line is secured
by accounts receivable of ERX. Borrowings under this line have averaged
$1,235,000 in the nine months ended September 30, 1995. The maximum
monthend borrowing was $2,411,000. The outstanding borrowing at
September 30, 1995 was $1,898,000.
(5) RELATED PARTY TRANSACTIONS:
Prior to the Asset Sale, the Company and Carriers routinely engaged in
intercompany transactions as Carriers hauled freight for Mark VII's
customers and as Mark VII brokered loads for Carriers' customers.
Transportation costs on Mark VII's loads hauled by Carriers for the
third quarter and nine months ended October 1, 1994 were $957,000 and
$5,179,000, respectively. The Company's operating revenues on Carriers'
loads brokered to Mark VII were $62,000 and $167,000 for the third
quarter and nine months ended October 1, 1994, respectively.
8
<PAGE> 9
MARK VII, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three and nine months ended September 30, 1995 vs. three and nine months ended
October 1, 1994.
The following table sets forth the percentage relationship of the
Company's revenues and expense items to operating revenues for the periods
indicated:
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES 100.0% 100.0% 100.0% 100.0%
TRANSPORTATION COSTS 84.9 85.8 85.0 86.4
----- ----- ----- -----
NET REVENUES 15.1 14.2 15.0 13.6
OPERATING EXPENSES:
Salaries, wages and related costs 3.6 3.1 3.6 3.1
Selling, general and administrative 7.9 7.8 8.1 7.6
Equipment rents 1.2 .9 1.2 .9
Depreciation and amortization .2 .4 .2 .3
----- ----- ----- -----
TOTAL OPERATING EXPENSES 12.9 12.2 13.1 11.9
----- ----- ----- -----
OPERATING INCOME 2.2 2.0 1.9 1.7
INTEREST AND OTHER EXPENSE, NET .1 .1 .1 .1
----- ----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2.1% 1.9% 1.8% 1.6%
===== ===== ===== =====
</TABLE>
General. The transportation services operation contracts with carriers
for the transportation of freight by rail, truck, ocean or air for shippers.
Operating revenues include the carriers' charges for carrying shipments plus
commissions and fees. The carriers with whom the Company contracts provide
transportation equipment, the charge for which is included in transportation
costs. As a result, the primary operating cost in the transportation services
operation is for purchased transportation. Net revenues include only the
commissions and fees.
Selling, general and administrative expenses include the percentage of
the net revenues paid to agencies as consideration for providing sales and
marketing, arranging for movement of shipments, entering billing and accounts
payable information on shipments and maintaining customer relations, as well as
other operating expenses. The logistics management and dedicated trucking
operations incur a greater portion of their costs in equipment rents, salaries
and related costs, and selling, general and administrative costs than do the
Company's transportation services operation. The Company currently has several
logistics management projects which are in their initial phases and are
producing lower operating income than more mature projects. Management
believes this is not a continuing material trend and expects these projects to
contribute more to earnings in the future. Lease payments for tractors,
trailers and domestic containers are included in equipment rents.
9
<PAGE> 10
Revenues. The total number of shipments for the quarter increased 13%
to 107,000 in 1995 versus 95,000 for the same period of 1994. Year-to-date,
the number of shipments was 305,000, up 15% from the 266,000 shipments for the
same period in 1994. This increase in the number of shipments resulted from
the expansion of services to existing and new customers.
Although there has been a softness in the transportation market since
early 1995, the Company has been able to maintain volume and margin growth.
While operating revenues have increased 3% for the quarter and 6% for the
year-to-date period, transportation costs have decreased similarly as a
percentage of operating revenue, resulting in net revenue growth of 9% for the
quarter and 17% for the year-to-date period. During this period of slow
economic growth, the Company has been able to purchase transportation at
reduced costs, resulting in both lower operating revenues and lower
transportation costs. Consequently, net revenues were not significantly
impacted by the economy during the first three quarters of the year. Net
revenues were impacted, however, by the significant increase in logistics
management and dedicated trucking operations discussed above, as a greater
portion of their costs are included in equipment rents, salaries and related
costs, and selling, general and administrative costs compared to the Company's
transportation services operations.
Operating revenues from the Company's temperature-controlled freight
operations declined $3.4 million and $10.7 million for the quarter and
year-to-date periods, respectively, compared to 1994. Net revenues from these
operations declined $0.4 million and $1.5 million for the quarter and
year-to-date periods. These decreases resulted from management's decision
during the fourth quarter of 1994 to reduce temperature-controlled freight
operations to service only a core group of customers.
Salaries and Related Costs. Salaries and related costs increased 20%
and 23% in the third quarter and year-to-date period, respectively, compared to
1994. This was primarily due to the addition of driver wages for the Company's
dedicated trucking operations, the increase in logistics management operations,
salary increases to existing employees and the addition of administrative and
operations personnel to handle continued growth in the number of shipments
arranged. This increase, as well as the increase in selling, general and
administrative expenses discussed below, exceeds the percentage increase in
operating revenues due to growth in the dedicated trucking and logistics
management operations. While management expects these operations to continue
to grow and, consequently, these expenses to increase as a percentage of
operating revenues, the impact on operating results in future periods should be
offset by the increase in net revenues as a percentage of operating revenues.
Selling, General and Administrative. Selling, general and
administrative expenses increased 4% and 13% in the third quarter and
year-to-date period, respectively. This increase was primarily due to
commissions paid to agency operating offices and the sales force, which are
based on a percentage of net revenues, as well as the addition of several large
dedicated trucking projects.
Equipment Rents. The 39% and 43% increase in this expense for the
quarter and year-to-date periods, respectively, is due to the leasing of
additional tractors and trailers for use in dedicated trucking.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been met through bank lines of
credit and cash flow provided from operations. Mark VII maintains a $20
million line of credit. This line bears interest at 1/2% over the bank's prime
rate and expires in July 1997. The line is secured by accounts receivable and
other assets of Mark VII and is guaranteed by the Company.
At September 30, 1995, the available line of credit was $12.8 million
and letters of credit totaling $7.2 million had been issued on Mark VII's
behalf to secure insurance deductibles and purchases of operating services.
The line of credit has no restrictions on intercompany advances among the
Company's subsidiaries. Among other restrictions, the terms of the line of
credit require that the Company earn $2 million in consolidated income from
continuing operations annually, maintain consolidated tangible net worth of $19
million in 1995, $21 million in 1996 and $23 million thereafter and obtain
approval of the lender before paying dividends.
The Company remains liable for certain potential claims which may arise
in connection with its former truckload operations.
10
<PAGE> 11
At September 30, 1995, the Company had a ratio of current assets to
current liabilities of approximately 1.37 to 1. Management believes that the
Company will have sufficient cash flow from operations and borrowing capacity
to cover its operating needs and capital requirements for the foreseeable
future.
Other Information
In the transportation industry generally, results of operations show a
seasonal pattern as customers reduce shipments during and after the winter
holiday season. In recent years, the Company's operating income and earnings
have been higher in the second and third quarters than in the first and fourth
quarters.
11
<PAGE> 12
MARK VII, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings. NONE
Item 2. Changes in Securities. NONE
Item 3. Defaults Upon Senior Securities. NONE
Item 4. Submission of Matters to a Vote of Security Holders. NONE
Item 5. Other Information. NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- ------------
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
NONE.
12
<PAGE> 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.
Mark VII, Inc.
(Registrant)
November 13, 1995 /s/ J. Michael Head
- ----------------- --------------------------------------------------
(Date) J. Michael Head, Executive Vice President, Chief
Financial Officer, Treasurer (Principal Financial
and Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 165
<SECURITIES> 0
<RECEIVABLES> 50,723
<ALLOWANCES> 1,476
<INVENTORY> 0
<CURRENT-ASSETS> 57,484
<PP&E> 8,064
<DEPRECIATION> 3,697
<TOTAL-ASSETS> 70,460
<CURRENT-LIABILITIES> 41,963
<BONDS> 0
<COMMON> 489
0
0
<OTHER-SE> 27,280
<TOTAL-LIABILITY-AND-EQUITY> 70,460
<SALES> 332,340
<TOTAL-REVENUES> 332,340
<CGS> 0
<TOTAL-COSTS> 325,383
<OTHER-EXPENSES> (30)
<LOSS-PROVISION> 560
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> 5,983
<INCOME-TAX> 2,465
<INCOME-CONTINUING> 3,518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,518
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
