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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 March 30, 1996
[ ] 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.
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(Exact name of Registrant as specified in its charter)
Missouri 43-1074964
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(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
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 May 10, 1996
- ---------------------------- ---------------------------
Common stock, $.10 par value 4,589,061 Shares
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MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q -- FOR THE QUARTER ENDED MARCH 30, 1996
INDEX
<TABLE>
<CAPTION> Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
March 30, 1996 and April 1, 1995 3
b) Consolidated Balance Sheets--March 30, 1996 and 4
December 30, 1995
c) Consolidated Statements of Cash Flows for the Three months
Ended March 30, 1996 and April 1, 1995 5
d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
</TABLE>
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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
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MAR. 30, 1996 APR. 1, 1995
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<S> <C> <C>
OPERATING REVENUES $122,030 $105,457
TRANSPORTATION COSTS 105,725 89,791
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NET REVENUES 16,305 15,666
OPERATING EXPENSES:
Salaries and related costs 4,088 3,903
Selling, general and administrative 8,829 8,731
Equipment rents 1,354 1,330
Depreciation and amortization 295 261
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Total Operating Expenses 14,566 14,225
OPERATING INCOME 1,739 1,441
INTEREST AND OTHER EXPENSE, NET 93 105
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INCOME BEFORE PROVISION FOR INCOME TAXES 1,646 1,336
PROVISION FOR INCOME TAXES 691 556
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NET INCOME $ 955 $ 780
======== ========
EARNINGS PER SHARE $ .20 $ .16
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,825 4,911
DIVIDENDS PAID - -
</TABLE>
See "Notes to Consolidated Financial Statements."
3
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MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
MAR. 30, 1996 DEC. 30, 1995
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 411 $ 272
Accounts receivable, net of allowance 50,631 55,778
Notes and other receivables, net of allowance 8,241 6,789
Other current assets 1,185 1,415
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Total current assets 60,468 64,254
DEFERRED INCOME TAXES 694 1,385
NET PROPERTY AND EQUIPMENT 4,163 4,399
INTANGIBLES AND OTHER ASSETS 2,749 4,106
NET ASSETS OF DISCONTINUED OPERATIONS 2,512 2,008
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$70,586 $76,152
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accrued transportation expenses $37,368 $43,246
Deferred income taxes 1,286 1,286
Other current and accrued liabilities 6,170 4,330
Borrowings under line of credit - 690
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Total current liabilities 44,824 49,552
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LONG-TERM OBLIGATIONS 671 712
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CONTINGENCIES AND COMMITMENTS (Notes 2 and 4)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued 4,888,761 shares 489 489
Paid-in capital 27,875 27,875
Retained earnings 1,915 960
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30,279 29,324
Less: 300,000 and 200,000 shares of treasury stock,
at cost (5,188) (3,436)
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Total shareholders' investment 25,091 25,888
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$70,586 $76,152
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</TABLE>
See "Notes to Consolidated Financial Statements."
4
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MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
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MAR. 30, 1996 APR. 1, 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $3,205 $1,484
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INVESTING ACTIVITIES:
Additions to property and equipment, net (60) (19)
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FINANCING ACTIVITIES:
Proceeds received from exercise of stock options - 275
Purchase of treasury stock (1,751) -
Net borrowings (repayments) under line of credit (690) 764
Other (61) (86)
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Net cash provided by (used for) financing activities (2,502) 953
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Net cash provided by continuing operations 643 2,418
Net cash used in discontinued operations (504) (2,846)
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Net increase (decrease) in cash and cash equivalents 139 (428)
Cash and cash equivalents:
Beginning of period 272 1,246
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End of period $ 411 $ 818
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 44 166
Income taxes, net of refunds received 93 886
</TABLE>
See "Notes to Consolidated Financial Statements."
5
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MARK VII, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
The consolidated financial statements include Mark VII, Inc., a Missouri
corporation, and its wholly owned subsidiaries, collectively referred to
herein as "the Company". The Company is a sales, marketing and service
organization that acts as a provider of transportation services and a
transportation logistics manager. The Company has a network of
transportation sales personnel that provides services throughout the
United States, as well as Mexico and Canada. The principal operations of
the Company are conducted by its transportation services subsidiary, Mark
VII Transportation Company, Inc. ("Mark VII").
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 1995 Annual Report on Form 10-K.
The results for the three months ended March 30, 1996 are not necessarily
indicative of the results for the entire year 1996.
(2) JOINT VENTURE:
The Company has guaranteed $1 million of a $5 million line of credit to
provide working capital for ERX Logistics, L.L.C. ("ERX"). ERX is a
Michigan limited liability company 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. The
outstanding borrowing at March 30, 1996 was $3,470,000.
(3) LEGAL PROCEEDINGS:
The Company is engaged in an arbitration proceeding filed by Roger
Crouch, the Company's former Vice Chairman of the Board, as a result of
the Company's termination of his employment agreement with the Company for
cause. The arbitration is being conducted by the American Arbitration
Association. Under the terms of the agreement, if Mr. Crouch prevails in
the arbitration he is entitled to payment of his annual salary of $225,000
per year for the remaining seven years of the agreement. Mr. Crouch also
contends he is entitled to certain bonus payments. The Company intends to
vigorously defend the arbitration. Selection of the arbitrators is in
process, but no date has been set for the hearing.
(4) NEW ACCOUNTING PRONOUNCEMENTS:
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
121 "Accounting for Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed Of" during the first quarter of 1996. The adoption
of this accounting standard had no material effect on the Company's
results of operations or consolidated financial position. SFAS No. 123
"Accounting for Stock-Based Compensation" was issued in October, 1995 for
fiscal years beginning after December 15, 1995. The Company has not
adopted this method of accounting, but will instead continue to apply the
accounting provisions of Accounting Principles Board Opinion, No. 25
"Accounting for Stock Issued to Employees' and related Interpretations in
accounting for its employee stock options. The Company will, however,
comply with the
6
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disclosure requirements of the new standard, beginning with the annual
financial statements issued for the year ending December 29, 1996.
7
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MARK VII, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three months ended March 30, 1996 vs. three months ended April 1, 1995
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>
THREE MONTHS
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1996 1995
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<S> <C> <C>
OPERATING REVENUES 100.0% 100.0%
TRANSPORTATION COSTS 86.6 85.1
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NET REVENUES 13.4 14.9
OPERATING EXPENSES:
Salaries, wages and related costs 3.4 3.7
Selling, general and administrative 7.2 8.3
Equipment rents 1.1 1.3
Depreciation and amortization .2 .2
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TOTAL OPERATING EXPENSES 11.9 13.5
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OPERATING INCOME 1.5 1.4
INTEREST AND OTHER EXPENSE, NET .1 .1
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INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 1.4% 1.3%
===== =====
</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, as well as revenues from fixed fee arrangements on the
Company's integrated logistics projects. 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.
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. Lease payments for tractors,
trailers and domestic containers are included in equipment rents.
Operating Income. The total number of shipments for the quarter increased
16% to 108,000 in 1996 versus 93,000 for the same period of 1995. This
increase in the number of shipments resulted from the expansion of services to
existing and new customers. The active sales force responsible for generating
these sales increases, including agents, was 252 at the end of the first
quarter of 1996 compared to 249 at the end of the first quarter of 1995.
8
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The Company's dedicated trucking fleets included in logistics management
operations have historically reported higher net revenues as a percentage of
operating revenues than the Company's transportation services operations
because a greater portion of the costs generated by the dedicated trucking
fleets are included in equipment rents, salaries and related costs, and
selling, general and administrative costs. Management closed a portion of
these operations at the end of 1995, resulting in decreased net revenues as a
percentage of revenue for the first quarter of 1996. The decrease in net
revenue as a percentage of revenue was offset by decreases in operating
expenses as a percent of revenues. During the quarter, the Company
experienced a slight increase in rates in truck brokerage as excess capacity
decreased marginally in the transportation market due to normal seasonal
shipping trends not experienced in the first quarter of 1995. The effect of
the increase in rates was offset by volume improvements and did not negatively
impact operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been met through cash flow
provided from operations and a line of credit from a bank. 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 Company pays a fee of 1.5% on
outstanding letters of credit and a commitment fee of .38% on the average daily
unused portion of the line. The line is secured by accounts receivable and
other assets of Mark VII and is guaranteed by the Company. At March 30, 1996,
the available line of credit was $12,371,000 and letters of credit totaling
$7,629,000 had been issued on Mark VII's behalf to secure insurance deductibles
and purchases of operating services.
At March 30, 1996 the Company had a ratio of current assets to current
liabilities of approximately 1.6 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.
9
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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
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27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
NONE.
10
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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)
May 13, 1996 /s/ J. Michael Head
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(Date) J. Michael Head, Executive Vice President,
Chief Financial Officer, Treasurer
(Principal Financial and Accounting
Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 411
<SECURITIES> 0
<RECEIVABLES> 52,077
<ALLOWANCES> 1,446
<INVENTORY> 0
<CURRENT-ASSETS> 60,468
<PP&E> 8,359
<DEPRECIATION> 4,196
<TOTAL-ASSETS> 70,586
<CURRENT-LIABILITIES> 44,824
<BONDS> 0
0
0
<COMMON> 489
<OTHER-SE> 24,602
<TOTAL-LIABILITY-AND-EQUITY> 70,586
<SALES> 122,030
<TOTAL-REVENUES> 122,030
<CGS> 0
<TOTAL-COSTS> 105,725
<OTHER-EXPENSES> 14,566
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 1,646
<INCOME-TAX> 691
<INCOME-CONTINUING> 955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 955
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
