<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 28, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission File No. 0-14810
MARK VII, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 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
-------------------------------------- --------
(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 November 8, 1996
---------------------------- -------------------------------
Common stock, $.10 par value 4,617,661 Shares
<PAGE> 2
MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q -- FOR THE QUARTER ENDED SEPTEMBER 28, 1996
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
September 28, 1996 and September 30, 1995 3
b) Consolidated Statements of Income--Nine Months Ended
September 28, 1996 and September 30, 1995 4
c) Consolidated Balance Sheets--September 28, 1996 and 5
December 30, 1995
d) Condensed Consolidated Statements of Cash Flows for the
Nine months Ended September 28, 1996 and September 30, 1995 6
e) Notes to Consolidated Financial Statements 7
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>
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. 28, 1996 SEPT. 30, 1995
-------------- --------------
<S> <C> <C>
OPERATING REVENUES $143,701 $114,852
TRANSPORTATION COSTS 124,493 97,582
-------- --------
NET REVENUES 19,208 17,270
OPERATING EXPENSES:
Salaries and related costs 3,911 4,111
Selling, general and administrative 12,307 10,699
-------- --------
Total Operating Expenses 16,218 14,810
OPERATING INCOME 2,990 2,460
INTEREST AND OTHER EXPENSE, NET 43 103
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,947 2,357
PROVISION FOR INCOME TAXES 1,238 979
-------- --------
NET INCOME $ 1,709 $ 1,378
======== ========
EARNINGS PER SHARE $ .36 $ .27
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,789 5,071
DIVIDENDS PAID -- --
</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. 28, 1996 SEPT. 30, 1995
-------------- --------------
<S> <C> <C>
OPERATING REVENUES $408,486 $332,340
TRANSPORTATION COSTS 354,212 282,329
-------- --------
NET REVENUES 54,274 50,011
OPERATING EXPENSES:
Salaries and related costs 12,248 12,025
Selling, general and administrative 34,427 31,589
-------- --------
Total Operating Expenses 46,675 43,614
OPERATING INCOME 7,599 6,397
INTEREST AND OTHER EXPENSE, NET 216 414
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,383 5,983
PROVISION FOR INCOME TAXES 3,101 2,465
-------- --------
NET INCOME $ 4,282 $ 3,518
======== ========
EARNINGS PER SHARE $ .89 $ .71
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,799 4,975
DIVIDENDS PAID -- --
</TABLE>
See "Notes to Consolidated Financial Statements."
4
<PAGE> 5
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
SEPT. 28, 1996 DEC. 30, 1995
-------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 414 $ 272
Accounts receivable, net of allowance 63,442 55,778
Notes and other receivables, net of allowance 6,569 6,789
Other current assets 272 1,415
-------- --------
Total current assets 70,697 64,254
DEFERRED INCOME TAXES 1,205 1,385
NET PROPERTY AND EQUIPMENT 4,298 4,399
INTANGIBLES AND OTHER ASSETS 2,708 4,106
NET ASSETS OF DISCONTINUED OPERATIONS 2,694 2,008
-------- --------
$ 81,602 $ 76,152
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accrued transportation expenses $ 45,604 $ 43,246
Deferred income taxes 416 1,286
Other current and accrued liabilities 7,133 4,330
Borrowings under line of credit -- 690
-------- --------
Total current liabilities 53,153 49,552
-------- --------
LONG-TERM OBLIGATIONS 625 712
-------- --------
CONTINGENCIES AND COMMITMENTS (Notes 2 and 3)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued 4,895,861 and 4,888,761 shares 490 489
Paid-in capital 27,946 27,875
Retained earnings 5,242 960
-------- --------
33,678 29,324
Less: 332,000 and 200,000 shares of treasury stock,
at cost (5,854) (3,436)
-------- --------
Total shareholders' investment 27,824 25,888
-------- --------
$ 81,602 $ 76,152
======== ========
</TABLE>
See "Notes to Consolidated Financial Statements."
5
<PAGE> 6
MARK VII, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------
SEPT. 28, 1996 SEPT. 30, 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 5,115 $ 9,599
-------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (1,242) (510)
Retirements of property and equipment 518 381
-------- --------
Net cash used for investing activities (724) (129)
-------- --------
FINANCING ACTIVITIES:
Proceeds received from exercise of stock options 51 778
Purchase of treasury stock (2,417) --
Repayments of long-term obligations (156) (1,386)
Net repayments under line of credit (690) (8,546)
-------- --------
Net cash used for financing activities (3,212) (9,154)
-------- --------
Net cash provided by continuing operations 1,179 316
Net cash used in discontinued operations (1,037) (1,397)
-------- --------
Net increase (decrease) in cash and cash equivalents 142 (1,081)
Cash and cash equivalents:
Beginning of period 272 1,246
-------- --------
End of period $ 414 $ 165
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 210 309
Income taxes, net of refunds received 2,053 1,392
</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., a
Delaware 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 manager of transportation logistics. 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 and nine months ended September 28, 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.
This line had no outstanding balance at September 28, 1996.
(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 and stock options, and also seeks attorneys' fees, interest
and punitive damages. The Company intends to vigorously defend itself
in this matter. An arbitration panel of three arbitrators has been
selected and the hearing is scheduled to commence on February 3, 1997.
7
<PAGE> 8
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 28, 1996 vs. three and nine months
ended September 30, 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>
QUARTER NINE MONTHS
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES 100.0% 100.0% 100.0% 100.0%
TRANSPORTATION COSTS 86.6 84.9 86.7 85.0
----- ----- ----- -----
NET REVENUES 13.4 15.1 13.3 15.0
OPERATING EXPENSES:
Salaries, wages and related costs 2.7 3.6 3.0 3.6
Selling, general and administrative 8.6 9.3 8.4 9.5
----- ----- ----- -----
TOTAL OPERATING EXPENSES 11.3 12.9 11.4 13.1
----- ----- ----- -----
OPERATING INCOME 2.1 2.2 1.9 1.9
INTEREST AND OTHER EXPENSE, NET - .1 .1 .1
----- ----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2.1% 2.1% 1.8% 1.8%
===== ===== ====== =====
</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 salaries and related costs
and selling, general and administrative costs than do the Company's
transportation services operation.
8
<PAGE> 9
Operating Income. The total number of shipments for the third quarter
increased 22% to 131,000 in 1996 versus 107,000 for the same period of 1995.
Year-to-date, the number of shipments was 367,000, up 20% from the 305,000
shipments 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 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 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
revenues for the first nine months of 1996. The decrease in net revenue as a
percentage of revenue was offset by decreases in operating expenses as a
percentage of revenues. During 1996, the Company has experienced a slight
increase in rates in truck brokerage as excess capacity has decreased
marginally in the transportation market. 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. Among other
restrictions, the terms of the line of credit requires the Company to maintain
consolidated tangible net worth of $21 million in 1996 and $23 million
thereafter, and to obtain the approval of the lender before paying dividends.
At September 28, 1996, the available line of credit was $12,231,000 and letters
of credit totaling $7,769,000 had been issued on Mark VII's behalf to secure
insurance deductibles and purchases of operating services.
At September 28, 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.
Except for historical information contained herein, certain of the
matters discussed above are forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth herein.
9
<PAGE> 10
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
10
<PAGE> 11
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 11, 1996 /s/ Philip L. Dunavant
----------------- ------------------------------------------------
(Date) Philip L. Dunavant, Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 28,
1996 AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 414
<SECURITIES> 0
<RECEIVABLES> 65,135
<ALLOWANCES> 1,693
<INVENTORY> 0
<CURRENT-ASSETS> 70,697
<PP&E> 8,963
<DEPRECIATION> 4,665
<TOTAL-ASSETS> 81,602
<CURRENT-LIABILITIES> 53,153
<BONDS> 0
0
0
<COMMON> 490
<OTHER-SE> 27,334
<TOTAL-LIABILITY-AND-EQUITY> 81,602
<SALES> 408,486
<TOTAL-REVENUES> 408,486
<CGS> 0
<TOTAL-COSTS> 400,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 682
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 7,383
<INCOME-TAX> 3,101
<INCOME-CONTINUING> 4,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,282
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
