<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 June 29, 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 August 2, 1996
---------------------------- -----------------------------
Common stock, $.10 par value 4,579,861 Shares
<PAGE> 2
MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q -- FOR THE QUARTER ENDED JUNE 29, 1996
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
June 29, 1996 and July 1, 1995 3
b) Consolidated Statements of Income--Six Months Ended
June 29, 1996 and July 1, 1995 4
c) Consolidated Balance Sheets--June 29, 1996 and
December 30, 1995 5
d) Condensed Consolidated Statements of Cash Flows for the
Six months Ended June 29, 1996 and July 1, 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 12
</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
---------------------------
JUNE 29, 1996 JULY 1, 1995
------------- ------------
<S> <C> <C>
OPERATING REVENUES $142,755 $112,031
TRANSPORTATION COSTS 123,994 94,956
-------- --------
NET REVENUES 18,761 17,075
OPERATING EXPENSES:
Salaries and related costs 4,249 4,011
Selling, general and administrative 9,774 9,056
Equipment rents 1,627 1,210
Depreciation and amortization 241 302
-------- --------
Total Operating Expenses 15,891 14,579
OPERATING INCOME 2,870 2,496
INTEREST AND OTHER EXPENSE, NET 80 206
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,790 2,290
PROVISION FOR INCOME TAXES 1,172 930
-------- --------
NET INCOME $ 1,618 $ 1,360
======== ========
EARNINGS PER SHARE $ .34 $ .27
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,783 5,010
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 SIX MONTHS ENDED
---------------------------
JUNE 29, 1996 JULY 1, 1995
------------- ------------
<S> <C> <C>
OPERATING REVENUES $264,785 $217,488
TRANSPORTATION COSTS 229,719 184,747
-------- --------
NET REVENUES 35,066 32,741
OPERATING EXPENSES:
Salaries and related costs 8,337 7,914
Selling, general and administrative 18,603 17,787
Equipment rents 2,981 2,540
Depreciation and amortization 536 563
-------- --------
Total Operating Expenses 30,457 28,804
OPERATING INCOME 4,609 3,937
INTEREST AND OTHER EXPENSE, NET 173 311
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,436 3,626
PROVISION FOR INCOME TAXES 1,863 1,486
-------- --------
NET INCOME $ 2,573 $ 2,140
======== ========
EARNINGS PER SHARE $ .54 $ .43
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,804 4,961
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>
JUNE 29, 1996 DEC. 30, 1995
------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 409 $ 272
Accounts receivable, net of allowance 62,274 55,778
Notes and other receivables, net of allowance 6,054 6,789
Other current assets 415 1,415
------- -------
Total current assets 69,152 64,254
DEFERRED INCOME TAXES 1,248 1,385
NET PROPERTY AND EQUIPMENT 4,137 4,399
INTANGIBLES AND OTHER ASSETS 2,682 4,106
NET ASSETS OF DISCONTINUED OPERATIONS 2,769 2,008
------- -------
$79,988 $76,152
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accrued transportation expenses $44,600 $43,246
Deferred income taxes 1,005 1,286
Other current and accrued liabilities 7,217 4,330
Borrowings under line of credit - 690
------- -------
Total current liabilities 52,822 49,552
------- -------
LONG-TERM OBLIGATIONS 652 712
------- -------
CONTINGENCIES AND COMMITMENTS (Notes 2 and 3)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued 4,889,061 and 4,888,761 shares 489 489
Paid-in capital 27,880 27,875
Retained earnings 3,533 960
------- -------
31,902 29,324
Less: 310,000 and 200,000 shares of treasury stock,
at cost (5,388) (3,436)
------- -------
Total shareholders' investment 26,514 25,888
------- -------
$79,988 $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 SIX MONTHS ENDED
-----------------------------
JUNE 29, 1996 JULY 1, 1995
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 3,922 $10,546
------- -------
INVESTING ACTIVITIES:
Additions to property and equipment (569) (233)
Retirements of property and equipment 296 65
------- -------
Net cash used for investing activities (273) (168)
------- -------
FINANCING ACTIVITIES:
Proceeds received from exercise of stock options - 772
Purchase of treasury stock (1,952) -
Repayments of long-term obligations (108) (178)
Net repayments under line of credit (690) (8,546)
------- -------
Net cash used for financing activities (2,750) (7,952)
------- -------
Net cash provided by continuing operations 899 2,426
Net cash used in discontinued operations (762) (1,264)
------- -------
Net increase in cash and cash equivalents 137 1,162
Cash and cash equivalents:
Beginning of period 272 1,246
------- -------
End of period $ 409 $ 2,408
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 62 275
Income taxes, net of refunds received 1,127 915
</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 six months ended June 29, 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 June 29, 1996 was $2,646,000.
(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 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 six months ended June 29, 1996 vs. three and six months ended
July 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>
QUARTER SIX MONTHS
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUES 100.0% 100.0% 100.0% 100.0%
TRANSPORTATION COSTS 86.9 84.8 86.8 84.9
----- ----- ----- -----
NET REVENUES 13.1 15.2 13.2 15.1
OPERATING EXPENSES:
Salaries, wages and related costs 3.0 3.5 3.1 3.6
Selling, general and administrative 6.8 8.1 7.0 8.2
Equipment rents 1.1 1.1 1.1 1.2
Depreciation and amortization .1 .3 .2 .3
----- ----- ----- -----
TOTAL OPERATING EXPENSES 11.0 13.0 11.4 13.3
----- ----- ----- -----
OPERATING INCOME 2.1 2.2 1.8 1.8
INTEREST AND OTHER EXPENSE, NET .1 .2 .1 .1
----- ----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2.0% 2.0% 1.7% 1.7%
===== ==== ===== ====
</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.
8
<PAGE> 9
Operating Income. The total number of shipments for the second quarter
increased 21% to 127,000 in 1996 versus 105,000 for the same period of 1995.
Year-to-date, the number of shipments was 235,000, up 19% from the 198,000
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 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 revenues for the first six 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 the first and second quarters of
1996, the Company experienced a slight increase in rates in truck brokerage as
excess capacity 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 June 29, 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 June 29, 1996 the Company had a ratio of current assets to current
liabilities of approximately 1.31 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
<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.
(a) The Annual Meeting of Shareholders of the Company was held on
May 22, 1996.
(b) Not Applicable
(c) 1. Election of Directors. All nominees for director were elected
pursuant to the following vote:
<TABLE>
<CAPTION>
Name of Nominee Votes in favor Withheld
-------------------- -------------- --------
<S> <C> <C>
R. C. Matney 4,117,496 257,825
J. Michael Head 4,117,496 257,825
James T. Graves 4,117,496 257,825
David H. Wedaman 4,117,496 257,825
Douglas Wm. List 4,117,496 257,825
William E. Greenwood 4,117,496 257,825
Dr. Jay U. Sterling 4,117,496 257,825
Thomas J. Fitzgerald 4,117,496 257,825
</TABLE>
2. Approval of the proposal to change the state of
incorporation of the Company from Missouri to Delaware:
3,070,698 votes in favor; 727,758 votes against; 574,038
broker non-votes; and 2,827 shares abstained from voting.
3. Approval of the amendment of the 1995 Omnibus
Stock Incentive Plan: 3,375,331 votes in favor; 411,494 votes
against; 581,946 broker non-votes; and 6,550 shares abstained
from voting.
(d) Not Applicable
Item 5. Other Information.
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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule (for SEC use only)
10
<PAGE> 11
(b) Reports on Form 8-K.
The Registrant filed a current report on Form 8-K, dated May 23, 1996,
reporting under Item 5 - Other Events, the merger of Mark VII, Inc., a Missouri
corporation ("Mark VII Missouri"), with and into Mark VII, Inc., a Delaware
corporation ("Mark VII Delaware"), a wholly owned subsidiary of Mark VII
Missouri, pursuant to an Agreement and Plan of Merger dated as of May 2, 1996,
by and between Mark VII Missouri and Mark VII Delaware.
11
<PAGE> 12
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)
August 8, 1996 /s/ J. Michael Head
- --------------- -------------------------------------------------
(Date) J. Michael Head, Executive Vice President, Chief
Financial Officer, Treasurer (Principal Financial
and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE SIX MONTHS ENDED JUNE 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 409
<SECURITIES> 0
<RECEIVABLES> 63,881
<ALLOWANCES> 1,607
<INVENTORY> 0
<CURRENT-ASSETS> 69,152
<PP&E> 8,573
<DEPRECIATION> 4,436
<TOTAL-ASSETS> 79,988
<CURRENT-LIABILITIES> 52,822
<BONDS> 0
0
0
<COMMON> 489
<OTHER-SE> 26,025
<TOTAL-LIABILITY-AND-EQUITY> 79,988
<SALES> 264,785
<TOTAL-REVENUES> 264,785
<CGS> 0
<TOTAL-COSTS> 260,176
<OTHER-EXPENSES> 173
<LOSS-PROVISION> 384
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 4,436
<INCOME-TAX> 1,863
<INCOME-CONTINUING> 2,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,573
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
