<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 27, 1997
[ ] 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
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 3, 1997
- ---------------------------- -------------------------------
Common stock, $.10 par value 4,603,152 Shares
<PAGE> 2
MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q -- FOR THE QUARTER ENDED SEPTEMBER 27, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
September 27, 1997 and September 28, 1996 3
b) Consolidated Statements of Income--Nine Months Ended
September 27, 1997 and September 28, 1996 4
c) Consolidated Balance Sheets--September 27, 1997 and 5
December 28, 1996
d) Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 27, 1997 and September 28, 1996 6
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
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
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SEPT. 27, 1997 SEPT. 28, 1996
-------------- --------------
<S> <C> <C>
OPERATING REVENUES $168,011 $143,701
TRANSPORTATION COSTS 147,112 124,493
-------- --------
NET REVENUES 20,899 19,208
OPERATING EXPENSES:
Salaries and related costs 4,491 3,911
Selling, general and administrative 12,956 12,307
-------- --------
Total Operating Expenses 17,447 16,218
OPERATING INCOME 3,452 2,990
INTEREST AND OTHER EXPENSE (INCOME), NET (163) 43
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,615 2,947
PROVISION FOR INCOME TAXES 1,518 1,238
-------- --------
NET INCOME $ 2,097 $ 1,709
======== ========
EARNINGS PER SHARE $ .43 $ .36
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,853 4,789
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. 27, 1997 SEPT. 28, 1996
-------------- --------------
<S> <C> <C>
OPERATING REVENUES $478,802 $408,486
TRANSPORTATION COSTS 418,426 354,212
-------- --------
NET REVENUES 60,376 54,274
OPERATING EXPENSES:
Salaries and related costs 12,700 12,248
Selling, general and administrative 38,649 34,427
-------- --------
Total Operating Expenses 51,349 46,675
OPERATING INCOME 9,027 7,599
INTEREST AND OTHER EXPENSE (INCOME), NET (278) 216
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 9,305 7,383
PROVISION FOR INCOME TAXES 3,908 3,101
-------- --------
NET INCOME $ 5,397 $ 4,282
======== ========
EARNINGS PER SHARE $ 1.11 $ .89
======== ========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,874 4,799
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. 27, 1997 DEC. 28, 1996
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ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,718 $ 959
Accounts receivable, net of allowance 72,724 73,315
Notes and other receivables, net of allowance 5,282 7,583
Other current assets 2,128 1,131
-------- -------
Total current assets 88,852 82,988
DEFERRED INCOME TAXES 1,241 946
NET PROPERTY AND EQUIPMENT 5,344 4,518
INTANGIBLES AND OTHER ASSETS 5,488 5,145
-------- -------
$100,925 $93,597
======== =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accrued transportation expenses $ 53,897 $52,734
Deferred income taxes 5,395 2,193
Other current and accrued liabilities 6,811 8,031
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Total current liabilities 66,103 62,958
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LONG-TERM OBLIGATIONS 990 601
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CONTINGENCIES AND COMMITMENTS
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued 4,997,122 and 4,950,522 shares 500 495
Paid-in capital 29,191 28,665
Retained earnings 12,129 6,732
-------- -------
41,820 35,892
Less: 400,000 and 332,000 shares of treasury
stock, at cost (7,988) (5,854)
-------- -------
Total shareholders' investment 33,832 30,038
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$100,925 $93,597
======== =======
</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. 27, 1997 SEPT. 28, 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $11,670 $ 4,765
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INVESTING ACTIVITIES:
Additions to property and equipment (1,918) (1,242)
Disposals of property and equipment 344 518
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Net cash used for investing activities (1,574) (724)
------- -------
FINANCING ACTIVITIES:
Proceeds received from exercise of stock options 531 51
Purchase of treasury stock (2,133) (2,417)
Repayments of long-term obligations (109) (156)
Net repayments under line of credit -- (690)
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Net cash used for financing activities (1,711) (3,212)
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Net cash provided by continuing operations 8,385 829
Net cash used in discontinued operations (626) (687)
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Net increase in cash and cash equivalents 7,759 142
Cash and cash equivalents:
Beginning of period 959 272
------- -------
End of period $ 8,718 $ 414
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 109 210
Income taxes, net of refunds received 2,329 2,053
</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 1996 Annual Report on Form 10-K.
The results for the three and nine months ended September 27, 1997 are
not necessarily indicative of the results for the entire year 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 27, 1997 vs. three and nine months ended
September 28, 1996.
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
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1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES 100.0% 100.0% 100.0% 100.0%
TRANSPORTATION COSTS 87.6 86.6 87.4 86.7
----- ----- ----- -----
NET REVENUES 12.4 13.4 12.6 13.3
OPERATING EXPENSES:
Salaries and related costs 2.7 2.7 2.7 3.0
Selling, general and administrative 7.6 8.6 8.0 8.4
----- ----- ----- -----
TOTAL OPERATING EXPENSES 10.3 11.3 10.7 11.4
----- ----- ----- -----
OPERATING INCOME 2.1 2.1 1.9 1.9
INTEREST AND OTHER EXPENSE (INCOME), NET (.1) .0 .0 .1
----- ----- ----- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2.2% 2.1% 1.9% 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 a
portion of 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 costs
incurred by the transportation services operations and logistics projects are
for purchased transportation. Net revenues include only the commissions and
fees.
Selling, general and administrative expenses primarily consist of the
percentage of net revenue paid to agencies and independent sales contractors 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 company operating expenses.
Certain costs incurred by the Company's dedicated trucking fleets are also
reported in salaries and related costs and selling, general and administrative
expenses.
8
<PAGE> 9
Operating Revenues - The total number of shipments for the third
quarter increased 23% to 163,000 in 1997 versus 132,000 for the same period of
1996. Year-to-date, the number of shipments was 455,000, up 24% from the 367,000
shipments for the same period of 1996. This increase in the number of shipments
resulted from the expansion of services to existing and new customers.
Net Revenues - The Company's net revenues as a percentage of operating
revenues declined for both the third quarter and first nine months of 1997
compared to the same periods of 1996 due to the closure of certain unprofitable
dedicated trucking operations during 1996. This decrease in net revenues as a
percentage of operating revenues during 1997 has been offset by proportionate
decreases in operating expenses as a percentage of operating revenues.
Operating Expenses - As discussed above under Net Revenues, the closing
of certain dedicated trucking fleets has resulted in fluctuations in operating
expenses as a percentage of operating revenues. In general, the Company's
dedicated trucking fleets have relatively higher fixed costs as a percentage of
operating revenues than the Company's transportation services and logistics
management operations.
Interest and Other Expense (Income), Net - Interest and other expenses
declined in 1997 due to decreased borrowings under the line of credit and
increased interest income as cash flow from operations has exceeded the
Company's operating needs and capital requirements during the last few fiscal
quarters.
Provision for Income Taxes - The Company's effective tax rate was 42%
in both 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company's working capital needs have been met
through cash flow from operations and a line of credit from a lending
institution. Most recently, the Company's cash flows from operations have
exceeded its working capital needs. On September 27, 1997, there were no
borrowings under the line of credit, but letters of credit totaling $5,653,000
had been issued on Mark VII's behalf to secure insurance deductibles and
purchases of operating services, resulting in unused borrowing capacity of
$19,347,000. The interest rate for borrowings under the Company's $25,000,000
unsecured revolving credit facility (the "Facility") is a variable rate based
upon the 30 day LIBOR Funding Rate, as defined, plus 50 to 125 basis points. The
Company pays a varying fee of .35% to 1.00% on outstanding letters of credit and
a varying commitment fee of .15% to .30% on the unused portion of the Facility,
as defined. At September 27, 1997, the interest rate was 6.16% and the letter of
credit fee and commitment fee were .35% and .15%, respectively. The line of
credit expires on July 1, 2000, but may be extended, by mutual agreement of the
lender and the Company, for subsequent periods of one year each.
Among the covenants contained in the Facility are maintenance of
certain financial ratios, including debt to net worth, cash plus accounts
receivable to current liabilities plus debt and debt to earnings before income
taxes, deprecation and amortization (all as defined). Other covenants include
the level of capital and lease expenditures, acquisitions and mergers, dividends
and redemptions of stock.
Subsequent to September 27, 1997, the Company has repurchased 135,625
shares of its common stock at an aggregate cost of $4,122,000 pursuant to an
ongoing stock repurchase program.
At September 27, 1997, the Company had a ratio of current assets to
current liabilities of approximately 1.3 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
Except for the historical information contained herein, this document
contains forward-looking statements based on management's current expectations
of the Company's near term results, based on current information available
pertaining to the Company. Actual future results and trends may differ
materially depending on a variety of factors, including competition in the
marketplace, changes in volume discount agreements, changes in the carrier base,
changes in capacity and changes in government regulations.
9
<PAGE> 10
In response to systems issues related to the year 2000, the Company has
begun the design of new financial systems scheduled to be implemented during the
first half of 1998. Additionally, the Company is performing an in-depth review
of the year 2000 compliance aspects of all peripheral systems not included in
the above system. Management is confident that all issues arising from the year
2000 will be addressed during the course of these two projects.
Results of operations in the transportation industry generally 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.
ITEM 2. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
10
<PAGE> 11
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
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)
November 10, 1997 /s/ Philip L. Dunavant
- ----------------- ---------------------------------------------
(Date) Philip L. Dunavant, Executive Vice President,
Chief Financial Officer, Treasurer (Principal
Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-27-1997
<CASH> 8,718
<SECURITIES> 0
<RECEIVABLES> 74,837
<ALLOWANCES> 2,113
<INVENTORY> 0
<CURRENT-ASSETS> 88,852
<PP&E> 9,935
<DEPRECIATION> 4,591
<TOTAL-ASSETS> 100,925
<CURRENT-LIABILITIES> 66,103
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 33,332
<TOTAL-LIABILITY-AND-EQUITY> 100,925
<SALES> 0
<TOTAL-REVENUES> 478,802
<CGS> 0
<TOTAL-COSTS> 418,426
<OTHER-EXPENSES> 51,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 9,305
<INCOME-TAX> 3,908
<INCOME-CONTINUING> 5,397
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,397
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
</TABLE>
