<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 March 29, 1997
[ ] 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)
Delaware 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 7, 1997
- ---------------------------- --------------------------
Common stock, $.10 par value 4,637,122 Shares
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MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q -- FOR THE QUARTER ENDED MARCH 29, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Statements of Income--Three Months Ended
March 29, 1997 and March 30, 1996 3
b) Consolidated Balance Sheets--March 29, 1997 and 4
December 28, 1996
c) Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 29, 1997 and March 30, 1996 5
e) Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
MARK VII, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
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MAR. 29, 1997 MAR. 30, 1996
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<S> <C> <C>
OPERATING REVENUES $ 145,914 $ 122,030
TRANSPORTATION COSTS 127,379 105,725
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NET REVENUES 18,535 16,305
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OPERATING EXPENSES:
Salaries and related costs 4,169 4,088
Selling, general and administrative 12,253 10,478
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Total Operating Expenses 16,422 14,566
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OPERATING INCOME 2,113 1,739
INTEREST AND OTHER EXPENSE/(INCOME), NET (14) 93
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INCOME BEFORE PROVISION FOR INCOME TAXES 2,127 1,646
PROVISION FOR INCOME TAXES 893 691
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NET INCOME $ 1,234 $ 955
========= ==========
EARNINGS PER SHARE $ .25 $ .20
========= ==========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,892 4,825
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. 29, 1997 DEC. 28, 1996
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,680 $ 959
Accounts receivable, net of allowance of $1,736 and $1,693 62,507 73,315
Notes and other receivables, net of allowance of $1,822 and $1,611 5,223 7,583
Other current assets 361 1,131
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Total current assets 75,771 82,988
DEFERRED INCOME TAXES 919 946
NET PROPERTY AND EQUIPMENT 4,395 4,518
INTANGIBLES AND OTHER ASSETS 2,443 2,540
NET ASSETS OF DISCONTINUED OPERATIONS 2,737 2,605
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$ 86,265 $ 93,597
========= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accrued transportation expenses $ 45,746 $ 52,734
Deferred income taxes 2,046 2,193
Other current and accrued liabilities 6,483 8,031
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Total current liabilities 54,275 62,958
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LONG-TERM OBLIGATIONS 530 601
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CONTINGENCIES AND COMMITMENTS (Note 2)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000
shares, issued 4,967,322 and 4,950,522 shares 497 495
Paid-in capital 28,851 28,665
Retained earnings 7,966 6,732
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37,314 35,892
Less: 332,000 shares of treasury stock, at cost (5,854) (5,854)
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Total shareholders' investment 31,460 30,038
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$ 86,265 $ 93,597
========= ========
</TABLE>
See "Notes to Consolidated Financial Statements."
4
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MARK VII, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
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MAR. 29, 1997 MAR. 30, 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities $ 6,854 $ 3,205
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INVESTING ACTIVITIES:
Additions to property and equipment (404) (283)
Retirements of property and equipment 303 223
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Net cash used for investing activities (101) (60)
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FINANCING ACTIVITIES:
Proceeds received from exercise of stock options 188 -
Purchase of treasury stock - (1,751)
Repayments of long-term obligations (69) (61)
Net repayments under line of credit (19) (690)
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Net cash provided by (used for) financing activities 100 (2,502)
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Net cash provided by continuing operations 6,853 643
Net cash used in discontinued operations (132) (504)
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Net increase in cash and cash equivalents 6,721 139
Cash and cash equivalents:
Beginning of period 959 272
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End of period $ 7,680 $ 411
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 32 44
Income taxes, net of refunds received 137 93
</TABLE>
See "Notes to Consolidated Financial Statements."
5
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MARK VII, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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 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 1996 Annual Report on Form 10-K.
The results for the three months ended March 29, 1997 are not
necessarily indicative of the results for the entire year 1997.
(2) JOINT VENTURE:
Mark VII owns 50% of ERX Logistics, L.L.C. ("ERX"), a limited liability
company formed with a warehousing and distribution company to provide
contract management services for a number of regional distribution
centers for one of Mark VII's largest customers. ERX employs management,
administrative personnel, drivers and warehousemen to operate the
warehouses, tractors and trailers owned by the customer. The Company has
guaranteed $1 million of a $5 million line of credit to provide working
capital for ERX.
6
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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 29, 1997 vs. three months ended March 30, 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>
THREE MONTHS
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1997 1996
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<S> <C> <C>
OPERATING REVENUES 100.0% 100.0%
TRANSPORTATION COSTS 87.3 86.6
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NET REVENUES 12.7 13.4
OPERATING EXPENSES:
Salaries and related costs 2.8 3.3
Selling, general and administrative 8.4 8.6
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TOTAL OPERATING EXPENSES 11.2 11.9
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OPERATING INCOME 1.5 1.5
INTEREST AND OTHER EXPENSE/(INCOME), NET .0 .1
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INCOME BEFORE PROVISION FOR INCOME TAXES 1.5% 1.4%
====== =====
</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.
Operating Revenues - The Company's total number of shipments increased
from 108,000 in 1996 to 133,000 in 1997. The increase in shipments of 23%
resulted from the expansion of services to both new and existing customers.
Net Revenues. The Company's net revenues as a percentage of operating
revenues was 12.7% versus 13.4% in 1996. Net revenues as a percentage of
operating revenues declined in 1997 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.
7
<PAGE> 8
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.
Provision for Income Taxes - The Company's effective tax rate was 42%
in both 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been met through cash flow
from operations and a line of credit from a lending institution. Mark VII
maintains a $20 million line of credit which bears interest at 1/2% over the
bank's prime rate. The line of credit expires in July 1997, but may be extended,
by mutual agreement of the lender and the Company, for subsequent periods of one
year each. 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. On March 29, 1997, $13,000 was outstanding on the line of credit
and letters of credit totaling $6,769,000 had been issued on Mark VII's behalf
to secure insurance deductibles and purchases of operating services, resulting
in unused borrowing capacity of $13,218,000.
Among other restrictions, the terms of the line of credit require that
the Company earn $2,000,000 in consolidated income from continuing operations
annually and maintain consolidated tangible net worth of $23,000,000 and obtain
approval of the lender before paying dividends. The line of credit agreement
allows for adjustments to the net worth requirements under certain
circumstances, one of which is the repurchase of the Company's stock. After
adjustment for stock repurchases, the consolidated tangible net worth required
to be maintained for 1997 is $18,000,000.
At March 29, 1997, the Company had a ratio of current assets to
current liabilities of approximately 1.4 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 the carrier base, changes in capacity and changes in
government regulations.
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.
8
<PAGE> 9
MARK VII, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
In January 1997, the Company settled 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 for
cause in December 1995. Mr. Crouch was seeking payment of his annual
salary of $225,000 per year for the remaining seven years of the
employment agreement, as well as certain bonus payments. According to
the terms of the settlement, Mr. Crouch was compensated for
approximately 13 months at a rate less than the salary provided for
in the original employment agreement. The Company and Mr. Crouch also
entered into a consulting agreement on February 3, 1997 with a term
of approximately six years which provides for consulting fees, at a
rate less than the salary provided for in the original employment
agreement.
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
9
<PAGE> 10
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 12, 1997 /s/ Philip L. Dunavant
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(Date) Philip L. Dunavant, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MARK VII, INC. FOR THE THREE MONTHS ENDED MARCH 29, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-29-1997
<CASH> 7,680
<SECURITIES> 0
<RECEIVABLES> 64,243
<ALLOWANCES> 1,736
<INVENTORY> 0
<CURRENT-ASSETS> 75,771
<PP&E> 8,514
<DEPRECIATION> 4,119
<TOTAL-ASSETS> 86,265
<CURRENT-LIABILITIES> 54,275
<BONDS> 0
0
0
<COMMON> 497
<OTHER-SE> 85,768
<TOTAL-LIABILITY-AND-EQUITY> 86,265
<SALES> 0
<TOTAL-REVENUES> 145,914
<CGS> 0
<TOTAL-COSTS> 127,379
<OTHER-EXPENSES> 16,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 2,127
<INCOME-TAX> 893
<INCOME-CONTINUING> 1,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,234
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
</TABLE>
