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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 April 4, 1998
[ ] 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 May 5, 1998
---------------------------- --------------------------
Common stock, $.05 par value 8,940,172 Shares
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MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q - FOR THE THREE MONTHS ENDED APRIL 4, 1998
INDEX
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Statements of Income - Three Months Ended
April 4, 1998 and March 29, 1997......................................... 3
b) Consolidated Balance Sheets - April 4, 1998 and January 3, 1998............ 4
c) Condensed Consolidated Statements of Cash Flows - Three Months Ended
April 4, 1998 and March 29, 1997......................................... 5
e) Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 9
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
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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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APR. 4, 1998 MAR. 29, 1997
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<S> <C> <C>
Operating Revenues........................................... $ 171,800 $ 145,914
Transportation Costs......................................... 151,242 127,379
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Net Revenues................................................. 20,558 18,535
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Operating Expenses:
Salaries and related costs............................... 4,468 4,169
Selling, general and administrative...................... 13,340 12,253
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Total operating expenses.............................. 17,808 16,422
--------- ----------
Operating Income............................................. 2,750 2,113
Interest and Other Expense/(Income), Net..................... (55) (14)
--------- ----------
Income Before Provision For Income Taxes..................... 2,805 2,127
Provision For Income Taxes................................... 1,178 893
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Net Income .................................................. $ 1,627 $ 1,234
========= ==========
Net Income Per Common Share.................................. $ .18 $ .13
========= ==========
Net Income Per Common Share, Assuming Dilution............... $ .17 $ .13
========= ==========
Average Common Shares and Equivalents Outstanding:
Basic.................................................... 8,939 9,257
Diluted.................................................. 9,467 9,769
Dividends Paid............................................... -- --
</TABLE>
See "Notes to Condensed Consolidated Financial Statements."
3
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MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
APR. 4, 1998 JAN. 3, 1998
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ASSETS (Unaudited)
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<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................... $ 1,835 $ 3,732
Accounts receivable, net of allowance of $3,192 and $2,641.......... 77,161 82,917
Notes and other receivables, net of allowance of $577 and $537...... 3,606 4,399
Other current assets................................................ 64 1,755
-------- --------
Total current assets............................................. 82,666 92,803
Deferred Income Taxes................................................... 1,244 1,262
Net Property and Equipment.............................................. 7,338 6,591
Intangibles and Other Assets............................................ 7,592 7,354
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$ 98,840 $108,010
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accrued transportation expenses..................................... $ 54,746 $ 63,094
Deferred income taxes............................................... 4,277 5,591
Other current and accrued liabilities............................... 5,163 6,258
-------- --------
Total current liabilities........................................ 64,186 74,943
-------- --------
Long-Term Obligations................................................... 876 945
-------- --------
Contingencies and Commitments
Shareholders' Equity:
Common stock, $.05 par value, authorized 20,000,000
shares, issued 10,011,422 and 10,009,822 shares ................. 501 501
Paid-in capital..................................................... 29,652 29,623
Retained earnings................................................... 15,735 14,108
-------- --------
45,888 44,232
Less: 1,071,250 shares of treasury stock, at cost.................. (12,110) (12,110)
-------- --------
Total shareholders' equity....................................... 33,778 32,122
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$ 98,840 $108,010
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</TABLE>
See "Notes to Condensed 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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APR. 4, 1998 MAR. 29, 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities........... $ (782) $ 6,722
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INVESTING ACTIVITIES:
Additions to property and equipment............................ (1,177) (404)
Retirements of property and equipment.......................... 101 303
------- -------
Net cash used for investing activities......................... (1,076) (101)
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FINANCING ACTIVITIES:
Proceeds received from exercise of stock options............... 29 188
Repayments of long-term obligations............................ (68) (69)
Net repayments under line of credit............................ -- (19)
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Net cash provided by (used for) financing activities........... (39) 100
------- -------
Net increase (decrease) in cash and cash equivalents.............. (1,897) 6,721
Cash and cash equivalents:
Beginning of period........................................... 3,732 959
------- -------
End of period................................................. $ 1,835 $ 7,680
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................... $ 7 $ 32
Income taxes, net of refunds received........................ 889 137
</TABLE>
See "Notes to Condensed 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 1997 Annual Report on Form 10-K.
The results for the three months ended April 4, 1998 are not
necessarily indicative of the results for the entire year.
EARNINGS PER SHARE:
Effective January 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Earnings per share
have been restated for the periods presented to conform to the new
accounting standard. In addition, on November 7, 1997, the Company's
Board of Directors authorized a two-for-one stock split, thereby
increasing the number of shares issued by 5,003,000 and decreasing the
par value of each share to $ .05. All references to the number of
common shares and per share amounts for the periods presented have been
restated to reflect the stock split.
A reconciliation between basic earnings per share and diluted earnings
per share follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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APR. 4, MAR. 29,
1998 1997
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(in thousands, except
per share amounts)
<S> <C> <C>
Net income................................................ $ 1,627 $ 1,234
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Average common shares and equivalents outstanding:
Basic................................................... 8,939 9,257
Effect of dilutive options.............................. 528 512
-------- -------
Diluted................................................. 9,467 9,769
======== =======
Per share amounts:
Net income per common share............................. $ .18 $ .13
======= =======
Net income per common share, assuming dilution.......... $ .17 $ .13
======= =======
</TABLE>
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 April 4, 1998 vs. three months ended March 29, 1997.
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
1998 1997
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<S> <C> <C>
Operating revenues..................................... 100.0% 100.0%
Transportation costs................................... 88.0 87.3
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Net revenues........................................... 12.0 12.7
Operating expenses:
Salaries and related costs......................... 2.6 2.8
Selling, general and administrative................ 7.8 8.4
----- -----
Total operating expenses...................... 10.4 11.2
----- -----
Operating income....................................... 1.6 1.5
Interest and other expense/(income), net............... .0 .0
---- -----
Income before provision for income taxes............... 1.6% 1.5%
===== =====
</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 133,000 in 1997 to 170,000 in 1998. The increase in shipments of 28%
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 were 12.0% versus 12.7% in 1997. Net revenues as a percentage of
operating revenues declined during the first quarter of 1998 due to the
discontinuation of dedicated trucking operations in January 1998 for one of our
customers. This customer's dedicated trucking operations accounted for one half
of the Company's dedicated trucking services at the end of
7
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1997. This decrease in net revenues as a percentage of operating revenues 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 the Company's largest dedicated trucking fleet 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 - Cash flow from operations
has been adequate to cover the Company's operating needs and capital
requirements in recent years, resulting in decreased interest expense and
increased interest income in 1998 and 1997.
Provision for Income Taxes - The Company's effective tax rate was 42%
in both 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company's cash flows from operations have
exceeded its working capital needs. In addition, the Company has available a
$25,000,000 unsecured revolving credit facility (the "Facility"). On April 4,
1998, there were no borrowings under the Facility, but letters of credit
totaling $3,102,000 had been issued on the Company's behalf to secure insurance
deductibles and purchases of operating services, resulting in unused borrowing
capacity of $21,898,000. The interest rate for borrowings under 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 April 4, 1998, 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, depreciation and amortization (all as defined). Other covenants include
the level of capital and lease expenditures, acquisitions and mergers, dividends
and redemptions of stock.
At April 4, 1998, the Company had a ratio of current assets to current
liabilities of approximately 1.29 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 response to expanding capabilities in the area of information
systems and issues related to the year 2000, the Company is designing a new
financial and administrative system scheduled for implementation during the
second half of 1998. The total cost of this system is not expected to exceed
$2,000,000, a significant portion of which was expended in 1997. 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
uncertain at this time what additional costs, if any, may be incurred in
connection with these peripheral systems. Management is confident that all
issues relating to the Company's internal information systems arising from the
year 2000 will be addressed during the course of these two projects. The Company
is also in the process of seeking information concerning year 2000 compliance
from vendors, customers and other third parties upon whom the Company relies.
As the Company continues its expansion into more comprehensive
logistics management programs, the credit risk exposure on a limited number of
major customers increases. While the Company takes measures to continually
evaluate, monitor and, if necessary, reserve for these and other credit risks,
it is possible, although unlikely, that circumstances could develop on a
particular major customer which could have a material effect on the Company's
short-term results.
8
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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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
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
(b) Reports on Form 8-K. None
9
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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 18, 1998 /s/ Philip L. Dunavant
- - ------------ --------------------------------------------
(Date) Philip L. Dunavant, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK
VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED APRIL 4,
1998 AND CONSOLIDATED BALANCE SHEET AS OF APRIL 4, 1998 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-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 1,835
<SECURITIES> 0
<RECEIVABLES> 80,353
<ALLOWANCES> 3,192
<INVENTORY> 0
<CURRENT-ASSETS> 82,666
<PP&E> 12,188
<DEPRECIATION> 4,850
<TOTAL-ASSETS> 98,840
<CURRENT-LIABILITIES> 64,186
<BONDS> 876
0
0
<COMMON> 501
<OTHER-SE> 33,277
<TOTAL-LIABILITY-AND-EQUITY> 98,840
<SALES> 0
<TOTAL-REVENUES> 171,800
<CGS> 0
<TOTAL-COSTS> 151,242
<OTHER-EXPENSES> 17,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 2,805
<INCOME-TAX> 1,178
<INCOME-CONTINUING> 1,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,627
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
