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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 3, 1999
[ ] 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.
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(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 3, 1999
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Common stock, $.05 par value 8,958,970 Shares
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MARK VII, INC. AND SUBSIDIARIES
FORM 10-Q - FOR THE THREE MONTHS ENDED APRIL 3, 1999
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 3, 1999 and April 4, 1998......................................................... 3
b) Consolidated Balance Sheets - April 3, 1999 and January 2, 1999........................... 4
c) Condensed Consolidated Statements of Cash Flows - Three Months Ended
April 3, 1999 and April 4, 1998......................................................... 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
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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)
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<CAPTION>
FOR THE THREE MONTHS ENDED
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APR. 3, 1999 APR. 4, 1998
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Operating Revenues ............................... $ 183,784 $ 171,800
Transportation Costs ............................. 162,334 151,242
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Net Revenues ..................................... 21,450 20,558
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Operating Expenses:
Salaries and related costs ................... 5,099 4,468
Selling, general and administrative .......... 12,925 13,340
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Total operating expenses .................. 18,024 17,808
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Operating Income ................................. 3,426 2,750
Interest and Other (Income)/Expense, Net ......... (385) (55)
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Income Before Provision for Income Taxes ......... 3,811 2,805
Provision for Income Taxes ....................... 1,543 1,178
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Net Income ....................................... $ 2,268 $ 1,627
========= =========
Net Income Per Common Share ...................... $ .25 $ .18
========= =========
Net Income Per Common Share, Assuming Dilution ... $ .24 $ .17
========= =========
Average Common Shares and Equivalents Outstanding:
Basic ........................................ 8,955 8,939
Diluted ...................................... 9,411 9,467
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. 3, 1999 JAN. 2, 1999
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(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents ...................................... $ 14,869 $ 3,758
Accounts receivable, net of allowance of $4,137 and $4,289 ..... 83,062 97,879
Notes and other receivables, net of allowance of $396 and $301 . 3,449 4,406
Other current assets ........................................... 476 451
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Total current assets ........................................ 101,856 106,494
Deferred Income Taxes .............................................. 439 519
Net Property and Equipment ......................................... 9,251 9,273
Intangible and Other Assets ........................................ 5,967 6,782
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$ 117,513 $ 123,068
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accrued transportation charges ................................. $ 61,744 $ 70,340
Deferred income taxes .......................................... 4,042 4,166
Other current and accrued liabilities .......................... 7,499 6,607
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Total current liabilities ................................... 73,285 81,113
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Long-Term Obligations .............................................. 651 712
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Contingencies and Commitments
Shareholders' Investment:
Common stock, $.05 par value, authorized 20,000,000
shares, issued 10,082,720 and 10,035,020 shares ............. 504 502
Paid-in capital ................................................ 30,105 29,938
Retained earnings .............................................. 25,944 23,676
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56,553 54,116
Less: 1,123,750 and 1,115,850 shares of treasury stock, at cost (12,976) (12,873)
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Total shareholders' investment .............................. 43,577 41,243
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$ 117,513 $ 123,068
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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)
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<CAPTION>
FOR THE THREE MONTHS ENDED
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APR. 3, 1999 APR. 4, 1998
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OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities $ 11,658 $ (753)
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INVESTING ACTIVITIES:
Additions to property and equipment ................ (537) (1,177)
Retirements of property and equipment .............. 7 101
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Net cash used for investing activities ............. (530) (1,076)
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FINANCING ACTIVITIES:
Repayments of debt and capital lease obligations ... (61) (68)
Exercise of stock options .......................... 147 --
Purchase of treasury stock ......................... (103) --
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Net cash used for financing activities ............. (17) (68)
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Net increase (decrease) in cash and cash equivalents .. 11,111 (1,897)
Cash and cash equivalents:
Beginning of period ............................... 3,758 3,732
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End of period ..................................... $ 14,869 $ 1,835
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................... $ 7 $ 7
Income taxes, net of refunds received ............ 1,127 889
</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 transportation services
provider 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
Transportation").
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 1998 Annual Report on Form 10-K.
The results for the three months ended April 3, 1999 are not
necessarily indicative of the results for the entire year.
EARNINGS PER SHARE:
A reconciliation between basic earnings per share and diluted earnings
per share follows:
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<CAPTION>
THREE MONTHS ENDED
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APR. 3, APR. 4,
1999 1998
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(in thousands, except
per share amounts)
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Net income ....................................... $2,268 $1,627
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Average common shares and equivalents outstanding:
Basic .......................................... 8,955 8,939
Effect of dilutive options ..................... 456 528
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Diluted ........................................ 9,411 9,467
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Per share amounts:
Net income per common share .................... $ .25 $ .18
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Net income per common share, assuming dilution . $ .24 $ .17
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</TABLE>
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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 3, 1999 vs. three months ended April 4, 1998.
The following table sets forth the percentage relationship of the
Company's revenues and expense items to operating revenues for the periods
indicated:
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<CAPTION>
THREE MONTHS
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1999 1998
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Operating Revenues ..................... 100.0% 100.0%
Transportation Costs ................... 88.3 88.0
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Net Revenues ........................... 11.7 12.0
Operating Expenses:
Salaries and related costs ......... 2.8 2.6
Selling, general and administrative 7.0 7.8
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Total operating expenses ...... 9.8 10.4
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Operating Income ....................... 1.9 1.6
Interest and Other (Income)/Expense, Net (.2) .0
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Income Before Provision for Income Taxes 2.1% 1.6%
====== ======
</TABLE>
General - The transportation services operation engages 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. 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. Several of the Company's newer
logistics management projects are performed on a management fee basis whereby
the Company collects only a management fee.
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 170,000 in 1998 to 184,000 in 1999. Increases in shipments and operating
revenues are lower than the Company's historical growth rates due to the
following factors: the continued elimination of dedicated trucking operations;
the fourth quarter sale of a business unit engaged in a management fee based
logistics program; and unusual winter weather patterns that affected demand for
temperature controlled services which adversely impacted rates for the Company's
TemStar division.
Net Revenues - The Company's net revenues as a percentage of operating
revenues were 11.7% in 1999 versus 12.0% in 1998. Net revenues as a percentage
of operating revenues declined during the first quarter of 1999
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due to factors discussed above in Operating Revenues. 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
particularly relating to the closure of dedicated trucking operations.
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 (Income)/Expense, 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 1999 and 1998.
Provision for Income Taxes - The Company's effective tax rate was
40.5% in 1999 and 42% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available a $25,000,000 unsecured revolving credit
facility (the "Facility"). In recent years, the Company's cash flows from
operations have exceeded its working capital needs and the Company has made no
borrowings under this Facility since its inception in July 1997. On April 3,
1999, letters of credit totaling $2,705,000 had been issued on the Company's
behalf to secure insurance deductibles and purchases of operating services,
resulting in unused borrowing capacity of $22,295,000. 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 3, 1999, the interest rate was 5.44% 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, interest, 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 3, 1999, the Company had a ratio of current assets to current
liabilities of approximately 1.39 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.
YEAR 2000
In 1996, the Company conducted an extensive review of its financial
and administrative information system. The review evaluated the Company's
computer systems in terms of Year 2000 compliance, capacity, general efficiency,
compatibility and competitive advantage. As a result of the review, the Company
has designed and implemented a new financial and administrative system which is
Year 2000 compliant to replace the previous system, which was over ten years
old. Since October 1996, the Company has spent approximately $2,500,000 on the
design and implementation of this system. Additionally, during this same period,
the Company performed extensive reviews of all other peripheral systems not
included in the above system. The Company has spent approximately $100,000 in
order to ensure that its peripheral systems are Year 2000 compliant. The Company
expects to spend no more than an additional $100,000 on its Year 2000 compliance
efforts. All funds for Year 2000 projects have been derived from operating cash
flows. The Company has sent a survey to its significant third party suppliers
and customers inquiring into their Year 2000 compliance status and gathering
information to assess the effect of any noncompliance on the Company's
operations. The Company has had no indication that these third parties will not
be Year 2000 compliant. Although no one can accurately predict how many Year
2000 related failures will occur or the severity, duration or financial
consequences of such failures, the Company believes its most reasonably likely
worst case scenario is that it could sustain what are expected to be nonmaterial
operational
8
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inconveniences and inefficiencies and be involved in nonmaterial business
disputes related to the Company or one of its vendor's or customer's inability
to carry out certain contractual obligations. Therefore, the Company has
determined that the need for a major contingency plan is not appropriate at this
time.
OTHER INFORMATION
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.
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, third and fourth quarters than in the first
quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not materially exposed to market risk.
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
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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 12, 1999 /s/ Philip L. Dunavant
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(Date) Philip L. Dunavant, Executive Vice
President, Chief Financial Officer and
Treasurer (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 3,
1999 AND CONSOLIDATED BALANCE SHEET AS OF APRIL 3, 1999 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-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 14,869
<SECURITIES> 0
<RECEIVABLES> 87,199
<ALLOWANCES> 4,137
<INVENTORY> 0
<CURRENT-ASSETS> 101,856
<PP&E> 15,849
<DEPRECIATION> 6,598
<TOTAL-ASSETS> 117,513
<CURRENT-LIABILITIES> 73,285
<BONDS> 651
0
0
<COMMON> 504
<OTHER-SE> 43,073
<TOTAL-LIABILITY-AND-EQUITY> 117,513
<SALES> 0
<TOTAL-REVENUES> 183,784
<CGS> 0
<TOTAL-COSTS> 162,334
<OTHER-EXPENSES> 17,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 3,811
<INCOME-TAX> 1,543
<INCOME-CONTINUING> 2,268
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,268
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
