UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -------
EXCHANGE ACT OF 1934
For the period ended September 30, 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 Number 1-13586
THE MORGAN GROUP, INC.
Delaware 22-2902315
- --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer identification no.)
of incorporation or organization)
28651 U.S. 20 West Elkhart, Indiana 46514
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(219) 295-2200
- -------------------------------------------------------------------------------
(Registrant's telephone number, include area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.15 Par Value:
Class A - 1,489,010 shares as of September 30, 1996 Class B - 1,200,000
shares as of September 30, 1996
<PAGE>
The
Morgan Group, Inc.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 2 - 3
Condensed Consolidated Statements of
Operations for the Three and Nine Month
Periods Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flow for the Nine Month Periods Ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements as of September 30, 1996 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II OTHER INFORMATION
Signatures 11
Exhibit 11 - Statement Re: Computation of
Per Share Earnings 12
Exhibit 27 - Financial Data Schedule 13
Signatures 14
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Sept. 30, Dec. 31,
1996 1995
(Unaudited) (Note)
----------- ------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $3,126 $2,851
Trade accounts receivable, less allowance 13,109 11,285
for doubtful accounts of $44,000 in 1996
and $102,000 in 1995
Accounts receivable, other 388 514
Prepaid expenses and other current assets 2,860 2,875
Deferred income taxes 586 586
------ ------
Total current assets 20,069 18,111
Property and equipment, net 6,575 6,902
Intangible assets, net 5,001 5,285
Other assets 607 497
------ -----
Total assets $32,252 $30,795
======== =======
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
Sept. 30, Dec. 31,
1996 1995
(Unaudited) (Note)
(In thousands)
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable to bank $2,500 $- - -
Trade accounts payable 2,622 3,845
Accrued liabilities 1,691 2,039
Accrued driver pay 228 206
Accrued claims payable 4,169 3,623
Refundable deposits 1,768 1,607
Current portion of long-term debt 784 784
------ -----
Total current liabilities $13,762 12,104
Long-term debt, less current portion 1,703 2,491
Deferred income taxes 622 622
Commitments and contingencies - - - - - -
Shareholders' equity
Preferred Stock without par value,
authorized shares - 50,000 No shares
issued and outstanding
Common stock, $.015 par value
Class A:
Authorized shares - 7,500,000
Issued and outstanding shares -
1,489,010 and 1,449,554 23 23
Class B:
Authorized shares - 2,500,000
Issued and outstanding shares -
1,200,000 18 18
Additional paid-in capital 12,441 12,441
Retained earnings 5,160 4,370
------ -----
17,642 16,852
Less
- - treasury stock, 116,543 shares, at cost (973) (1,274)
- loan to officer for purchase of stock (504) - - -
------ -------
Total shareholder's equity $16,165 $15,578
------- -------
Total liabilities and shareholder's equity $32,252 $30,795
======= =======
Note:The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles or complete
financial statements. See notes to condensed consolidated financial statements.
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands except per share data)
Operating Revenues:
<S> <C> <C> <C> <C>
Manufactured housing outsourcing $19,959 $17,046 $55,525 $46,704
Specialized transport 6,910 7,715 20,991 23,109
Driver outsourcing 5,849 5,689 17,978 14,794
Other service revenues 2,587 2,801 8,015 7,001
------ ----- ------ -----
Total operating revenues 35,305 33,251 102,509 91,608
Costs and Expenses:
Operating costs 32,063 29,899 93,826 81,945
Depreciation and amortization 353 346 1,095 920
Selling, general and administrative 2,101 1,903 6,170 5,661
------ ------ ------ ------
Operating income 788 1,103 1,418 3,082
Net interest income (expense) (108) (50) (280) (31)
------ ------ ------ ------
Income before income taxes 680 1,053 1,138 3,051
Income taxes 185 239 217 1,010
------ ------ ------ ------
Net income 495 814 921 2,041
Less preferred stock dividends - - - 61 - - - 183
------- ------ ------ ------
Net income applicable to common stock $495 $753 $921 $1,858
======= ======= ======= =======
Net income per share:
Primary $ 0.18 $ 0.29 $ 0.34 $ 0 .71
Fully diluted $ 0.18 $ 0.29 $ 0.34 $ 0.71
Average number of common shares and
common stock equivalents 2,692,489 2,575,771 2,682,837 2,620,819
========= ========= ========= =========
</TABLE>
See notes to condensed financial statements.
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30
1996 1995
---------- --------
(In Thousands)
Operating activities
<S> <C> <C>
Net income $921 $2,041
Adjustment to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 1,095 920
Debt amortization 24 20
------ -----
2,040 2,981
Changes in operating assets and liabilities:
Accounts receivable (1,824) (2,515)
Accounts receivable, other 126 9
Prepaid expenses and other current expenses (9) (647)
Accounts payable (1,223) 1,069
Accrued liabilities (348) 266
Accrued drivers pay 22 (329)
Accrued insurance claims 546 293
Refundable deposits 161 237
------- ------
Net cash provided by (used in) operating activities (509) 1,364
Investing activities
Purchases of property and equipment (466) (1,578)
Purchase of intangible assets (18) (2,396)
Increase in other assets (110) (354)
----- ------
Net cash used in investing activities (594) (4,328)
Financing activities
Net proceeds from (payment on) bank and seller
financed notes and credit line 1,712 1,798
Dividends on common and preferred stock (131) (355)
Treasury stock purchase, net of officer loan (203) (482)
Conversion of warrants - - - 107
--------- -----
Net cash provided by financing activities 1,378 1,068
----- ------
Net increase (decrease) in cash and cash equivalents 275 (1,896)
Cash and cash equivalents at beginning of period 2,851 6,694
------ -----
Cash and cash equivalents at end of period $3,126 $4,798
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of The Morgan Group, Inc. and Subsidiaries (the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the three months and nine months
ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. These
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, for the year
ended December 31, 1995.
The condensed consolidated financial statements include the
accounts of the Company and its subsidiaries, Morgan Drive Away, Inc.
("Morgan"), TDI, Inc. ("TDI"), Interstate Indemnity Company
("Interstate") and Morgan Finance, Inc. ("Finance") all of which are
wholly owned. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Note 2. Indebtedness
The Company has extended, through April 30, 1997, various
credit facilities with banks at terms similar to those terms disclosed
in the December 31, 1995 financial statements. The Company expects to
renew or extend these agreements in the normal course of business.
Note 3. Employee Stock Purchase Plan
In February of 1996, Morgan Drive Away adopted a Special
Employee Stock Purchase Plan ("Plan") under which Morgan Drive Away's
President and Chief Executive Officer purchased 70,000 shares of Class
A Common Stock from treasury stock at the then current market value
price of $560,000. Under the terms of the Plan, $56,000 was delivered
to the Company and a promissory note was executed in the amount of
$504,000 bearing an interest rate of five (5%) percent per annum due
in 2003. The Plan allows for repayment of the note using shares at
$9.00 per share, 56,000 shares during the first year of the agreement
and 28,000 during the second year.
PART I - FINANCIAL INFORMATION
Item 2 - Management Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of
operations data to revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- -----
(Unaudited) (Unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating costs 90.8 89.9 91.5 89.5
Depreciation and amortization 1.0 1.1 1.1 1.0
Selling, general and administrative 6.0 5.7 6.0 6.2
----- ----- ------ -----
Operating income 2.2 3.3 1.4 3.3
Net interest expense (.3) (.2) (.3) - - -
----- ----- ------ -----
Income before income taxes 1.9 3.1 1.1 3.3
Income taxes (.5) (.7) (.2) (1.1)
----- ----- ------ -----
Net income 1.4% 2.4% .9% 2.2%
===== ===== ====== =====
</TABLE>
<PAGE>
Operating Revenues
Operating revenues for the third quarter of 1996 totaled $35.3
million, representing an increase of 6% when compared to operating revenues of
$33.3 million in the third quarter of 1995. Year to date operating revenues
reached $102.5 million, 12% above last year's nine month operating revenues of
$91.6 million. Prior to giving effect to the TDI acquisition, which occurred in
May of 1995, the revenue gain for the first nine months was 10%. For the quarter
and year to date, revenue growth is principally related to the strength of the
manufactured housing industry. Unit shipments by the manufactured housing
industry (considering double-wide units as two shipments) in the United States
increased by approximately 12% through August of 1996 compared to a similar
period in 1995, according to the Manufactured Housing Institute. The increase in
industry production, along with longer miles per move, resulted in a 17%
increase in manufactured housing revenues for the quarter and 19% growth year to
date. Driver outsourcing revenues which consist of transportation of commercial
vehicles, consumer rental trucks, and motor homes, increased a modest 3% for the
quarter and has increased 22% year to date principally due to the TDI
acquisition in May of 1995. Commercial truck vehicle revenues increased 35% on a
quarter to quarter comparison. This growth in commercial truck vehicle revenues
supports the Company's direction of adding additional commercial customers which
will moderate the segment's heavy concentration on consumer rental truck
repositioning and motor homes. Specialized transport revenues, which consist of
the transportation of van conversions, automobiles, semi-trailers, military
vehicles, and other commodities by utilizing specialized equipment, decreased
10% during the quarter and is down 9% year to date. Reduced production of new
van trailers and tent campers, coupled with reduced demand for the Company's
services by those producers of travel trailers and van conversions have led to
the decline in specialized transport revenues.
Operating Costs
Operating costs as a percent of revenue increased from 89.9% in the
third quarter of 1995 to 90.8% in the third quarter of 1996. Year to date
operating costs are 91.5% versus 89.5% for the first nine months of 1996.
Drivers pay as a percentage of revenue did not increase on a quarter to quarter
comparison due to the rate increases implemented in the period. The increase in
operating cost during the quarter was attributed to higher claims costs and
higher dispatching costs partially offset by insurance premium savings realized
during the third quarter. Operating costs as a percentage of revenue, year to
date, have been affected by the increased drivers pay addressed above, higher
claim reserves, higher road taxes and higher investment in safety and dispatch
personnel without corresponding increases in revenue levels. These increases
have been partially offset by full year experience with TDI, where operating
costs as a percentage of revenue are lower than other business units of the
Company.
Depreciation and Amortization
Depreciation and amortization decreased on a percentage of revenue
from 1.1% in the third quarter of 1995 to 1% in the third quarter in 1996. Year
to date depreciation and amortization expense has increased from 1% in 1995 to
1.1% in 1996. The increase on a year to date basis in depreciation and
amortization relates to higher capital expenditure levels at the end of 1995 and
full year amortization of the TDI acquisition in 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter
increased as a percentage of revenue from 5.7% in the third quarter of 1995 to
6% in the third quarter of 1996. Year to date, selling, general and
administrative expenses have decreased from 6.2% of revenue in 1995 to 6% of
revenue in 1996. The increase for the quarter was principally related to
expanding system capabilities and higher professional fees due to general
corporate matters.
<PAGE>
Operating Income
Operating income decreased from $1,103,000 in the third quarter of
1995 to $788,000 in the third quarter of 1996. Year to date operating income has
declined from $3,082,000 in the first nine months of 1995 to $1,418,000 in 1996.
Interest Expense, Net
Interest expense during the third quarter was $108,000 compared to
interest expense during the third quarter of 1995 of $50,000. Year to date
interest expense is $280,000 compared to interest expense of $31,000 for the
first nine months of 1995. Interest expense in 1996 is primarily related to (i)
interest expense associated with debt incurred to fund the TDI acquisition, (ii)
treasury share repurchase and early redemption of preferred stock which has
reduced the Company's cash levels, and (iii) higher working capital levels in
1996 giving rise to additional interest costs.
Pretax Income (Loss)
Pretax income decreased from 3.1% of revenue in 1995 to 1.9% of
revenue in the third quarter of 1996. Year to date pretax income decreased 3.3%
of revenue in 1995 to 1.1% in 1996.
Income Taxes
The provision for Federal and State income taxes was 27% of pretax
income for the third quarter of 1996 compared to a provision of 23% in the third
quarter of 1995. The year to date provision for federal and state income taxes
is 19% compared to 33% in 1995. The lower effective tax rate in the third
quarter of 1995 was attributed to a reduction in the Company's Federal Tax
liability reserve related to Federal tax audits cleared during the quarter. The
lower provision year to date is associated with low income being generated from
The Morgan Group, Inc.'s subsidiaries excluding the earnings from Interstate
Indemnity, which receives favorable tax treatment.
Net Income
Net income was $495,000 or $.18 primary earnings per share in the
third quarter of 1995, compared to net income of $814,000, or $.29 primary
earnings per share in the third quarter of 1995. Year to date net income of
$921,000 or $.34 primary earnings per common share, compared to $2,041,000 of
net income, or $.71 primary earnings per common share for the first nine months
of 1995.
Seasonality
Shipments of manufactured homes tend to decline in the winter months
in areas where poor weather conditions inhibit transport. In addition, in the
winter months, relocation of consumer rental trucks decline, these two factors
may reduce revenues in the first and fourth quarters of the year. RV movements
are generally stronger in the spring when dealers build stock in anticipation of
summer vacation season and in the late summer and early fall when new vehicle
models are introduced. The Company's revenues, therefore, are stronger in the
second and third quarters of the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $275,000 in 1996 while borrowing
to fund working capital needs increased $2.5 million. The seasonal increase in
accounts receivable reached $1,824,000 for the first nine months of 1996,
compared to $2,515,000 in the first nine months of 1995. Prepaid expenses
increased $647,000 in 1995 which is attributed primarily to increased insurance
and permit prepayments. Accounts payable and accrued liabilities declined
$1,571,000 in 1996 compared to an increase in accounts payable and accrued
liabilities in 1995 of $1,335,000. The increase in 1995 is related to cash
overdrafts, accrued wages and accrued income taxes. The decrease in accounts
payable and accrued liabilities in 1996 is related to (i) payments made on the
Workers' Compensation liability claims of $450,000, and (ii) cash overdrafts.
Cash expended on investing activities was $594,000 during the first
nine months of 1996 compared to $4,328,000 for the first nine months of 1995.
The expenditures in 1995 related to the purchase of intangibles of TDI,
purchases of property and equipment comprised principally of operating assets,
and an increase
<PAGE>
in the number of driver loans made by Morgan Finance, Inc. During 1996, the
Company has reduced its expenditures on operating equipment and reduced the
level of financing new driver loans through Morgan Finance, Inc.
Financing activities in 1996 are represented by borrowings under its
working capital line of credit of $2.5 million less $788,000 of payments on
outstanding bank and seller financed notes. In addition, the Company has paid
out $334,000 in cash dividends and treasury stock repurchases. Financing
activities in the first nine months of 1995 generated $1,068,000 of cash which
consisted of (i) seller and bank financing for the TDI acquisition of
$1,855,000, (ii) $300,000 of short-term borrowings under the working capital
facility, and (iii) $107,000 of paid-in capital increases related to the tax
effect of the conversion of the warrants. These cash and financing activities
were partially offset by shareholder dividends, treasury stock repurchase of
$837,000, and debt principal payments of $357,000. The Company's Board of
Directors have authorized the repurchase of 150,000 shares of the Company's
Class A Common Stock. Since the repurchase program began in March, 1995, the
Company has now repurchased over 116,000 shares. The Company expects current
cash flow from existing and proposed operations for the foreseeable future.
FORWARD LOOKING DISCUSSION
The Company began to show slight operating margin improvements during
the third quarter of 1996 as the operating income ratio increased from 1.8% in
the second quarter of 1996 to 2.2% in the third quarter of 1996. While the
fourth quarter is less seasonally important and therefore less predictable,
management believes that the Company is situated to begin to show improved
comparative results during 1997. The Company continues to work on increasing
operating margins. These decisions, coupled with the modest price increases
taken late in the second quarter, and the insurance savings based upon favorable
insurance renegotiations completed in June should continue to add to the
Company's profits. These profit enhancing measures will be partially mitigated
by continued softness in the specialized transport and consumer rental truck
relocations as well as the macro-economic factors impacting the market. The
matters discussed in this paragraph and the foregoing paragraph discussing the
adequacy of available capital resources are forward-looking statements that
involve risk and uncertainties. Potential risk and uncertainties include,
without limitation, continued competitive pressures in the market place, the
effect competitive factors and the Company's reaction to them may have, consumer
and business buying decisions with respect to the Company's services, the cost
of accident claims on the Company's results, and the ability to continue to
recruit qualified drivers to service the business. These factors may cause
actual results to differ materially from what the Company has projected.
PART II - OTHER INFORMATION
Exhibits and Reports on Form 8-K
Item 6.
(a) The following Exhibits are filed as a part of this report:
Exhibit 11 Statement re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K;
No reports on Form 8-K were filed during the quarter
for which the report is filed.
<PAGE>
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.
THE MORGAN GROUP, INC.
BY: /s/ Richard B. DeBoer
Richard B. DeBoer
Vice President
and Chief Financial Officer
Date: November 14, 1996
The Morgan Group, Inc. and Subsidiaries
Exhibit 11 - Statement re: Computation of Per Share Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
---------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Unaudited) (Unaudited)
Primary
<S> <C> <C> <C> <C>
Average shares outstanding 2,566,665 2,566,665 2,566,665 2,566,665
Exercise of warrants 88,888 - - - 88,888 - - -
Redemption of shares of series A preferred
stock 150,000 - - - 150,000 - - -
Treasury stock repurchased; includes affect
of dilutive warrants using the
Treasury Stock Method (113,064) 9,106 (122,716) 54,154
--------- ----- --------- ------
Total 2,692,489 2,575,771 2,682,837 2,620,819
Fully Diluted
Net effect of dilutive warrants based
upon the treasury stock method
using the average stock prices - - - - - - - - - - - -
--------- ----- --------- ------
Total 2,692,489 2,575,771 2,682,837 2,620,819
Net Income $495 $814 $921 $2,041
Series A Redeemable
Preferred stock dividends - - - 61 - - - 183
------- --- ------ ---
Net Income $495 $753 $921 $1,858
===== ===== ===== ======
Primary earnings per share $.18 $.29 $.34 $.71
Fully diluted earnings per share $.18 $.29 $.34 $.71
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000906609
<NAME> THE MORGAN GROUP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 2,217
<SECURITIES> 909
<RECEIVABLES> 13,541
<ALLOWANCES> 44
<INVENTORY> 0
<CURRENT-ASSETS> 20,069
<PP&E> 11,720
<DEPRECIATION> 5,145
<TOTAL-ASSETS> 32,252
<CURRENT-LIABILITIES> 13,762
<BONDS> 0
<COMMON> 41
0
0
<OTHER-SE> 16,124
<TOTAL-LIABILITY-AND-EQUITY> 32,252
<SALES> 35,305
<TOTAL-REVENUES> 35,305
<CGS> 32,063
<TOTAL-COSTS> 34,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 680
<INCOME-TAX> 185
<INCOME-CONTINUING> 495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 495
<EPS-PRIMARY> $.18
<EPS-DILUTED> $.18
</TABLE>
