10-Q
Form 10-Q for The Morgan Group, Inc.
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 March 31, 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 Number 1-13586
THE MORGAN GROUP, INC.
Delaware 22-2902315
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2746 Old U.S. 20 West, Elkhart, Indiana 46514-1168
(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 60 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 - 1,480,610 shares as of March 31, 1997 Class B - 1,200,000
shares as of March 31, 1997
-1-
<PAGE>
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of 5
Operations for the Three Month Periods Ended
March 31, 1997 and 1996
Condensed Consolidated Statements of 6
Cash Flows for the Three Month Periods Ended
March 31, 1997 and 1996
Notes to Condensed Consolidated Financial 7
Statements as of March 31, 1997
Item 2 Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II OTHER INFORMATION 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Mar. 31 Dec. 31
1997 1996
------- -------
(Unaudited) (Note)
(Dollars in thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,132 $ 1,308
Trade accounts receivable, less allowance
for doubtful accounts of $48,000 in 1997
and $59,000 in 1996 14,795 11,312
Accounts receivable, other 488 274
Refundable taxes 563 584
Prepaid expenses and other current assets 2,718 3,445
------- -------
Total current assets $19,696 $16,923
Property and equipment, net 2,775 2,763
Assets held for sale 2,375 2,375
Intangible assets, net 8,804 8,911
Deferred income taxes 1,683 1,683
Other assets 528 411
------- -------
Total assets $35,861 $33,066
======= =======
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<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
Mar. 31 Dec. 31
1997 1996
----------- -----------
(Unaudited) (Note)
(Dollars in thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity Current liabilities:
Note payable to bank $ 4,350 $ 1,250
Trade accounts payable 4,214 3,226
Accrued liabilities 4,371 4,808
Accrued claims payable 1,896 1,744
Refundable deposits 1,355 1,908
Current portion of long-term debt 1,196 1,892
----------- -----------
Total current liabilities 17,382 14,828
Long-term debt, less current portion 2,079 2,314
Long-term accrued claims payable 3,110 2,820
Commitments and contingencies - - - - - -
Shareholders' equity
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000 23 23
Issued and outstanding shares - 1,480,610 and
1,485,520
Class B: Authorized shares - 2,500,000 18 18
Issued and outstanding shares - 1,200,000
Additional paid-in capital 12,441 12,441
Retained earnings 2,350 2,126
----------- -----------
Total capital and retained earnings 14,832 14,608
Less - treasury stock, 124,943 and 120,043 shares
at cost (1,038) (1,000)
- loan to officer for stock purchase (504) (504)
----------- -----------
Total shareholders' equity 13,290 13,104
----------- -----------
Total liabilities and shareholders' equity $ 35,861 $ 33,066
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 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.
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<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
March 31 March 31
1997 1996
----------- -----------
(Dollars in thousands
except per share data)
Operating revenues:
Manufactured housing outsourcing $ 19,669 $ 15,553
Specialized transport 6,137 7,148
Driver outsourcing 4,889 5,259
Other service revenues 2,938 2,546
----------- -----------
Total operating revenues 33,633 30,506
Costs and expenses:
Operating costs 30,675 28,199
Depreciation and amortization 294 362
Selling, general and administration 2,233 1,993
----------- -----------
Operating income (loss) 431 (48)
Interest expense, net (131) (63)
----------- -----------
Income (loss) before taxes 300 (111)
Income taxes (benefit) 34 (120)
----------- -----------
Net income $ 266 $ 9
=========== ===========
Net income per share:
Primary $ 0.10 $ 0.00
=========== ===========
Fully diluted $ 0.10 $ 0.00
=========== ===========
Average number of common shares and common
stock equivalents 2,682,578 2,686,610
=========== ===========
See notes to condensed consolidated financial statements.
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<PAGE>
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
Three Months Ended
March 31,
1997 1996
------- -------
(Dollars in thousands)
Operating activities
Net income $ 266 $ 9
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 294 362
Debt amortization 9 10
------- -------
569 381
Changes in operating assets and liabilities:
Accounts receivable (3,483) (1,850)
Accounts receivable, other (214) (287)
Prepaid expenses and other current expenses 737 74
Other assets (117) (63)
Accounts payable 992 (680)
Accrued liabilities (437) 830
Accrued insurance claims 442 160
Refundable deposits (553) (286)
------- -------
Net cash (used in) operating
activities (2,064) (1,721)
Investing activities
Purchases of property and equipment, net of
disposals (162) (79)
Acquisition related costs (37) - - -
------- -------
Net cash used in investing activities (199) (79)
Financing activities
Net proceeds from (payment on) bank and seller
financed notes and credit line 2,169 1,694
Dividends on common and preferred stock (44) (44)
Treasury stock purchase, net of officer loan (38) (38)
------- -------
Net cash provided by (used in) financing activities 2,087 1,612
------- -------
Net decrease in cash and equivalents (176) (188)
Cash and cash equivalents at beginning of period 1,308 2,851
------- -------
Cash and cash equivalents at end of period $ 1,132 $ 2,663
======= =======
See notes to condensed consolidated financial statements.
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<PAGE>
The Morgan Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1997
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 ended March 31, 1997
are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. These financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto, for the year ended December 31, 1996.
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. Earnings Per Share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The impact on first quarter ended March 31, 1997 and March
31, 1996 earnings per share is not expected to be material due to the
stock options issued being anti-dilutive during these periods. The
impact of Statement 128 on the calculation of fully diluted earnings
per share for these quarters is not expected to be material.
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<PAGE>
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.
Three Months Ended
March 31,
1997 1996
------ ------
(Unaudited)
Statement of Operations Data:
Operating revenue 100.0% 100.0%
Operating costs 91.2 92.4
Depreciation and amortization .9 1.2
Selling, general and administrative 6.6 6.5
------ ------
Operating income 1.3 (.1)
Net interest expense (.4) (.2)
------ ------
Income before income taxes .9 (.3)
Income taxes (.1) .3
------ ------
Net income .8% 0%
====== ======
Operating Revenues:
Operating revenues for the first quarter of 1997 increased from $30.5 million in
1996, to $33.6 million in 1997, an increase of 10%. Prior to giving effect to
the acquisition of Transit Homes which closed on December 30, 1996, comparable
revenues decreased 5%. The manufactured housing outsourcing revenues, which
includes revenues generated from arranging delivery services for new
manufactured homes, modular homes, and office trailers, increased 26% from $15.6
million in the first quarter of 1996, to $19.7 million in the first quarter of
1997. The revenue growth is substantially related to the acquisition of Transit
Homes. Prior to giving effect to the Transit acquisition, Morgan's manufactured
housing revenues increased approximately 2% while industry production remained
relatively flat with the first quarter of 1996. Specialized transport revenues,
which consist of arranging delivery services for van conversions, automobiles,
semi-trailers, military vehicles, and other commodities by utilizing specialized
equipment, decreased from $7.1 million in the first quarter of 1996 to $6.1
million in the first quarter of 1997. The lower revenue levels related to a
reduction in drivers' servicing the truckaway operation, which transports
automotive products on company-owned trailers for van conversions, tent campers,
and automotive customers. At the end of the first quarter, the Company announced
the plan to close this operation. Driver outsourcing revenues in the first
quarter of 1997 of $4.9 million were 7% lower than first quarter of 1996
revenues of $5.3 million. Competitive pressures, specifically on the relocation
of rental trucks, have resulted in a decline in driver outsourcing revenues.
Other services revenues, which include revenues from Interstate Indemnity,
Morgan Finance, permit ordering services, and labor services increased 15% to
$2.9 million in the first quarter of 1997 over the same period from the prior
year.
Operating Costs:
Operating costs as a percent of revenue decreased from 92.4% in the first
quarter of 1996 to 91.2% in the first quarter of 1997. First quarter of 1997
losses in the truckaway operation were recorded as part of the "Special Charge"
in the fourth quarter of 1996. In the first quarter of 1996 the truckaway
operating costs were 103% of revenue. In addition to the benefits derived from
closing the truckaway operation, the company's claims and insurance cost
decreased over .5% compared to 1996. These operating cost savings were partially
offset by lower lower profit margins in the relocation of rental trucks.
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<PAGE>
Depreciation and Amortization:
Depreciation and amortization decreased from $362,000, or 1.2% of revenue, in
the first quarter of 1996 to $294,000, or .9% of revenue, in 1997. The decrease
in depreciation and amortization relates to the discontinuance of depreciation
on equipment and properties which are currently held for sale offset partially
by higher amortization related to the Transit acquisition.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased from $1,993,000, or 6.5%
of revenue, in the first quarter of 1996 to $2,233,000, or 6.6% of revenue, in
1997. The growth in selling, general and administrative expenses for the quarter
was attributed to added general and administrative costs related to (i)
duplicative overhead created by the Transit acquisition, (ii) incentive
compensation expense to the former owner of Transit Homes, and (iii) management
bonuses being recorded in 1997 related to increased profitability. Duplicative
general and administrative expenses related to the Transit acquisition should
decline during the year as administrative positions are consolidated.
Operating Income:
Operating income was $431,000 for the first quarter of 1997 compared to an
operating loss of $48,000 in the first quarter of 1996. The increase in
operating income during the first quarter of 1996 was principally related to the
fourth quarter of 1996 decision to close the company's truckaway operation which
lost approximately $325,000 in the first quarter of 1996 and $1.8 million during
the year.
Interest Expense, Net:
During the first quarter of 1997, the company had net interest expense of
$131,000 compared to net interest expense of $63,000 in the first quarter of
1996. The increase in interest cost is attributed to higher loan balances
related to the Transit acquisition and funding of working capital during the
first quarter of 1997.
Pretax Income:
During the first quarter of 1997, the company had pretax income of $300,000, or
.9% of revenue, versus a pretax loss of $111,000, or (3%) of revenue, in the
first quarter of 1996.
Income Taxes:
The benefit recorded for the federal and state income taxes in the first quarter
of 1996 of $120,000 relates to tax benefits associated with the losses from The
Morgan Group, Inc.'s subsidiaries excluding the earnings of Interstate
Indemnity. This compares to 11% in 1997, which was affected by the recognition
of a lower tax rate for Interstate Indemnity's earnings due to a federal tax
election available to captive insurance companies.
Net Income:
Net income was $266,000 in the first quarter of 1997, or $.10 primary earnings
per common share, compared to net income of $9,000 in the first quarter of 1996.
Seasonality:
Shipments of manufactured housing tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This 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 the summer vacation
season and late summer and early fall when new vehicle models are introduced.
The company's revenues, therefore, are generally stronger in the second and
third quarters of the year.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $1,308,000 as of December 31, 1996 to
$1,132,000 as of March 31, 1997, and in the same time period, debt increased
from $5,456,000 at the end of the year to $7,625,000 as of March 31, 1997. The
increase in debt is principally related to an increase in accounts receivable of
$3,483,000, reduced accrued liabilities of $437,000, and a reduction in
refundable deposits of $553,000. The seasonal increase in revenues in March of
1997 gave rise to higher receivable levels in comparison to December 31, 1996
receivables. The decline in accrued liabilities during the first quarter of 1997
is attributed to losses in truckaway operations which was reserved for as of
December 31, 1996. In addition, driver refundable deposits were reduced by
$553,000 as cash was expended during the quarter for 1997 license plates. These
working capital charges which negatively impacted cash were partially offset by
reduced prepaid expenses of $727,000, an increase in insurance claims reserves
of $442,000 and increase in accounts payables of $988,000. The decline in
prepaid expenses relates to reduced insurance premiums pre-payments and
reduction in pre-payments for drivers services.
As of March 31, 1997, the company has $1,132,000 in cash, marketable securities
and short-term investments. Additionally, the company has $641,000 of unused
credit facilities. The company expects the current cash flow from existing
operations, existing cash and the line of credit will be adequate to fund the
company's existing operations for the foreseeable future.
FORWARD LOOKING DISCUSSION
The Company's improvement in operating margin during the first quarter of 1997
increased to 1.3% from an operating margin loss of .1 in the first quarter of
1996. The improved performance can be specifically traced to the closing of the
truckaway operation and improved claim experience. The acquisition of Transit
Homes of America, Inc. which generated over $4.8 million of additional revenues
in the first quarter, should more than offset the lost operating revenues from
the sale of the truckaway operation for the remainder of 1997. Operating margins
should continue to increase in comparison to 1996 operating margins as the
Company should continue to receive the benefit of closing the truckaway
operation and should have increased manufactured housing margins due to the
Transit Homes acquisition. The matters discussed in this paragraph and the
foregoing paragraphs discussing prospective reductions in operating costs and
administrative expenses and the adequacy of available capital resources are
forward-looking statements that are subject to important factors that involve
risk and uncertainties. Potential risks and uncertainties include, without
limitation, continued competitive pressures in the market place, the effect
competitive forces 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.
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<PAGE>
PART II - OTHER INFORMATION
Item 6
Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 11 Statement re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) A Form 8-K was filed on January 14, 1997 and amended on
February 18, 1997 reporting the acquisition of Transit Homes
of America, Inc.
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<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: May 15, 1997
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EXHIBIT - 11
Computation of Per share Earnings
Exhibit 11
The Morgan Group, Inc. and Subsidiaries
Exhibit 11 - Statement re: Computation of Per Share Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------- ------------
Primary
<S> <C> <C>
Average shares outstanding 2,566,665 2,566,665
Exercise of warrants 88,888 88,888
Net effect of warrants which become
exercisable beginning on August 3, 1993;
price based upon the treasury stock method
using the average stock prices - - - - - - - -
Redemption of shares of series A preferred stock 150,000 150,000
Treasury stock repurchased (122,975) (118,943)
------------- ------------
Total 2,682,578 2,686,610
Fully Diluted
Neteffect of dilutive warrants, which will
become exercisable on August 4,
1995, based upon the treasury stock method
using the average stock prices - - - - - - - -
------------- ------------
Total 2,682,578 2,686,610
Net income 266 $9
Series A Redeemable
Preferred Stock dividends - - - - - - - -
------------- -----------
Net income $266 $9
======== ======
Primary earnings per share $.10 $- - - -
======== ======
Fully diluted earnings per share $.10 $- - - -
======== ======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<NAME> The Morgan Group, Inc.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
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<CASH> 166
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</TABLE>
