UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 2000
THE MORGAN GROUP, INC.
2746 Old U. S. 20 West
Elkhart, Indiana 46515-1168
(219) 295-2200
Delaware 1-13586 22-2902315
(State of (Commission File Number) (IRS Employer
Incorporation) Identification Number)
The Company (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.
The number of shares outstanding of each of the Company's classes of common
stock at November 10, 2000 was:
Class A - 1,248,157 shares
Class B - 1,200,000 shares
<PAGE>
The Morgan Group, Inc.
INDEX
PAGE
UMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Consolidated Statements of
Operations for the Three and Nine Month Periods
Ended September 30, 2000 and 1999 4
Consolidated Statements of
Cash Flows for the Three and Nine Month Periods
Ended September 30, 2000 and 1999 5
Notes to Consolidated Interim Financial
Statements as of September 30, 2000 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 14
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
September 30, December 31,
2000 1999
---- ----
ASSETS (Unaudited) (Note 1)
<S> <C> <C>
Cash and cash equivalents $ 1,638 $ 3,847
Trade accounts receivable, less allowance for doubtful
accounts of $176 in 2000 and $313 in 1999 10,782 10,130
Accounts receivable, other 326 313
Refundable taxes 287 --
Prepaid expenses and other current assets 1,531 1,960
Deferred income taxes 1,474 1,475
------- -------
Total current assets 16,038 17,725
------- -------
Property and equipment, net 4,044 4,309
Intangible assets, net 6,866 7,361
Deferred income taxes 2,172 2,172
Other assets 468 697
------- -------
Total assets $29,588 $32,264
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,622 $ 3,907
Accrued liabilities 4,371 4,852
Income taxes payable -- 278
Accrued claims payable 3,506 3,071
Refundable deposits 1,557 1,752
Current portion of long-term debt and capital lease obligations 248 676
------- -------
Total current liabilities 13,304 14,536
------- -------
Long-term debt and capital lease obligations, less current portion 109 289
Long-term accrued claims payable 4,699 5,347
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,459
Retained earnings 2,159 2,775
------- -------
Total capital and retained earnings 14,659 15,275
Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183)
------- -------
Total shareholders' equity 11,476 12,092
------- -------
Total liabilities and shareholders' equity $29,588 $32,264
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $28,164 $37,312 $85,992 $112,907
Costs and expenses:
Operating costs 25,590 34,326 78,990 103,205
Selling, general and administration 2,160 2,477 6,792 7,815
Depreciation and amortization 236 301 817 918
--------- -------- --------- --------
27,986 37,104 86,599 111,938
Operating income (loss) 178 208 (607) 969
Interest expense, net 77 75 210 282
--------- --------- --------- ---------
Income (loss) before income taxes 101 133 (817) 687
Income tax expense (benefit) 26 99 (293) 366
--------- --------- --------- ---------
Net income (loss) $ 75 $ 34 $ (524) $ 321
========= ========= ========= ==========
Net income (loss) per common share:
Basic $0.03 $0.01 ( $0.21) $0.13
========= ===== ======= =====
Diluted $0.03 $0.01 ( $0.21) $0.13
========= ===== ======= =====
Weighted average shares outstanding
Basic 2,448,157 2,446,907 2,448,157 2,477,348
========= ========= ========= =========
Diluted 2,450,535 2,454,888 2,452,063 2,481,648
========= ========= ========= =========
Cash dividends declared per common share
Class A: $0.010 $0.020 $0.050 $0.060
====== ====== ====== ======
Class B: $0.005 $0.010 $0.025 $0.030
====== ====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------------- -------------
<S> <C> <C>
Operating activities:
Net (loss) income $ (524) $ 321
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 817 918
Other 60 58
Changes in operating assets and liabilities:
Trade accounts receivable (652) (775)
Other accounts receivable (13) 1,035
Prepaid expenses and other current assets 429 115
Other assets 229 (138)
Trade accounts payable (285) 433
Accrued liabilities (481) 1,030
Income taxes payable (565) 618
Accrued claims payable (213) (838)
Refundable deposits (195) 82
----------- ----------
Net cash (used in) provided by operating activities (1,393) 2,859
Investing activities:
Purchases of property and equipment (118) (538)
Other investing activities 2 (32)
----------- ----------
Net cash used in investing activities (116) (570)
Financing activities:
Principal payments on long-term debt (608) (584)
Treasury stock purchases -- (1,006)
Common stock dividends paid (92) (106)
----------- ----------
Net cash used in financing activities (700) (1,696)
----------- ----------
Net (decrease) increase in cash and equivalents (2,209) 593
Cash and cash equivalents at beginning of period 3,847 1,490
---------- ---------
Cash and cash equivalents at end of period $ 1,638 $ 2,083
========== =========
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
The Morgan Group, Inc. and Subsidiaries
Notes to Consolidated Interim Financial Statements
(Unaudited)
September 30, 2000
Note 1. Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"),
in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, certain information and
footnote disclosures normally included for complete financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
The balance sheet at December 31, 1999 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 for complete financial statements. The
consolidated interim financial statements should be read in
conjunction with the financial statements, notes thereto and other
information included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Net income per common share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Since
each share of Class B common stock is freely convertible into one
share of Class A common stock, the total of the weighted average
number of shares for both classes of common stock is considered in the
computation of EPS.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for a fair presentation, in all
material respects, of the financial position and results of operations
for the periods presented. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company, and Morgan Finance, Inc., all of which
are wholly owned. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Note 2. Indebtedness
The Company has a $20,000,000 Revolving Credit Facility ("Credit
Facility") which was amended on March 30, 2000 and expires on January
28, 2001. The Company primarily utilizes the Credit Facility to obtain
stand-by letters of credit and occasionally for working capital
borrowing. The letters of credit are primarily required for
self-insurance retention reserves. Total borrowings and stand-by
letters of credit are limited to qualified trade accounts receivable,
qualified owner-operator loans and cash investments (the "Borrowing
Base"). The Borrowing Base as of September 30, 2000 was $10,376,000
against which the Company had $8,600,000 of letters of credit
outstanding and no working capital loans outstanding.
The Company experienced a shortfall in the level of cash flow required
under its Credit Facility and at September 30, 2000 is projecting that
it will continue to be in violation of the cash flow and of other
covenants in the fourth quarter. The Company has received a waiver on
November 10, 2000 of its shortfall through October from its lender.
The Company recently reduced its letters of credit requirement to
$6,600,000. Although the waiver reduced the credit facility to
$7,600,000, the Company believes that the reduced capacity is
sufficiently sized relative to its current requirements. Additionally,
the waiver prohibits a cash dividend in the fourth quarter.
The Company and its lender are in discussions and the Company believes
it will be able to restructure or replace the facility before its
January 28, 2001 maturity.
Note 3. Credit Risk
With the severe downturn in the Manufactured Housing industry,
management is continually reviewing credit worthiness of its customers
and taking appropriate steps to ensure the quality of the receivables.
As of September 30, 2000, 33 percent of the open trade accounts
receivable was with two manufactured housing customers of which 97
percent was within 45 days of invoice. In total, 90 percent of the
open trade receivables are also within 45 days of invoice. If either
of the two major customers would significantly delay their payments
from current practice, it will have a negative impact on the Company's
cash flow.
Note 4. Long-Lived Assets
The Company periodically assesses the net realizable value of its
long-lived assets and evaluates such assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. As a result of the severe downturn in
the manufactured housing industry, the Company continues to assess the
recoverability of the goodwill associated with its last acquisition.
The total amount under review is $3.3 million. The Company does not
believe there is an impairment of such assets.
Note 5. Income Taxes
The Company has recorded a benefit of 36 percent for the nine months
ended September 30, 2000, which is the estimated annualized effective
tax rate. As a result of the year-to-date net loss, the Company will
review the necessity for a valuation allowance relating to the
deferred tax asset of approximately $3.6 million.
Note 6. Segment Reporting
Description of Services by Segment
The Company operates in four business segments: manufactured housing,
driver outsourcing, specialized outsourcing services, and insurance
and finance. The manufactured housing segment primarily provides
specialized transportation to companies which produce new manufactured
homes and modular homes through a network of terminals located in
twenty-eight states. The driver outsourcing segment provides
outsourcing transportation primarily to manufacturers of recreational
vehicles, commercial trucks, and other specialized vehicles through a
network of service centers in seven states. The specialized
outsourcing services segment consists of large trailer, travel and
small trailer delivery. The fourth segment, insurance and finance,
provides insurance and financing to the Company's drivers and
independent owner-operators. This segment also acts as a cost center
whereby all property damage and bodily injury and cargo costs are
captured. The Company's segments are strategic business units that
offer different services and are managed separately based on the
differences in these services.
The driver outsourcing segment and the specialized outsourcing
services were reported as one segment titled "Specialized Outsourcing
Services" in the prior year. The prior year periods have been
restated.
Measurement of Segment (Loss)
The Company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business
segment operating income, defined as earnings before interest, taxes,
depreciation and amortization (EBITDA). The accounting policies of the
segments are the same as those described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. Except for
insurance premiums, there are no significant intersegment revenues.
The following table presents the financial information for the
Company's reportable segments for the three and nine-month periods
ended September 30, (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------ --------------
Operating revenues
<S> <C> <C> <C> <C>
Manufactured Housing $18,730 $25,768 $ 56,931 $ 77,284
Driver Outsourcing 5,152 5,867 16,584 17,907
Specialized Outsourcing Services 4,023 5,329 11,662 16,535
Insurance and Finance 724 974 2,273 3,034
All Other - (14) (3) 58
------- ------- -------- --------
28,629 37,924 87,447 114,818
Total inter-segment insurance revenues (465) (612) (1,455) (1,911)
------- ------- -------- --------
Total operating revenues $28,164 $37,312 $ 85,992 $112,907
======= ======= ========= ========
Segment profit (loss) - EBITDA
Manufactured Housing $ 1,716 $ 3,147 $ 5,354 $ 8,904
Driver Outsourcing 194 150 1,100 258
Specialized Outsourcing Services 82 188 (37) 494
Insurance and Finance (1,471) (2,732) (5,435) (7,138)
All Other (107) (244) (772) (631)
------- ------- -------- ---------
414 509 210 1,887
Depreciation and amortization (236) (301) (817) (918)
Interest expense (77) (75) (210) (282)
------- ------- -------- --------
Income (loss) before taxes $ 101 $ 133 $ (817) $ 687
======= ======= ======== ========
</TABLE>
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
For the Quarter Ended September 30, 2000
Consolidated Results
During the third quarter of 2000, the Company continued to experience a decline
in shipments in all business segments compared to the year ago quarter and
profit declines in its manufactured housing and specialized outsourcing business
segments while the segment profit/loss of driver outsourcing and insurance and
finance improved. In the third quarter, consolidated operating revenues
decreased 25 percent to $28,164,000 from 1999's third quarter of $37,312,000.
This decrease is primarily the result of a sharp industry-wide decline in
shipments of manufactured homes. Additionally, operating revenues decreased
significantly in the specialized outsourcing and driver outsourcing business
segments.
The manufactured housing industry continues to be hampered by tighter credit
standards and higher interest rates at the retail level, and a resultant
excessive inventory of new and repossessed homes, which directly impacts
production and sales volume of the Company's customers. The largest portion of
the Company's operating revenues is derived from the transportation of
manufactured homes. The Company believes that the recessive conditions in the
manufactured housing industry will continue through this year, possibly
moderating in the second half of the following year.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") was
$414,000 for the quarter, compared to $509,000 for the corresponding period last
year.
Because of the existence of significant non-cash expenses, such as depreciation
of fixed assets and amortization of intangible assets, the Company believes that
EBITDA contributes to a better understanding of the Company's ability to satisfy
its obligations and to utilize cash for other purposes. EBITDA should not be
considered in isolation from or as a substitute for operating income, cash flow
from operating activities, and other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles.
Net income for the third quarter of 2000 was $75,000 or $0.03 per share,
compared to net income of $34,000 or $0.01 per share, for the same period of the
prior year.
The Company periodically assesses the net realizable value of its long-lived
assets and evaluates such assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
As a result of the severe downturn in the manufactured housing industry, the
Company continues to assess the recoverability of the goodwill associated with
its last acquisition. The total amount under review is $3.3 million. The Company
does not believe there is an impairment of such assets.
Segment Results
The Company conducts its operations in four principal segments as discussed
below. The following discussion sets forth certain information about the segment
results.
Manufactured Housing
Manufactured Housing operating revenues are generated from providing
transportation and logistical services to manufacturers of manufactured homes.
Manufactured Housing operating revenues were $7,038,000 or 27 percent less in
the third quarter of 2000 compared to the third quarter of a year ago,
reflecting the recessive condition in the manufactured housing industry.
Manufactured Housing EBITDA in the third quarter as in the previous quarters was
primarily due to the lower shipment volume. EBITDA decreased in the third
quarter $1,431,000 to $1,716,000.
<PAGE>
Driver Outsourcing
Driver outsourcing provides outsourcing transportation services primarily to
manufacturers of recreational vehicles, commercial trucks and other specialized
vehicles. Operating revenues of $5,152,000 decreased $715,000 in the third
quarter of 2000 compared to the third quarter of 1999. However, EBITDA increased
by $44,000 to $194,000 in the third quarter of 2000 primarily due to reductions
in transportation and overhead costs.
Specialized Outsourcing Services
Specialized Outsourcing Services consists of delivering large trailers, travel
and other small trailers. The Company essentially ceased delivery of the Decking
units in the second quarter 2000. Operating revenues decreased by $1,306,000 in
the third quarter of 2000 to $4,023,000. This decrease was primarily in the
delivery of large trailers but also from the Decking operations. Decking
operating revenues were $385,000 in the third quarter of 1999. EBITDA decreased
$106,000 compared to the year ago quarter to $82,000 in the third quarter 2000.
This decrease is primarily due to the decrease of shipments in large trailers
and exiting the Decking market.
Insurance/Finance
The Company's Insurance/Finance segment provides insurance and financing
services to the Company's drivers and independent owner-operators. This segment
also acts as a cost center whereby all bodily injury, property damage and cargo
loss costs are captured. Insurance/Finance operating revenues decreased $250,000
in the third quarter of 2000 to $724,000 primarily reflecting a decrease in
owner-operator insurance premiums caused by the lower shipments in Manufactured
Housing.
The loss at the EBITDA level in the third quarter of 2000 compared to the third
quarter of the prior year decreased by $1,261,000 to $1,471,000 primarily due to
lower bodily injury and property damage losses but also due to decreases in
cargo related claims.
RESULTS OF OPERATIONS
For the First Nine Months Ended September 30, 2000
For the first nine months of 2000, operating revenues decreased to $85,992,000
from $112,907,000 for the same period last year. Operating revenues decreased
primarily in Manufactured Housing but also decreased in the other business
segments.
EBITDA decreased $1,677,000 to $210,000 for the nine-month period of 2000
compared to the year ago period. This decrease was primarily in Manufactured
Housing and Specialized Outsourcing Services partially offset by improvement in
Driver Outsourcing and Insurance and Finance.
Net interest expense decreased $72,000 compared to the year ago period as a
result of continued improved cash management.
The change in the effective tax rate is primarily due to the permanent
differences between financial and tax reporting, which is consistent with prior
years. These permanent items combined with the operating losses experienced
through September 2000 have reduced the effective tax rate over this same period
of the prior year.
<PAGE>
The Company has recorded a benefit of 36 percent for the nine months ended
September 30, 2000, which is the estimated annualized effective tax rate. As a
result of the year-to-date net loss, the Company will review the necessity for a
valuation allowance relating to the deferred tax asset of approximately $3.6
million.
Accordingly, the net loss for the nine months ended September 30, 2000 was
$524,000 or $0.21 per share, compared to net income of $321,000 or $0.13 per
share, for the same period of the prior year.
The Company has instituted staff reductions other cost savings initiatives, and
continues to review incremental marketing initiatives. It is currently estimated
that the staff reduction cost savings of these initiatives will approximate
$2,400,000 annually. The impact of the cost savings for 2000 is expected to
approximate $1,800,000, net of severance costs.
Traditionally, the fourth quarter, ending December 31, is seasonally slower than
the third quarter. Additionally, the fourth quarter will be adversely affected
by continued recessive conditions in the manufactured housing market and a sharp
decline in recreation vehicle shipments.
Segment Results
The following discussion sets forth certain information about the segment
results for the nine months ended September 30, 2000 and 1999.
Manufactured Housing
Manufactured Housing operating revenues were $20,353,000 less in the first nine
months of 2000 compared to the prior year period. As previously discussed, the
decreases in operating revenues are primarily due to the recessive conditions in
the Manufactured Housing industry. Manufactured Housing EBITDA decreased
$3,550,000, primarily due to the reduction in volume partially offset by
decreased overhead costs.
Driver Outsourcing
Operating revenues decreased by $1,323,000 in the first nine months of 2000
compared to the first nine months of 1999. However, EBITDA increased $842,000 to
$1,100,000 primarily due to improved pricing, and reductions in transportation
and overhead costs.
Specialized Outsourcing Services
Operating revenues decreased by $4,873,000 in the first nine months of 2000
compared to the first nine months of 1999. This decrease was primarily in the
delivery of large trailers. Operating revenues for Decking decreased $1,025,000.
EBITDA decreased primarily because of lower shipments.
Insurance/Finance
Insurance/Finance operating revenues decreased $761,000 in the first nine months
of 2000 compared to the first nine months of the prior year to $2,273,000
reflecting a decrease in owner-operator insurance premiums.
The Company also experienced decreases in bodily injury, property damage and
cargo related claims in the first nine months of 2000. As a result of the above
factors the loss at the EBITDA level decreased in the first nine months of 2000
compared to the prior year period by $1,703,000 to $5,435,000.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $1,393,000 of cash in the first nine months of 2000 to
fund the net loss, the seasonal increase in trade accounts receivable, pay prior
year federal and state tax liabilities and fund a reduction in trade accounts
payable and accrued liabilities.
<PAGE>
With the severe downturn in the Manufactured Housing industry, management is
continually reviewing credit worthiness of its customers and taking appropriate
steps to ensure the quality of the receivables. As of September 30, 2000, 33
percent of the open trade accounts receivable was with two manufactured housing
customers of which 97 percent was within 45 days of invoice. In total, 90
percent of the open trade receivables are also within 45 days of invoice. If
either of the two major customers would significantly delay their payments from
current practice, it will have a negative impact on the Company's cash flow.
The Company has a $20,000,000 Revolving Credit Facility ("Credit Facility")
which was amended on March 30, 2000 and expires on January 28, 2001. The Company
primarily utilizes the Credit Facility to obtain stand-by letters of credit and
occasionally for working capital borrowing. The letters of credit are primarily
required for self-insurance retention reserves. Total borrowings and stand-by
letters of credit are limited to qualified trade accounts receivable, qualified
owner-operator loans and cash investments (the "Borrowing Base"). The Borrowing
Base as of September 30, 2000 was $10,376,000 against which the Company had
$8,600,000 letters of credit outstanding and no working capital loans
outstanding.
The Company experienced at September 30, 2000 a shortfall in the level of cash
flow required under its Credit Facility and is projecting that it will continue
to be in violation of the cash flow and of other covenants in the fourth
quarter. The Company has received a waiver on November 10, 2000 of its shortfall
through October from its lender.
The Company recently reduced its letters of credit requirement to $6,600,000.
Although the waiver reduced the credit facility to $7,600,000, the Company
believes that the reduced capacity is sufficiently sized relative to its current
requirements. Additionally, the waiver prohibits a cash dividend in the fourth
quarter.
The Company and its lender are in discussions and the Company believes it will
be able to restructure the facility in the fourth quarter of the year 2000.
There is no assurance that such negotiations will be successful. In that event,
the Company would seek alternative financing. There can be no assurance that
such alternative financing can be obtained. If such situation is not resolved
favorably to the Company, it could have a material adverse effect on the Company
and its financial condition.
The Company had minimal exposure to interest rates as of September 30, 2000, as
substantially all of its outstanding long-term debt bears fixed rates. The
Credit Facility mentioned above bears variable interest rates based on either a
Federal Funds rate or the Eurodollar rate. Accordingly, borrowings under the
Credit Facility have exposure to changes in interest rates. Under its current
policies, the Company does not use interest rate derivative instruments to
manage exposure to interest rate changes. Also, the Company currently, is not
using any fuel hedging instruments.
Inflation
Most of the Company's expenses are affected by inflation, which generally
results in increased costs. The transportation industry is dependent upon the
availability and cost of fuel. Although fuel costs are paid by the Company's
owner-operators, increases in fuel prices have had and may continue to have
adverse effects on the Company's operations. Since fuel costs vary between
regions, drivers have become more selective as to which regions they will
transport goods resulting in diminished driver availability. Also, the Company
has experienced adverse effects during the time period from when fuel costs
begin to increase until the time when scheduled rate increases to customers is
enacted. Increases in fuel prices has also affected the sale of recreational
vehicles by making the purchase less attractive to consumers. A decrease in the
sale of recreational vehicles has been accompanied by a decrease in recreational
vehicle shipments.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. The Company's operating
revenues, therefore, tend to be stronger in the second and third quarters.
FORWARD LOOKING DISCUSSION
This report contains a number of forward-looking statements. From time to time,
the Company may make other oral or written forward-looking statements regarding
its anticipated operating revenues, costs and expenses, earnings and other
matters affecting its operations and condition. Such forward-looking statements
are subject to a number of material factors which could cause the statements or
projections contained therein to be materially inaccurate. Such factors include,
without limitation, the risk of declining production in the manufactured housing
industry; failure to restructure or secure alternative financing; the risk of
losses or insurance premium increases from traffic accidents; the risk of loss
of major customers; or a significant delay in their current payment practice;
risks of competition in the recruitment and retention of qualified drivers in
the transportation industry generally; risks of acquisitions or expansion into
new business lines that may not be profitable; risks of changes in regulation
and seasonality of the Company's business. Such factors are discussed in greater
detail in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 27.1 - Financial Data Schedule for Nine Month Period
Ended September 30, 2000
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
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/ Dennis R. Duerksen
------------------------
Dennis R. Duerksen
Chief Financial Officer
DATE: November 13, 2000
