UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
the SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to .
Commission File No. 0-14810
MARK VII, INC.
(Exact name of Registrant as specified in its charter)
Missouri
(State or other jurisdiction 43-1074964
of incorporation or organization) (I.R.S. Employer
Identification No.)
10100 N.W. Executive Hills Boulevard, Suite 200
Kansas City, Missouri 64153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 891-0500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock, $.10 par value, held by non-
affiliates of the Registrant on March 24, 1995, based upon the last sale price
of such stock on that date was $48,766,794. At March 24, 1995, 4,809,035 shares
of Common Stock, $.10 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Notice of 1995 Annual Meeting of Shareholders Part III, Items 10, 11, 12 and
and Proxy Statement to be filed within 120 13
days of December 31, 1994, excluding therefrom
the sections titled "Board Compensation
Committee Report on Executive Compensation"
and "Performance Graph"
Appendix B to Proxy Statement for 1994 Annual Part IV, Item 14
Meeting of Shareholders
MARK VII, INC. AND SUBSIDIARIES
1994 Annual Report on Form 10-K
Table of Contents
PART I
Page
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
BACKGROUND
Mark VII, Inc. ( the "Company") is a holding company, the principal assets
of which are its transportation services subsidiary, Mark VII Transportation
Company, Inc. ("Mark VII") and Mark VII's subsidiaries, principally Mark VII
Trucking, Inc. ("Mark VII Trucking"); and its truckload subsidiary, MNX
Carriers, Inc. ("Carriers"), a holding company for Missouri-Nebraska Express,
Inc. ("Mo-Neb"), MNX Transport, Inc. ("Transport") and Transport's subsidiary,
MNX Trucking, Inc. The Company was organized as a Missouri corporation on March
29, 1976, for the purpose of acquiring all the outstanding capital stock of Mo-
Neb. Unless the context otherwise requires, the term "Company" includes the
Company and its wholly owned subsidiaries.
On December 1, 1993, the Board of Directors authorized management to
proceed with the separation of the Company into two publicly-held corporations,
one owning the transportation services operation and the other owning the
truckload operation (the "Distribution"). On June 3, 1994, the Company's
shareholders approved the Distribution. On June 17, 1994, the Board determined
not to effect the Distribution as previously scheduled and the Company entered
into an agreement for the sale of substantially all of the assets (the "Asset
Sale") of its truckload subsidiaries to Swift Transportation Co., Inc.
("Swift"). On September 22, 1994, the Company's shareholders approved the Asset
Sale and the transaction was completed on October 3, 1994. The remaining assets
of the truckload subsidiaries are being held for sale or lease.
On October 17, 1994, TemStar, Inc. ("TemStar"), a subsidiary of Mark VII,
was dissolved and its remaining operations were absorbed by Mark VII.
INTRODUCTION
The Company is a sales, marketing and service organization that acts as a
provider of transportation services and more recently also as a transportation
logistics manager. As a provider of transportation services, the Company
arranges for "door-to-door" transportation to and from any point in the United
States and internationally, using a number of different transportation modes
including rail, truck, ship and air. As a logistics manager, the Company
provides its customers with value-added elements of the distribution chain, such
as private fleet management, warehousing and regional and local distribution.
The Company has established a network of transportation sales personnel and
logistics managers at its operating headquarters in Memphis, Tennessee and 93
branch sales offices in 34 states. The majority of the Company's sales offices
are operated by independent commission agents responsible for the client
relationship, office expenses and billing. The Company supports its agency
offices by providing expertise in multiple transportation modes, rate
negotiation and logistics design, as well as administrative and credit services.
The Company's network of agents acts as a link between shippers and
carriers. Shippers use transportation services companies as either a complement
to or substitute for in-house transportation departments. The Company
complements in-house shipping departments by providing expertise in multiple
modes of transportation, providing access to additional transportation
equipment, negotiating transportation rates and increasing the productivity of
in-house personnel. The Company allows shippers to outsource all or a part of
the transportation function, thereby allowing them to devote assets and
personnel to their primary business. The Company's services also may be
utilized by transportation carriers to supplement their in-house sales
departments and to improve equipment utilization. The Company maintains close
relationships with transportation carriers including major railroads,
trucklines, shipping lines and air freight carriers.
SERVICES PROVIDED
The Company's services can be broadly classified into the following
categories. "Transaction based" services are identified with the traditional
freight brokerage business where a shipper calls a transportation services
company to arrange for service on a load-by-load basis. The transportation
services company then assumes responsibility for the transportation carrier to
perform in accordance with the shipper's specifications. Traditionally, a
shipper calls a transportation services company when it cannot find needed
transportation equipment. Similarly, a carrier may call the transportation
services company when it needs freight to transport. The transportation
services company arranges a match and adds a fee to the carrier's rate.
However, the Company goes beyond traditional transaction based services.
"Process based" services involve the Company taking responsibility for all
transactions of a particular type for a shipper or carrier. The Company's
expertise in intermodal service and truck brokerage has led shippers and
carriers to request the Company to regularly arrange loads for a pre-arranged
fee. Both shippers and carriers avail themselves of this service, often
realizing financial savings due to the Company's volume discounts and
information base and its ability to arrange loads more efficiently. The Company
can help trucklines maintain competitive positions, including allowing them the
ability to supplement their sales and marketing efforts without incremental
fixed costs. A shipper can outsource a portion of its traffic department's
functions to the Company. Process based services generally are a result of the
full or partial outsourcing of internal traffic department functions. For
example, the Company currently coordinates the time-sensitive raw potato
delivery for a number of processing plants of a major potato chip manufacturer.
Other examples of process based services currently being executed by the Company
are the procurement of truck and rail services for a substantial portion of a
shipper's loads from a particular location, procurement of backhaul loads for
private fleets, freight consolidation and forwarding for a customer with complex
logistical needs, and utilization management of an equipment owner's fleet.
"Information/knowledge based" services involve management and consultation
on any and all aspects of transportation for a shipper or carrier, including
dedicated fleet, warehousing and risk management. The Company utilizes its
sales network to design transportation and distribution programs for customers
with complex logistical needs. For example, ERX Logistics, a joint venture
between the Company and a warehousing firm, provides a major household appliance
manufacturer with warehousing and time-sensitive delivery of its appliances to
its dealers and building contractor customers. As part of its private fleet
management services, the Company offers risk management and single source
leasing. The risk management group provides consultation services, driver
recruiting, safety program design, government compliance and claims handling.
These services are being marketed by the Company to transportation companies and
may be used separately or combined with the overall logistics management
function. The Company's single source leasing services offer fleet owners the
ability to lease a fully licensed and insured tractor, trailer and driver.
TRANSPORTATION MODES
Transportation modes used in the Company's services have been organized
into product lines. Each product line has one or more managers to provide
marketing and operational support to the Company's network of sales people and
logistics professionals. Intermodal services involves the Company arranging for
the pick up and delivery of shipments by trucklines, and the shipments'
transport by railroads, in a coordinated manner. Related services may include
load stabilization, the transfer of loads from one container to another and
arranging for customs brokerage. Truck brokerage often involves daily
negotiating and spot pricing, as compared to longer-term pricing with railroads.
In addition, trucklines actively solicit loads from the Company's sales offices.
Although the Company owns or leases only a limited equipment base, it has access
to over 400,000 truckload units provided by trucklines meeting the Company's
safety and service criteria. Ocean freight brokerage involves acting as agents
for shippers and importers under non-vessel operating common carrier authority
(NVOCC), using the services of ocean carriers. Rail services, separate from
intermodal services, involve obtaining rail transport by boxcar or gondola for
shippers' heavy or bulky freight. Other services, such as air freight
forwarding, local truckload and heavy equipment transport, are important to the
Company's strategy because they respond to a customer's total transportation
needs and provide the Company's network of sales people and logistics managers a
complete range of services to sell.
AGENCY NETWORK AND OPERATIONS
Mark VII's operations are decentralized and are conducted primarily in
branch sales offices. Of the 93 branch offices, 19 are operated by Mark VII and
74 are operated under agency agreements, for a total of 226 employee and agent
sales people. Contracts with agents have a duration of ten years and are
terminable by either party on each anniversary of the agreement by giving 30
days' notice. These agencies operate as independent businesses, responsible for
all costs associated with sales, operations, billing and any related overhead
for these items and are compensated by a percentage of fees associated with
transportation arranged. Each of the 74 agency branches is responsible for
obtaining its own office facilities. Offices operated by employees, rather than
agents, are structured as stand-alone business units. Most sales offices have
one to three operations people, who are responsible for controlling all aspects
of executing the load, including (i) taking the order from the customer, (ii)
arranging for carriers' services, (iii) monitoring progress of the load and
reporting back to the customer and (iv) billing the customer on the Company's
invoice forms. After billing, the Company's credit and collections department
assumes responsibility for collections, through its central corporate lockbox
arrangement. To foster the growth of its agency network, the Company provides
new agents with advances to cover start-up and initial operating costs, which
advances are typically repaid over 24 months.
Typically, an employee or agent sales person identifies a potential
customer and determines its transportation requirements. The sales person then
prepares a rate proposal from pricing data negotiated by the Company with
representatives of the carriers the providers of other services that may be
required. Before any rate proposal is presented to a customer, credit approval
must be obtained from the Company's corporate credit department. Upon customer
acceptance of a rate proposal, the operations unit in the sales office assumes
responsibility for executing individual load orders for that customer.
The Company provides administrative support, such as computer systems
support, sales support, credit services, collection services and accounts
payable services, to its branch office operations. Specialty operations such as
risk management, design and management of dedicated trucking operations and
truck brokerage are available to support the logistics management or
information/knowledge based service operations. The Company utilizes a Data
General model MV9600 computer and software which integrates load tracking,
customer records and billing, accounts payable and general accounting. This
system can also access the computer systems of railroads to maintain up-to-date
information on all loads. The Company also utilizes its electronic data
interchange capabilities with a number of carriers and shippers so that
customers may follow the movement of their shipments and receive electronic
billing.
As additional equipment support for the Company's transportation services
and logistics management services, the Company manages 11 owned tractors, 86
tractors owned by fleet contractors, and 107 leased tractors (53 on a month-to-
month basis) and also owns or leases approximately 353 trailers. This equipment
is used to provide dedicated trucking service. The Company also leases 344 and
owns 102 domestic containers which are used in intermodal service and leases 263
temperature-controlled trailers used primarily in intermodal service.
In the transportation industry generally, results of operations show a
seasonal pattern, as customers reduce shipments during and after the winter
holiday season. In recent years, the Company's operating income and earnings
have been higher in the second and third quarters than in the first and fourth
quarters.
COMPETITION
The transportation services industry is highly competitive. The Company
competes against other integrated logistics companies, as well as transportation
services companies. The Company also competes against carriers' internal sales
forces and shippers' transportation departments. This competition is based
primarily on freight rates, quality of service, (such as damage free shipments,
on-time delivery and consistent transit times), reliable pickup and delivery and
scope of operations. Other logistics companies and transportation services
companies and numerous carriers have substantially greater financial and other
resources than the Company. The Company also competes with transportation
services companies for the services of independent commission agents, and with
trucklines for the services of independent contractors and drivers.
GOVERNMENT REGULATION
The Company is licensed by the Interstate Commerce Commission ("ICC") to
engage in operations as a broker in arranging for the transportation, by motor
vehicle, of general commodities between points in the United States. The ICC
prescribes qualifications for acting in this capacity, including certain surety
bonding requirements.
In its ocean freight forwarding business, the Company is licensed as an
ocean freight forwarder and as a non-vessel operating common carrier by the
Federal Maritime Commission (the "FMC"). The FMC prescribes qualifications for
acting as a shipping agent, including the filing of tariffs and certain surety
bonding requirements.
The Company's air freight forwarding business is subject to regulation, as
an indirect air cargo carrier, under the Federal Aviation Act by the United
States Department of Transportation (the "DOT"). The DOT's Economic Aviation
Regulations exempt domestic air freight forwarders from most, but not all, of
such act's requirements. The major provisions of the act that remain applicable
to the Company forbid solicitation of certain rebates, require the carrier to
provide safe service, equipment and facilities, prohibit discrimination with
respect to foreign air cargo transportation, prohibit unfair or deceptive
practices and authorize the DOT to inquire into the carrier's management for
certain purposes.
In certain foreign markets in which the Company operates, the air freight
forwarding business is subject to rate schedules and other restrictions which in
the first instance are agreed to by the International Air Transport Association
and subsequently approved by the governments concerned. The Company also is
subject to certain foreign regulations.
Management does not believe that current regulations of its activities
imposes significant economic restraints upon its operations or upon the entry of
new competitors into the industry in general or into the markets that are served
by the Company in particular.
Mark VII Trucking is a common and contract motor carrier regulated by the
ICC and various state agencies. These regulatory authorities have broad powers,
generally governing activities such as authority to engage in motor carrier
operations, rates and charges, and certain mergers, consolidations and
acquisitions. The Motor Carrier Act of 1980 substantially increased competition
among motor carriers and limited the level of regulation in the industry. That
act enables applicants to obtain ICC operating authority more easily and allows
interstate motor carriers such as Mark VII Trucking to change their rates by a
certain percentage per year without ICC approval. The law also allows for the
removal of many route and commodity restrictions on the transportation of
freight. Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Matters such as weight and dimensions of equipment are
also subject to federal and state regulations. Effective January 1, 1995,
Congress pre-empted the states' authority to regulate rates and operating
authority of interstate motor carriers engaged in intrastate operations.
EMPLOYEES
The Company employed 405 individuals at December 31, 1994. The employees
were not represented by a collective bargaining unit. Management considers
relations with its employees to be satisfactory.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The following information sets forth the names, ages, offices held and,
where applicable, previous positions as to current executive officers and key
employees of the Company who are not directors. Officers are elected at the
annual meeting of shareholders and serve for one year or until their successors
are duly elected and qualified. There are no family relationships among any of
the directors or executive officers.
Janet K. Pullen (age 40) has been Vice President of Finance, Assistant
Treasurer and Assistant Secretary since July 1994. Ms. Pullen was Vice
President/Chief Financial Officer of the Company from November 1988 to July 1994
and Treasurer of the Company from May 1992 to July 1994. From June 1985 until
May 1992, she was also Secretary of the Company.
Robert E. Liss (age 43) has been Executive Vice President, Special Services
Division of Mark VII, since May 1993. From December 1992 to May 1993, he was
Vice President of Mark VII. From January 1989 to December 1992, he was Vice
President - Intermodal with C.H. Robinson Company, headquartered in Eden
Prairie, Minnesota, a third party agent specializing in produce and freight
brokerage.
Michael J. Musacchio (age 43) has been Executive Vice President, Logistics
Services Division of Mark VII, since May 1993. From December 1992 to May 1993,
he was Vice President of Mark VII. From August 1992 to December 1992, he was an
agent with Mark VII. From December 1988 to July 1992, he was Vice President of
Transportation with C. H. Robinson Company.
ITEM 2. PROPERTIES
All of the Company's operations at the 19 company locations are conducted
in office space under leases with terms of less than four years. The Company's
principal administrative offices are located in leased space in Memphis,
Tennessee, Kansas City, Missouri and Indianapolis, Indiana. Each of the 74
agency branches is responsible for obtaining its own office facilities.
The Company also owns, and is holding for sale or lease, office,
maintenance and fuel facilities in St. Joseph, Missouri and Joplin, Missouri and
a four acre tract in Los Angeles, California. The St. Joseph facility has been
leased for a nominal rental through September 1995. The Joplin facility has
been leased through December 1998; the lease requires 270 days notice of an
offer to purchase the property and the lessee has a right of first refusal on
such an offer. A portion of the Los Angeles lot has been leased on a short-term
basis.
ITEM 3. LEGAL PROCEEDINGS
In February 1993, an unfavorable verdict was rendered against Mo-Neb in
litigation, which commenced in June 1989, involving the termination of four
independent fleet contractors in 1989 and volume discounts on fuel purchases
from 1986 through 1989. A circuit court jury in Buchanan County, Missouri
assessed actual damages of $59,920 related to the lease termination; and actual
damages of $128,160 and punitive damages of $4.2 million related to the fuel
discount issue. In April 1993, the court reduced the punitive damage award to
$350,000. On July 20, 1994, a lawsuit was filed against Mo-Neb by T. Lye
Crouser, an independent fleet contractor, who had leased four tractors to Mo-
Neb. This lawsuit, which was also filed in Buchanan County, Missouri Circuit
Court, was based on an alleged breach of contract by Mo-Neb in connection with
its fuel discount program. On December 12, 1994, the Company entered into a
settlement agreement with respect to both of these cases which also disposed of
all other similar fuel discount claims which have been asserted against Mo-Neb.
Various other legal actions are pending against the Company. Although the
outcome of litigation cannot be predicted with any certainty, it is management's
opinion that these actions will have no material impact upon the Company's
financial condition or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the three months ended December 31, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock trades on the Nasdaq Stock Market's National
Market System under the name Mark VII, Inc. The common stock is identified by
the symbol "MVII" and, prior to June 20, 1994, was identified by the symbol
"MNXI." The following table sets forth the high and low sale prices per share
of the common stock for the periods indicated, as reported by the Nasdaq Stock
Market:
High Low
1993
First Quarter $ 8 1/4 $ 5 3/4
Second Quarter 8 7/8 5 3/4
Third Quarter 11 1/4 8 3/4
Fourth Quarter 13 1/8 9 1/2
1994
First Quarter $15 1/4 $11 5/8
Second Quarter 14 7/8 11 7/8
Third Quarter 14 9 1/8
Fourth Quarter 11 5/8 9 1/4
1995
First Quarter (through
March 24, 1995) $15 7/8 $11 1/8
On March 24, 1995, the last sale price per share of the common stock was
$15 7/8. At March 15, 1995, there were 264 holders of record, representing an
estimated 1,500 individual holders of the Company's common stock.
DIVIDENDS
The Company has never paid a cash dividend on its common stock. It is the
intention of the Board of Directors to continue to retain earnings to finance
the growth of the Company's business rather than to pay cash dividends. Future
payments of cash dividends will depend upon the financial condition, results of
operations and capital commitments of the Company, as well as other factors
deemed relevant by the Board of Directors. The Company and its subsidiaries are
currently subject to a line of credit which requires approval of the lender
before paying dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of and for each of
the years in the five-year period ended December 31, 1994 are derived from the
Company's consolidated financial statements which have been examined by Arthur
Andersen LLP, independent public accountants. The following selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto, and Report of Independent
Public Accountants thereon, for the most recent three years, included elsewhere
in this Annual Report.
Fiscal Year (2)
1990 1991 1992 1993 1994
(in thousands, except per share data)
STATEMENTS OF INCOME INFORMATION:
Operating revenues $103,806 $195,246 $264,881 $341,532 $ 428,772
Transportation costs 93,229 171,196 230,100 296,656 370,232
-------- -------- -------- -------- ---------
Net revenues 10,577 24,050 34,781 44,876 58,540
Operating income (loss) (57) 1,257 3,645 4,457 6,847
Income (loss) from continuing
operations before income taxes (700) 655 3,035 4,199 6,267
Income (loss) from continuing operations (420) 393 1,791 2,490 3,667
Income (loss) from and on discontinued
operations (1) 640 1,268 (2,427) (13,754) (1,286)
-------- -------- -------- -------- ---------
Net income (loss) $ 220 $ 1,661 $ (636) $(11,264) $ 2,381
======== ======== ======== ======== =========
Primary earnings (loss) per share:
Income (loss) from continuing
operations $ (.09) $ .08 $ .38 $ .51 $ .75
Income (loss) from and on
discontinued operations (1) .14 .27 (.51) (2.84) (.26)
-------- -------- -------- -------- ---------
Net income (loss) $ .05 $ .35 $ (.13) $ (2.33) $ .49
======== ======== ======== ======== =========
Fully diluted earnings (loss) per share:
Income (loss) from continuing
operations $ (.09) $ .08 $ .38 $ .51 $ .75
Income (loss) from and on discontinued
operations (1) .14 .27 (.51) (2.80) (.26)
-------- -------- -------- -------- ---------
Net income (loss) $ .05 $ .35 $ (.13) $ (2.29) $ .49
======== ======== ========= ======== =========
Average common shares and equivalents outstanding:
Primary 4,720 4,722 4,743 4,841 4,901
Fully diluted 4,720 4,802 4,759 4,918 4,901
BALANCE SHEET DATA:
Total assets of continuing operations $16,975 $ 24,775 $ 37,479 $ 53,585 $ 73,726
Total debt of continuing operations - 4,207 5,940 11,337 10,787
Shareholders' investment 31,007 32,696 32,230 21,047 23,473
<FN>
(1) Reflects operations of the truckload business. In connection with the
Company's decision to effect the previously proposed Distribution and
thereafter the Asset Sale, the operating results of the Company's truckload
business have been classified as a discontinued operation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Discontinued Operations" and Note 2 of Notes to Consolidated
Financial Statements.
(2) The Company's fiscal year ends on the Saturday nearest December 31.
Fiscal years 1990, 1991, 1993 and 1994 included 52 weeks and fiscal year
1992 included 53 weeks.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Years 1993 Compared to 1992 and 1994 Compared to 1993
Operating revenues include the carriers' charges for carrying shipments
(which are shown in transportation costs) plus commissions and fees. Net
revenues include only the commissions and fees. Selling, general and
administrative expenses include the percentage of the net revenue paid to
agencies as consideration for providing sales and marketing, arranging for
movement of loads, entering billing and accounts payable information on loads
and maintaining customer relations, as well as other operating expenses. Lease
payments for tractors, trailers and domestic containers are included in
equipment rents.
The following table sets forth the percentage relationship of the Company's
revenue and expense items to operating revenues for the periods indicated:
Fiscal Year
1992 1993 1994
Operating revenues 100.0% 100.0% 100.0%
Transportation costs 86.9 86.9 86.3
------ ------ ------
Net revenues 13.1 13.1 13.7
Operating expenses:
Salaries, wages and related costs 3.3 3.2 3.2
Selling, general and administrative 7.5 7.5 7.6
Equipment rents .7 .8 .9
Depreciation and amortization .2 .3 .3
------ ------ ------
Total operating expenses 11.7 11.8 12.0
------ ------ ------
Operating income 1.4 1.3 1.7
Interest and other expense, net .2 - .2
------ ------ ------
Income from continuing operations
before income taxes 1.2% 1.3% 1.5%
====== ====== ======
The following tables include dollar amounts in thousands.
Operating Revenues - The increases in total operating revenues are
summarized in the following table:
93 v. 92 94 v. 93
Increase (decrease) from:
Loads arranged $62,337 $71,746
Revenue per load arranged (13,754) (20,561)
Logistics management 22,305 32,843
Dedicated trucking 9,320 8,735
Temperature - controlled (3,557) (5,523)
------- -------
Total increase $76,651 $87,240
The increases in loads of 37% and 33% in 1993 and 1994, respectively, were
the result of substantial increases in the sales force at new and existing
branch sales offices, the increase in logistics management and dedicated
trucking operations and the acquisition of certain air freight operations in
late 1993. The active sales force, including agents, was 147 in 1992, 171 in
1993 and 226 in 1994. The increases in the sales force have enabled the
Company to increase the volume shipped by adding new customers and expanding
volumes shipped by existing customers. Average revenue per load arranged
decreased by 5% and by 6% for 1993 and 1994, respectively, as the greatest
increase was generated in truck brokerage and air freight forwarding, which
produce lower average revenues per load than intermodal services. Additionally,
the Company has continued to increase its logistics management and dedicated
trucking operations through the addition of several large projects and the
expansion of the volume in existing projects. Temperature-controlled revenues
(formerly operated as TemStar) declined in 1994 compared to 1993 due to
substantial reductions in the trailer fleet used in this operation from
approximately 500 units in 1992 and 1993 to approximately 260 units at the end
of 1994. In addition, these revenues declined in 1993 compared to 1992 in part
as a result of the flooding in the midwest. Management plans to continue to
reduce this operation in early 1995 but to continue to provide service to a core
group of customers.
Transportation Costs - The increases in purchased transportation expense
were the result of the following factors:
93 v. 92 94 v. 93
Increase (decrease) from:
Loads arranged $ 55,233 $ 63,945
Cost per load arranged (10,776) (18,220)
Logistics management 18,935 27,971
Dedicated trucking 5,632 3,703
Temperature-controlled (2,468) (3,823)
------- --------
Total increase $66,556 $ 73,576
The transportation services operation generally arranges for transportation
of freight by rail, truck, ocean or air for shippers. The carriers with whom
the Company contracts provide their own or other third parties' transportation
equipment, the charge for which is included in transportation cost. As a
result, the primary operating cost is for purchased transportation. The 4% and
6% decreases in 1993 and 1994, respectively, in average cost per load arranged
were the result of the growth in the truck brokerage and air freight forwarding
businesses which have a lower average transportation cost per load than
intermodal services. The logistics management and dedicated trucking operations
incur a greater portion of their costs in equipment rents, salaries and related
costs, and selling, general and administrative costs than do the Company's
transportation services operations. Thus, the increases in transportation costs
were substantially lower than the increases in operating revenues.
Transportation costs for the temperature-controlled group declined in 1994 due
to the reduction in this operation as discussed above in "Operating Revenues"
and in 1993 in part as a result of reduced volumes of loads caused by the
flooding in the midwest.
Net Revenues - The increases in net revenues are summarized in the
following table:
93 v. 92 94 v. 93
Increase (decrease) from:
Loads arranged $ 7,104 $ 7,801
Net revenue per load arranged (2,978) (2,340)
Logistics management 3,370 4,872
Dedicated trucking 3,688 5,032
Temperature-controlled (1,089) (1,701)
------- -------
Total increase $10,095 $13,664
The increases in net revenues of 29% and 30% in 1993 and 1994,
respectively, were partially the result of increased volumes of loads arranged
by the Company. The increases in the truck brokerage and air freight forwarding
businesses as a percentage of total transportation services operations in 1993
and 1994 also contributed to this increase as these operations have higher
average net revenue as a percentage of total revenue than intermodal loads.
Although the average net revenue as a percentage of revenue for truck brokerage
and air freight forwarding is higher than for intermodal, the amount of average
net revenues per load is lower due primarily to the relatively smaller size of
shipments (measured in volume, weight or length of haul). Management expects
the truck brokerage and air freight forwarding operations to continue to be the
fastest growing parts of the Company's transportation services operations. Net
revenues from dedicated trucking and logistics management increased
substantially because a greater portion of their operating costs are included in
salaries, wages and related costs and selling, general and administrative
expenses. Net revenues for the temperature-controlled group declined in 1994
due to the reduction in this operation discussed previously and in 1993 due to
reduced volumes of loads moved as a result of the midwest floods. Management
expects to retain the portion of the temperature-controlled operations which
have been operated at a profitable level.
Salaries and Related Costs - The 24% and 27% increases in this expense in
1993 and 1994, respectively, are as follows:
93 v. 92 94 v. 93
Increase (decrease) from:
Transportation services and
administration $ (832) $1,079
Logistics management and
dedicated trucking 2,725 2,158
Temperature-controlled 233 (257)
------ ------
Total increase $2,126 $2,980
The increases of 21% and 35% in 1993 and 1994, respectively, in salaries
and wages (excluding temperature-controlled) were due to the addition of driver
wages for dedicated trucking operations, the increase in logistics management
operations and the acquisition of certain air freight operations which utilize
employees rather than agents, salary increases to existing employees and the
addition of administrative and operations personnel to handle continued growth
in the number of loads arranged. This increase, as well as the increase in
selling, general and administrative expenses (excluding temperature-controlled)
discussed below, exceeds the percentage increase in operating revenues
(excluding temperature-controlled) due to growth in the dedicated trucking and
logistics management operations, which (i) have a greater proportion of
operating costs included in salaries and related costs and selling, general and
administrative expenses rather than transportation costs as compared to
transportation services operations and (ii) include new projects which have
relatively higher fixed costs compared to operating revenues in their initial
stages. While management expects these operations to continue to grow and
consequently these expenses to increase as a percentage of operating revenue,
the impact on operating results will be offset by the improvement in net revenue
discussed above; therefore, management believes this is not a continuing
material trend. Transportation services and administration salaries and related
costs decreased from 1992 to 1993 as truckload sales salaries which were paid by
Mark VII and charged to Carriers in 1992 were paid directly by Carriers in 1993
and 1994. Salaries and wages for temperature-controlled decreased in 1994 as
TemStar's operations were absorbed in Mark VII's or terminated and increased in
1993 primarily as a result of an internal maintenance operation that was
established in mid-1993 which reduced outside maintenance costs.
Selling, General and Administrative Expenses - The increases in this
expense are summarized below:
93 v. 92 94 v. 93
Increase (decrease) from:
Transportation services and
administration $3,826 $2,217
Logistics management and
dedicated trucking 2,803 5,463
Fuel, maintenance and other equipment
costs for temperature-controlled (859) (839)
------ ------
Total increase $5,770 $6,841
Selling, general and administrative expenses (excluding temperature-
controlled) increased 43% and 30% in 1993 and 1994, respectively. Transportation
services and administration selling, general and administrative expenses
increased primarily because of increased commissions paid to agency sales
offices based on higher revenues. Administrative and operating costs related to
the dedicated trucking and logistics management operations also increased
substantially due to the addition of several large projects in 1993 and 1994, as
discussed above. The decrease in costs for temperature-controlled in 1994 from
1993 was due in part to reduced volumes of loads discussed previously, as well
as the use of its internal maintenance department to replace outside maintenance
costs. The decrease in temperature-controlled costs in 1993 from 1992 was due
in part to reduced volumes of loads caused by the flooding in the midwest.
Equipment Rents - The leasing of tractors and trailers for use in dedicated
trucking operations and the leasing of 344 intermodal containers resulted in the
52% and 41% increases in this expense in 1993 and 1994, respectively.
Depreciation and Amortization - In 1993 and 1994, depreciation and
amortization increased 73% and 31%, respectively, from the prior periods as the
Company acquired 75 trailers and 5 tractors from Mo-Neb and 100 intermodal
containers at a cost of approximately $3.1 million in the second and third
quarters, respectively, of 1994. Additionally, the Company increased its
investment in computer equipment and furniture in connection with the expansion
of operations. Also, in January and July 1994, the Company acquired 328
trailers which had previously been leased by TemStar.
Interest and Other Expense, Net - Interest and other expenses increased
125% in 1994 from 1993 as a result of increased borrowings under the line of
credit and increases in short-term borrowing rates. Interest and other expenses
decreased 58% in 1993 from 1992 as a result of Mark VII's intercompany borrowing
position changing from a net borrower to a net lender to Carriers' subsidiaries,
which more than offset increased borrowings under the lines of credit.
Provision for Income Taxes - The Company's effective tax rates were 41.0%,
40.7% and 41.5% in 1992, 1993 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been met through bank lines of
credit. Mark VII maintains a $20 million line of credit. This line bears
interest at 1/2% over the bank's prime rate and expires in July 1997. The line
is secured by accounts receivable and other assets of Mark VII and is guaranteed
by the Company.
At December 31, 1994, the available line of credit was $8,804,000 and
letters of credit totaling $2,650,000 had been issued on Mark VII's behalf to
secure insurance deductibles and purchases of operating services. At March 24,
1995, Mark VII's outstanding letters of credit totalled $3,176,000; these
letters of credit reduce the Company's borrowing availability. In addition, Mo-
Neb had outstanding letters of credit of $2,001,000 which are secured by
restricted cash deposits of $2,256,000. These deposits, $3,052,000 at yearend,
along with the accrued claims and other liabilities to which they relate, are
included in "Net current liabilities of discontinued operations."
The line of credit has no restrictions on intercompany advances among the
Company's subsidiaries. Among other restrictions, the terms of the line of
credit require that the Company earn $2 million in consolidated income from
continuing operations annually, maintain consolidated tangible net worth of $19
million in 1995, $21 million in 1996 and $23 million thereafter and obtain
approval of the lender before paying dividends.
The proceeds from the Asset Sale, net of cash used for the liquidation of
net liabilities of the truckload operations that were not the subject of the
Asset Sale, of approximately $7.4 million, were used to repay borrowings under
the line of credit, to fund the restricted cash deposits which support Mo-Neb's
letters of credit and to pay expenses associated with the previously proposed
Distribution and the Asset Sale.
At December 31, 1994, the Company had commitments of approximately $2.3
million for tractors which were financed in 1995 with an operating lease. These
tractors replaced units leased on a month-to-month basis.
At December 31, 1994, the Company had a ratio of current assets to current
liabilities of approximately 1.25 to 1. Management believes that the Company
has sufficient borrowing capacity to cover its operating needs and capital
requirements for the foreseeable future.
OTHER INFORMATION
In the transportation industry generally, results of operations show a
seasonal pattern, as customers reduce shipments during and after the winter
holiday season. In recent years, the Company's operating income and earnings
have been higher in the second and third quarters than in the first and fourth
quarters.
A new accounting pronouncement on employer's accounting for post-retirement
benefits other than pensions was issued in December 1990, effective in 1993.
The Company does not provide post-retirement benefits that are the subject of
this pronouncement. A new accounting pronouncement on employers' accounting for
post-employment benefits was issued in November 1992, effective in 1994. The
Company does not provide any benefits for which additional accruals are required
under this pronouncement.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109 - Accounting for Income Taxes
issued in February 1992. This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial statement and income tax
bases of assets and liabilities and to tax net operating loss and tax credit
carryforwards, to the extent that realization of such benefits is more likely
than not.
DISCONTINUED OPERATIONS
On December 1, 1993, the Board of Directors authorized management to
proceed with the separation of the Company into two publicly-held corporations,
one owning the transportation services operation and the other owning the
truckload operation. The separation was initially to have been effected through
the Distribution and has now been effected through the Asset Sale. As a result,
the financial condition and results of operations of the truckload subsidiaries
have been recorded by the Company as a discontinuation of Carriers.
The loss from and on discontinued operations in 1993 of $13.8 million
includes the following: (1) the loss from discontinued operations of $10.6
million includes $2.7 million of restructuring charges (relating to write-downs
of assets held for sale because they are no longer essential to Carriers'
operations and reserves for reductions in non-driver personnel), net of income
from settlement of a lawsuit; an adjustment of approximately $2.2 million to
increase accident and workers' compensation claim reserves, resulting from a
change in the methodology used to estimate such reserves; and an extraordinary
loss of $.9 million for early termination of equipment leases and debt which
were to be refinanced in connection with the Distribution; and (2) the loss on
discontinued operations of $3.1 million includes costs associated with the
Distribution, consisting primarily of financial consulting, legal, professional
and administrative costs and the estimated losses to be incurred by Carriers
from December 1, 1993 through the anticipated date of the Distribution. See
Note 2 of Notes to Consolidated Financial Statements.
As a result of the previously proposed Distribution and the Asset Sale, an
additional loss on discontinued operations of $2.5 million before income taxes
was recorded in 1994 ($1.3 million after applicable income tax benefits of $1.2
million). This additional pretax loss on discontinued operations was the net
result of the gain on assets transferred to Swift in the Asset Sale, the
writedown of other truckload assets which were not part of the Asset Sale to
estimated realizable value, estimated severance and outplacement costs for
employees not hired by Swift, the reversal of the reserves for extraordinary
losses on early extinguishment of debt and other transaction costs provided in
connection with the previously proposed Distribution which were not incurred
under the Asset Sale and estimated costs associated with the Asset Sale,
consisting primarily of financial consulting, legal, accounting and
administrative costs. See Note 2 to Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required under this item and set forth elsewhere
in this Form 10-K as indicated in the following index are incorporated herein by
reference.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The section entitled "Election of Directors" of the Company's Notice of
1995 Annual Meeting of Shareholders and Proxy Statement which will be filed
within 120 days of December 31, 1994 is incorporated herein by reference.
Information concerning executive officers and key employees of the Company is
set forth in Item 1 under the caption "Executive Officers and Key Employees of
the Company" in reliance on General Instruction G to Form 10-K and Instruction 3
to Item 401(b) of Regulation S-K. The following sets forth certain information
with respect to one director who served in 1994 who will not be a nominee for
election at the Company's 1995 Annual Meeting of Shareholders.
Mr. H. B. Oppenheimer (age 40) has served as a Director of the Company
since 1986. Since April 1984, Mr. Oppenheimer has been President and Chief
Executive Officer of H. B. Oppenheimer & Company Incorporated ("HBOC"), an
investment banking firm in Kansas City, Missouri and since January 1993, Mr.
Oppenheimer has been President and Chief Executive Officer and HBOC has been
general partner in Global Source, a Kansas City, Missouri-based firm
specializing in the retrieval of business information for clients. In 1994, Mr.
Oppenheimer was a member of the Board's Audit, Compensation and Stock Option
Committees.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The information required hereunder is incorporated by reference from the
section entitled "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" of the Company's Notice of 1995 Annual Meeting of Shareholders and
Proxy Statement which will be filed within 120 days of December 31, 1994.
ITEM 11. EXECUTIVE COMPENSATION
The information required under Item 11 is incorporated by reference from
the section entitled "Executive Compensation" of the Company's Notice of 1995
Annual Meeting of Shareholders and Proxy Statement which will be filed within
120 days of December 31, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under Item 12 is incorporated by reference from
the section entitled "Stock Ownership of Certain Beneficial Owners and
Management" of the Company's Notice of 1995 Annual Meeting of Shareholders and
Proxy Statement which will be filed within 120 days of December 31, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Item 13 is incorporated by reference from
the section entitled "Certain Relationships and Related Transactions," of the
Company's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement
which will be filed within 120 days of December 31, 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
All financial statements of the Registrant as set forth
under Item 8 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedule
Number Description Page of 1994 10-K
II Valuation and Qualifying Accounts
The report of the Registrant's independent public accountants with respect
to the above-listed financial statements and financial statement schedule
appears on page of this Annual Report on Form 10-K.
All other financial schedules not listed above have been omitted since the
required information is included in the consolidated financial statements or the
notes thereto, or is not applicable or required.
(3) Exhibits
Exhibit Page Number or Incorporation
Number Description by Reference to
3(a) Restated Articles of Incorporation Exhibit 3(a) to Registration
Statement on Form S-1 (SEC
File No. 33-6550)
3(b) Amendment No. 1 to the Restated Exhibit 4.2 to Registration
Articles of Incorporation of the Statement on Form S-8 (SEC
Company File No. 33-86174)
3(c) Amended and Restated By-Laws Exhibit 3(b) to 1993 Annual
Report on Form 10-K
4(a) Specimen Common Stock Certificate Exhibit 4.4 to Registration
Statement on Form S-8 (SEC
File No. 33-86174)
10.1 Engagement letter between H. B. Exhibit 10(a) to 1993 Annual
Oppenheimer & Company Incorporated and Report on Form 10-K
Registrant, dated November 11, 1993, with
respect to financial advisory services
10.2 * MNX Incorporated Amended and
Restated 1986 Exhibit 10(g) to 1990 Annual
Incentive Stock Option Plan Report on Form 10-K
10.3 * Amendment No. 5 to the MNX
Incorporated Exhibit 10(g) to 1991 Annual
Amended and Restated 1986 Incentive Stock Report on Form 10-K
Option Plan
10.4 * MNX Incorporated 1992 Non-
Qualified Stock Exhibit 10(s) to 1991 Annual
Option Plan Report on Form 10-K
10.5 * MNX Incorporated Stock
Appreciation Rights Exhibit 10(o) to 1992 Annual
Program, dated April 24, 1990 Report on Form 10-K
10.6 Amended and Restated Loan and Security Exhibit 10.1 to Quarterly
Agreement Schedule and Promissory Note, Report on Form 10-Q for
dated August 10, 1994, by and among the period ended July 2,
Missouri-Nebraska Express, Inc., Mark 1994
VII Transportation Company, Inc., TemStar,
Inc. and Marine Midland Business Loans, Inc.
10.7 Amended and Restated Guaranty, Surety Exhibit 10.2 to Quarterly
Agreement and Security Agreement, dated Report on Form 10-Q for
August 10, 1994 by Mark VII, Inc. in favor the period ending
of Marine Midland Business Loans, Inc. July 2, 1994
10.8 Guaranty, Surety Agreement and Security
Agreement, dated August 10, 1994 by MNX Exhibit 10.3 to Quarterly
Carriers, Inc. in favor of Marine Report of Form 10-Q for the
Midland Business Loans, Inc. period ending July 2, 1994
10.9 Engagement letter between H. B. Oppenheimer Exhibit 10.4 to Quarterly
& Company Incorporated and Registrant, Report on Form 10-Q for the
dated June 9, 1994, with respect to period ended July 2, 1994
financial advisory services
10.10 Amendment No. 1 to the Amended and Restated Exhibit 10.1 to Quarterly
Loan and Security Agreement, Schedule and Report on Form 10-Q for the
Promissory Note, dated October 28, 1994, by period ended October 1, 1994
and among Missouri-Nebraska Express, Inc.,
Mark VII Transportation Company, Inc.,
TemStar, Inc. and Marine Midland Business
Loans, Inc.
10.11 Letter Agreement dated October 28, 1994 by Exhibit 10.2 to Quarterly
and among Missouri-Nebraska Express, Inc., Report on Form 10-Q for the
Mark VI Transportation Company, Inc., period ended October 1, 1994
MNX Carriers, Inc., TemStar, Inc., Mark
VII, Inc. and Marine Midland Business
Loans, Inc.
10.12*Amendment Number 1 to the
Mark VII, Inc. Exhibit 99.1 to Registration
1992 Non-Qualified Stock Option Plan Statement on Form S-8 (SEC
(formerly the MNX Incorporated 1992 File No. 33-86174)
Non-Qualified Stock Option Plan)dated
September 22, 1994
10.13 Asset Purchase Agreement dated June 17, Appendix B to Proxy
1994 by and among Swift Transportation Statement for 1994 Annual
Co., Inc. (Nevada), Swift Transportation Meeting of Shareholders
Co., Inc. (Arizona), Mark VII, Inc.,
MNX Carriers, Inc., and Missouri-Nebraska
Express, Inc.
10.14 Amendment No. 1 to Asset Purchase Agreement Filed herewith
dated September 30, 1994 by and among Swift
Transportation Co., Inc. (Nevada), Swift
Transportation Co., Inc. (Arizona), Mark
VII, Inc., MNX Carriers, Inc., and
Missouri-Nebraska Express, Inc.
11 Statement re: Computation of Earnings Filed herewith
per Share
21 Subsidiaries of Registrant Filed herewith
23 Consent of Independent Public Accountants Filed herewith
27 Financial Data Schedule Filed herewith
* Management contracts or compensatory plans
(b) Reports on Form 8-K
On December 21, 1994, the Company filed a Current Report on Form 8-K, dated
December 12, 1994, reporting that the Company had entered into a settlement
agreement with respect to Moore v. Missouri-Nebraska Express, Inc. and Crouser
v. Missouri-Nebraska Express, Inc. which also disposed of all other similar fuel
discount claims which have been asserted against Missouri-Nebraska Express, Inc.
These cases have previously been reported by the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:/s/ R. C. Matney
R. C. Matney
Chairman of the Board, President
and Chief Executive Officer
Date: March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ R. C. Matney Chairman of the Board, President, March 27, 1995
R. C. Matney Chief Executive Officer and
Director
/s/ J. Michael Head Executive Vice President-Finance, March 27, 1995
J. Michael Head Chief Financial Officer and
Director )Principal Financial
and Accounting Officer)
/s/ James T. Graves Vice Chairman, Secretary, General March 27, 1995
James T. Graves Counsel and Director
/s/ David H. Wedaman Executive Vice President, Chief March 27, 1995
David H. Wedaman Operating Officer and Director
/s/ Roger M. Crouch Director March 27, 1995
Roger M. Crouch
/s/ Douglass Wm. List Director March 27, 1995
Douglass Wm. List
/s/ William E. Greenwood Director March 27, 1995
William E. Greenwood
/s/ Dr. Jay U. Sterling Director March 27, 1995
Dr. Jay U. Sterling
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 1, December 31,
1994 1994
Current Assets:
Cash and cash equivalents $ 291,238 $ 1,246,395
Accounts receivable, less allowances of $1,051,884 and
$1,284,640 in 1993 and 1994, respectively 39,546,025 51,187,642
Notes and other receivables, less allowances of $111,896
and $517,470 in 1993 and 1994, respectively 5,972,618 5,747,731
Current deferred income taxes 742,871 1,731,995
Other current assets 389,864 642,705
------------ -----------
Total current assets 46,942,616 60,556,468
Deferred Income Taxes 1,787,647 1,110,000
Property and Equipment, at cost:
Transportation equipment 909,135 4,765,860
Computer equipment, furniture and other 2,772,613 3,439,247
------------ -----------
3,681,748 8,205,107
Less: Accumulated depreciation 1,963,512 3,126,959
------------ -----------
Net property and equipment 1,718,236 5,078,148
Intangible and Other Assets 3,135,291 3,651,040
Property Held for Sale or Lease - 3,330,000
Net Operating Property and Equipment
and Other Assets of Discontinued Operations 41,324,692 -
------------ -----------
$ 94,908,482 $73,725,656
============ ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accrued transportation charges $ 26,135,113 $33,645,287
Accrued and current deferred income taxes 464,499 470,688
Other current and accrued liabilities 2,496,655 2,966,231
Borrowings under line of credit 11,076,666 8,546,310
Net current liabilities of discontinued operations 3,741,973 2,708,256
------------ ------------
Total current liabilities 43,914,906 48,336,772
Long-Term Liabilities of Discontinued Operations 29,757,441 -
Long-Term Obligations 189,501 1,915,761
Contingencies and Commitments (Note 6)
Shareholders' Investment:
Common stock, $.10 par value, authorized 10,000,000 shares, issued and
outstanding 4,775,534 shares in 1993 and 4,781,234 shares in 1994 477,553 478,123
Paid-in capital 26,723,953 26,768,983
Retained deficit (6,154,872) (3,773,983)
------------ -----------
Total shareholders' investment 21,046,634 23,473,123
------------ -----------
$ 94,908,482 $73,725,656
============ ===========
<FN>
The accompanying notes are an integral part of these balance sheets.
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
-----------------------------------------
January 2, January 1, December 31,
1993 1994 1994
------------ ------------ ------------
Operating Revenues $264,881,203 $341,531,796 $428,771,753
Transportation Costs:
Provided by MNX Carriers, Inc. 14,869,050 10,976,742 5,178,719
Provided by others 215,230,962 285,679,143 365,052,823
------------ ------------ ------------
Total Transportation Costs 230,100,012 296,655,885 370,231,542
------------ ------------ ------------
Net Revenues 34,781,191 44,875,911 58,540,211
Operating Expenses:
Salaries and related costs 8,819,681 10,946,136 13,926,034
Selling, general and administrative 19,881,730 25,651,957 32,492,980
Equipment rents 1,873,837 2,849,265 4,005,896
Depreciation and amortization 561,053 971,023 1,268,241
------------ ------------ ------------
Total Operating Expenses 31,136,301 40,418,381 51,693,151
Operating Income 3,644,890 4,457,530 6,847,060
Other Expense (Income):
Interest expense 509,346 473,128 685,088
Interest income (72,480) (382,520) (270,022)
Other 172,775 167,597 165,289
------------ ------------ ------------
Total Other Expense, Net 609,641 258,205 580,355
------------ ------------ ------------
Income From Continuing Operations Before Income Taxes 3,035,249 4,199,325 6,266,705
Provision For Income Taxes 1,244,200 1,709,000 2,600,000
------------ ------------ ------------
Income From Continuing Operations 1,791,049 2,490,325 3,666,705
Loss from Discontinued Operations (less income tax benefit of
$1,686,900 and $4,578,535 in 1992 and 1993, respectively) (2,427,115) (10,605,803) -
Loss on Discontinued Operations (less income tax benefit of
$1,047,465 and $1,160,000 in 1993 and 1994, respectively) - (3,148,034) (1,285,816)
------------ ------------ ------------
Net Income (Loss) $ (636,066) $(11,263,512) $ 2,380,889
============ ============ ============
Earnings (Loss) Per Share:
Primary -
Income from continuing operations $ .38 $ .51 $ .75
Loss from discontinued operations (.51) (2.19) -
Loss on discontinued operations - (.65) (.26)
------------ ------------ ------------
Net income (loss) $ (.13) $(2.33) $ .49
============ ============ ============
Fully Diluted -
Income from continuing operations $ .38 $ .51 $ .75
Loss from discontinued operations (.51) (2.16) -
Loss on discontinued operations - (.64) (.26)
------------ ------------ ------------
Net income (loss) $( .13) $(2.29) $ .49
============ ============ ============
Average Common Shares and Equivalents Outstanding:
Primary 4,743,089 4,840,772 4,900,596
Fully Diluted 4,759,346 4,918,490 4,900,596
<FN>
The accompanying notes are an integral part of these statements.
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Common Stock
--------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------- --------- ----------- ------------ --------- ------------
Balance, December 28, 1991 4,727,026 $ 472,702 $26,478,939 $ 5,744,706 $ - $ 32,696,347
Net loss - - - (636,066) - (636,066)
Exercise of stock options 38,508 3,851 166,014 - - 169,865
Purchase of 38,613 shares of
treasury stock - - - - (216,055) (216,055)
Transfer of 38,613 shares of
common stock for assets of
LTS, Inc. - - - - 216,055 216,055
--------- --------- ----------- ------------ --------- ------------
Balance, January 2, 1993 4,765,534 476,553 26,644,953 5,108,640 - 32,230,146
Net loss - - - (11,263,512) - (11,263,512)
Exercise of stock options 10,000 1,000 79,000 - - 80,000
--------- --------- ----------- ------------ --------- ------------
Balance, January 1, 1994 4,775,534 477,553 26,723,953 (6,154,872) - 21,046,634
Net income - - - 2,380,889 - 2,380,889
Exercise of stock options 5,700 570 45,030 - - 45,600
--------- --------- ----------- ------------ --------- ------------
Balance, December 31, 1994 4,781,234 $ 478,123 $26,768,983 $ (3,773,983) $ - $ 23,473,123
========= ========= =========== ============ ========= ============
<FN>
The accompanying notes are an integral part of these statements.
MARK VII, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
-------------------------------------------
January 2, January 1, December 31,
1993 1994 1994
------------- ------------ ------------
Operating activities:
Net income (loss) $ (636,066) $(11,263,512) $ 2,380,889
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss from and on discontinued operations 2,427,115 13,753,837 1,285,816
Depreciation and amortization 561,053 971,023 1,268,241
Other amortization 203,517 211,384 214,526
Provision for doubtful accounts and notes receivable 355,000 1,025,069 972,064
Noncurrent deferred income taxes - 743,570 677,647
Changes in certain working capital items:
Accounts receivable (11,436,908) (11,407,378) (12,613,681)
Accrued transportation charges 6,788,634 7,147,940 7,510,174
Other working capital items (798,771) (3,644,401) (1,097,472)
------------ ------------ ------------
Net cash provided by (used for) continuing
operating activities (2,536,426) (2,462,468) 598,204
------------ ------------ ------------
Investing activities:
Additions to property and equipment, net (914,850) (926,165) (1,320,446)
Net investment in discontinued operations 1,787,277 (1,818,900) 4,884,173
------------ ------------ ------------
Net cash provided by (used for) investing activities 872,427 (2,745,065) 3,563,727
------------ ------------ ------------
Financing activities:
Exercise of stock options 169,865 80,000 45,600
Repayments of long-term obligations (59,885) (93,279) (478,590)
Net borrowings (repayments) under lines of credit 1,732,571 5,136,705 (2,530,356)
Other (321,975) (182,841) (243,428)
------------ ------------ ------------
Net cash provided by (used for) financing activities 1,520,576 4,940,585 (3,206,774)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (143,423) (266,948) 955,157
Cash and cash equivalents:
Beginning of year 701,609 558,186 291,238
------------ ------------ ------------
End of year $ 558,186 $ 291,238 $ 1,246,395
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 397,158 $ 472,792 $ 685,088
Income taxes, net of refunds received 46,544 266,672 851,698
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Direct financings under debt and capital lease obligations $ 165,283 $ 198,750 $ 2,459,162
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
In 1992, the Company acquired certain assets of LTS, Inc., in exchange for
38,613 shares of Company stock transferred from treasury stock. In conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 298,166
Cash acquired, net of cash paid for acquisition expenses 12,530
Stock transferred in exchange for assets (216,055)
Goodwill 354,287
------------
Liabilities assumed $ 448,928
============
<FN>
The accompanying notes are an integral part of these statements.
MARK VII, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Reporting Entity and Principles of Consolidation - The
consolidated financial statements include Mark VII, Inc. and its wholly owned
subsidiaries, collectively referred to herein as "the Company." On December 1,
1993, the Board of Directors authorized management to proceed with the
separation of the Company into two publicly-held corporations, one owning the
transportation services operation and the other owning the truckload operation
(the "Distribution"). On June 3, 1994, the Company's shareholders approved the
Distribution. On June 17, 1994, the Board determined not to effect the
Distribution as previously scheduled and the Company entered into an agreement
("the Agreement") for the sale of substantially all of the assets (the "Asset
Sale") of its truckload subsidiaries to Swift Transportation Co., Inc.
("Swift"). On September 22, 1994, the Company's shareholders approved the Asset
Sale and the transaction was completed on October 3, 1994.
The Company continues to operate the transportation services operation through
its principal operating subsidiary, Mark VII Transportation Company, Inc. ("Mark
VII"). As a result of the Asset Sale, the operations of MNX Carriers, Inc.
("Carriers"), and its truckload subsidiaries (Missouri-Nebraska Express, Inc.
("Mo-Neb"), MNX Trucking, Inc. and MNX Transport, Inc.) are reported as a
discontinued operation in these consolidated financial statements.
(b) Revenue - Revenues earned as a third party agent include
the carriers' charges for carrying the shipment plus commissions and fees.
Revenues and related expenses are recognized on completion of the Company's
service obligation.
(c) Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization of property and equipment are provided using the
straight-line method based on the estimated useful lives of the respective
assets as follows:
Transportation equipment 3 to 7 years
Computer equipment, furniture and other 3 to 5 years
(d) Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes which was adopted in 1992. The adoption of SFAS No.
109 did not have a significant effect on the financial position or results of
operations of the Company.
(e) Cash and Cash Equivalents - Cash in excess of daily
requirements is invested in marketable securities with maturities of three
months or less.
(f) Intangible Assets - Goodwill and other intangible assets
of $2,307,882 (net) are being amortized on the straight-line basis over 10 to 20
years.
(g) Fiscal Year - The Company's fiscal year ends on the
Saturday nearest December 31. Operations in 1993 and 1994 included 52 weeks and
operations in 1992 included 53 weeks.
(h) Earnings (Loss) Per Share - Primary earnings (loss) per
share are computed by dividing income by the average common shares outstanding
plus the dilutive effect of common stock equivalents outstanding, using the
treasury stock method based on the average market price of the Company's common
stock. Common stock equivalents were less than 3% dilutive in 1992 and thus are
not included in primary average common shares and common equivalents outstanding
for 1992. Fully diluted earnings (loss) per share are determined in the same
manner using the ending market price of the Company's common stock, if higher
than the average market price.
(i) Reclassifications - Certain reclassifications have been
made to the 1993 financial statements to conform to the 1994 presentation.
(2) DISCONTINUED OPERATIONS:
The planned Distribution, and subsequently the Asset Sale, have been recorded as
a discontinuation of the truckload subsidiaries. Losses on discontinued
operations were recorded in 1993 and 1994 as follows:
1993 1994
----- -----
(in millions)
Costs associated with the Distribution and Asset Sale $ 1.3 $ 2.0
Carriers' loss from December 1, 1993 through the disposition date, including
loss on assets not acquired by Swift and obligations not assumed by Swift 2.9 1.4
Gain on assets sold to Swift - (3.3)
Severance and outplacement - 2.4
----- -----
4.2 2.5
Less applicable income tax benefits 1.1 1.2
----- -----
Loss on discontinued operations $ 3.1 $ 1.3
===== =====
The costs associated with the previously proposed Distribution and the Asset
Sale consist primarily of financial consulting, legal, accounting and
administrative costs, including approximately $1.1 million to H. B. Oppenheimer
& Company Incorporated ("HBOC"), an investment banking firm controlled by one of
the Company's outside directors, H. B. Oppenheimer.
On June 17, 1994, the Board determined not to effect the Distribution as
previously scheduled and the Company entered into the Agreement with Swift for
the Asset Sale. The Agreement provided that Swift purchase from the Company
approximately 556 tractors, 1,827 trailers, 715 satellite communication units,
certain inventory and certain prepaid expenses. The Asset Sale was approved by
the Company's shareholders on September 22, 1994 and the transaction was closed
on October 3, 1994.
The purchase price of $40.6 million included cash of approximately $9.1 million
and the assumption of approximately $31.5 million of debt and capital lease
obligations on revenue equipment. Also assumed were approximately $10.5 million
of minimum future payments under operating leases of revenue equipment. Full
and unconditional release of Mo-Neb's revenue equipment debt, capital lease and
operating lease obligations, as well as the Company's guaranties of such
obligations, was obtained.
In connection with the Asset Sale, Swift is leasing the Company's St. Joseph,
Missouri facility through September 1995 for $2,000 per month. From July 1,
1994 until October 1, 1994, Swift managed and operated the assets that were
subject to the Agreement. Swift received all revenues, income, earnings and
profits and was responsible for all obligations related to the assets during
this period.
(3) CREDIT FACILITY:
The Company has a $20 million line of credit agreement. This line bears
interest at 1/2% over the bank's prime rate and expires in July 1997. The line
is secured by accounts receivable and other assets of Mark VII and is guaranteed
by the Company. The available line of credit at December 31, 1994 was $8.8
million. Letters of credit totaling $2.7 million have been issued on the
Company's behalf to secure insurance deductibles and purchases of operating
services. The line of credit has no restrictions on intercompany advances among
the Company's subsidiaries.
The following is a summary of data on the lines of credit:
1992 1993 1994
-------- -------- --------
(in thousands)
Balance outstanding at end of period $ 5,940 $ 11,076 $ 8,546
Average amount outstanding 1,405 5,413 5,465
Maximum monthend balance outstanding 5,940 11,294 14,853
Interest rate at yearend 6.5% 6.5% 9.0%
Weighted average interest rate 7.6% 6.5% 8.8%
The line of credit requires that the Company earn annual consolidated income
from continuing operations of $2 million, maintain minimum consolidated tangible
net worth of $17 million in 1994, $19 million in 1995, $21 million in 1996 and
$23 million thereafter and obtain approval from the lender prior to paying
dividends.
(4) INCOME TAXES:
The Company files a consolidated federal tax return with its subsidiaries and,
as agreed, the consolidated tax provision is allocated among the members of the
consolidated group based on their respective contributions to consolidated
income before income taxes. Components of the provision for income taxes
consisted of the following:
1992 1993 1994
---------- ----------- -----------
Federal -
Currently payable $ - $ 369,856 $1,002,415
Deferred 735,785 (872,397) 793,566
---------- ---------- ----------
Total federal 735,785 (502,541) 1,795,981
State -
Currently payable - 361,130 415,007
Deferred 87,824 (111,321) (142,072)
---------- ---------- ----------
Total state 87,824 249,809 272,935
---------- ---------- ----------
Taxes paid under tax sharing agreement for tax benefits
generated by other members of the consolidated group 420,591 1,961,732 531,084
---------- ---------- ----------
$1,244,200 $1,709,000 $2,600,000
========== ========== ==========
A reconciliation between the provision for income taxes and the expected taxes
using the federal statutory income tax rate of 34% follows:
1992 1993 1994
---------- ---------- -----------
Tax at statutory rate $1,031,985 $1,427,770 $2,130,680
Increase from-
State income taxes, net 57,964 178,107 267,121
Amortization of intangibles 64,703 72,714 65,500
Other 89,548 30,409 136,699
---------- ---------- ----------
$1,244,200 $1,709,000 $2,600,000
========== ========== ==========
Deferred tax assets (liabilities) are comprised of the following:
1993 1994
------------ -----------
Current Deferred Assets:
Claims and other reserves $ 35,565 $2,115,261
Expenses and losses related to the Distribution 618,570 90,526
Net operating losses 903,260 -
General business tax credits 289,932 -
---------- ----------
1,847,327 2,205,787
Current Deferred Liabilities:
Prepaid expenses (58,638) (103,471)
Deferred revenue (1,045,818) (370,321)
---------- ----------
(1,104,456) (473,792)
---------- ----------
Net Current Deferred Assets $ 742,871 $1,731,995
========== ==========
Non-Current Deferred Assets:
Basis difference on property and equipment $1,247,510 $ 927,186
Alternative minimum tax credits 472,915 -
Other 67,222 182,814
---------- ----------
Non-Current Deferred Assets $1,787,647 $1,110,000
========== ==========
(5) LONG-TERM OBLIGATIONS AND OPERATING LEASES:
Long-term obligations at December 31, 1994, included the following:
1994
------------
Capital lease obligations for transportation equipment,
9% to 9.75%, payable through 2002 $ 2,170,428
Transportation equipment notes, 7.7%, payable through 1996 70,168
------------
2,240,596
Less - Current maturities 324,835
------------
$ 1,915,761
============
Property and equipment at December 31, 1994 included the following amounts
related to capital lease obligations:
1994
-----------
Transportation equipment $ 2,953,658
Less - Accumulated depreciation 267,516
-----------
$ 2,686,142
===========
Scheduled annual principal payments on the Company's long-term obligations and
commitments for operating leases are as follows:
Present
Future Less- Value of Future
Capital Amount Minimum Operating
Lease Representing Lease Other Lease
Payments Interest Payments Debt Payments
---------- ----------- ---------- -------- ----------
1995 $ 473,172 $ 187,286 $ 285,886 $ 38,949 $ 309,728
1996 473,172 159,641 313,531 31,219 301,538
1997 473,172 129,317 343,855 - 276,960
1998 487,412 92,535 394,877 - 276,960
1999 335,532 64,086 271,446 - 276,960
Thereafter 614,178 53,345 560,833 - 484,680
---------- ----------- ---------- -------- ----------
$2,856,638 $ 686,210 $2,170,428 $ 70,168 $1,926,826
========== =========== ========== ======== ==========
Excluded from the operating lease commitments above are scheduled rentals on
tractors and trailers with lease terms of three to six years which have annual
cancellation provisions. If these leases are not cancelled, the additional
future lease payments would be approximately $1,991,000 , $1,829,000,
$1,512,000, $958,000, $672,000 and $385,000 in 1995, 1996, 1997, 1998, 1999 and
2000, respectively.
(6) CONTINGENCIES AND COMMITMENTS:
In February 1993, an unfavorable verdict was rendered against Mo-Neb in
litigation, which commenced in June 1989, involving the termination of four
independent fleet contractors in 1989 and volume discounts on fuel purchases
from 1986 through 1989. A circuit court jury in Buchanan County, Missouri
assessed actual damages of $59,920 related to the lease termination; and actual
damages of $128,160 and punitive damages of $4.2 million related to the fuel
discount issue. In April 1993, the court reduced the punitive damage award to
$350,000. On July 20, 1994, a lawsuit was filed against Mo-Neb by T. Lyle
Crouser, an independent fleet contractor, who had leased four tractors to Mo-
Neb. This lawsuit, which was also filed in Buchanan County, Missouri Circuit
Court, was based on an alleged breach of contract by Mo-Neb in connection with
its fuel discount program. On December 12, 1994, the Company entered into a
settlement agreement with respect to both of these cases which also disposed of
all other similar fuel discount claims which have been asserted against Mo-Neb.
Various other legal actions are pending against the Company. Although the
outcome of litigation cannot be predicted with any certainty, it is management's
opinion that these actions will have no significant impact upon the Company's
financial condition or its results of operations.
Prior to July 1, 1993, Mo-Neb maintained an aggregate $1 million self-insured
retention on general and auto liability insurance for any claims in excess of
$500,000 during a policy period. From July 1, 1993 through December 31, 1993,
Mo-Neb's self-insured retention for its general and auto liability and for
workers' compensation insurance coverage was $500,000 per occurrence. Effective
December 31, 1993, Mo-Neb reduced its self-insured retention for general and
auto liability and workers' compensation to $100,000 and $50,000, respectively.
Policy limits for claims in excess of the retention levels are $20 million per
occurrence on general and auto liability.
Letters of credit totaling $2.7 million have been issued on Mo-Neb's behalf.
These letters of credit were secured by restricted temporary investments of $3.0
million at December 31, 1994, which investments are included in net current
liabilities of discontinued operations.
At December 31, 1994, the Company had commitments approximating $2.3 million
which were financed in 1995 with an operating lease.
(7) STOCK OPTIONS:
The Company has reserved 400,000 shares of common stock for issuance to key
employees under an incentive stock option plan. The plan provides for the
issuance of stock options with the stock purchase price to be at least 100% of
the stock's fair market value on the date of grant. Options are generally
exercisable for ten years from the date of grant.
The following table is a summary of data regarding incentive stock options:
1992 1993 1994
For the year:
Shares reserved for grant 100,000 - -
Options granted 40,000 - 85,352
Options canceled 74,093 9,750 19,800
Options exercised 38,508 10,000 5,700
Average per share exercise price of options exercised $4.41 $8.00 $8.00
As of yearend:
Options outstanding 167,500 147,750 207,602
Options exercisable 73,811 79,961 107,302
Shares available for grant 187,391 197,141 131,589
The per share exercise prices of options outstanding as of December 31, 1994,
ranged from $4.25 to $14.00 per share. The average per share exercise price of
options exercisable at December 31, 1994, was $5.89.
In 1992, the Board of Directors of the Company adopted a non-qualified stock
option plan and reserved 400,000 shares of common stock for issuance thereunder.
In 1994, the Board of Directors and shareholders of the Company approved an
amendment to the plan which increased the number of shares reserved for issuance
thereunder to 675,000 shares. Options are generally exercisable ten years from
the date of grant.
The following table is a summary of data regarding non-qualified stock options:
1992 1993 1994
For the year:
Shares reserved for grant 400,000 - 275,000
Options granted 297,500 7,000 224,148
Options canceled 47,500 6,000 -
Options exercised - - -
Average per share exercise price of options exercised - - -
As of yearend:
Options outstanding 250,000 251,000 475,148
Options exercisable 160,000 179,000 206,858
Shares available for grant 150,000 149,000 199,852
The per share exercise prices of options outstanding as of December 31, 1994,
ranged from $7.75 to $14.00 per share. The average per share exercise price of
options exercisable at December 31, 1994, was $8.42.
In 1990, the Company granted stock appreciation rights for 52,000 shares of the
Company's common stock at a base price of $4.25 per share to key employees of
the Company. Stock appreciation rights for 21,000 shares were outstanding at
December 31, 1994. The rights provide for cash payments to holders of the
rights for increases in the market price of the Company's common stock as of
April 1 of each year until and including April 1, 2000. The base price is
adjusted each April 1 if the market closing price on that date is greater than
the previous base price. The adjusted base prices as of April 1, 1992, 1993 and
1994 were $8.75, $8.75, and $14.75 per share, respectively. Compensation of
$25,000 and $170,000 was paid under this plan in 1992 and 1994, respectively.
No compensation was paid under the plan in 1993. As of December 31, 1994, no
additional compensation has been accrued based on the closing market price of
$11.25 per share on that date.
(8) JOINT VENTURE:
Mark VII has entered into a partnership with a warehousing and distribution
company to provide contract management services for a number of regional
distribution centers for one of the Company's largest customers. The
partnership, ERX Logistics ("ERX"), employs drivers and warehousemen to operate
the warehouses, tractors and trailers owned by the customer.
The Company has guaranteed $1 million of a $5 million line of credit to provide
working capital for ERX. This line is secured by accounts receivable of ERX.
Borrowings under this line averaged $1,203,000 in 1994. The maximum monthend
borrowing was $2,614,000. The balance outstanding on this line was $1,837,000
at December 31, 1994.
(9) RELATED PARTY TRANSACTIONS:
Mark VII and Carriers routinely engaged in intercompany transactions as Carriers
hauled freight for Mark VII's customers and as Mark VII brokered loads for
Carriers' customers. Transportation costs on Mark VII's loads hauled by
Carriers is shown in the accompanying statements of income. The Company's
operating revenue on Carriers' loads brokered to Mark VII was $334,000, $442,000
and $248,000 for 1992, 1993 and 1994, respectively. In 1992, Mark VII employed
the truckload sales force and charged Carriers $2,230,000 for sales efforts.
Mark VII and Carriers make routine cash advances to one another for working
capital needs. Interest is charged on these advances at the prevailing bank
line of credit rate. Interest expense to the Company on such advances was
$113,000 for 1992. Interest income to the Company on such advances was $251,000
and $211,000 for 1993 and 1994, respectively.
On January 1, 1993, pursuant to the terms of an Asset Purchase Agreement, MNX
Trucking, a wholly owned subsidiary of the Company, purchased substantially all
of the assets and assumed certain liabilities of LTS, Inc. ("LTS"). LTS was
engaged in contract truck transportation services. Roger Crouch, a member of
the Board of Directors of the Company, was the sole shareholder of LTS. The
consideration paid was 38,613 shares of common stock of the Company transferred
from treasury stock. The acquisition has been accounted for as a purchase.
Acquired goodwill was recorded at $354,287 and was being amortized on the
straight-line basis over ten years, the period of Mr. Crouch's Employment and
Noncompete Agreement (the "Employment Agreement"). Tangible assets acquired
totaled $310,696 and liabilities assumed totaled $448,928.
Contemporaneously with the execution of the Asset Purchase Agreement, Mr. Crouch
entered into the Employment Agreement with the Company pursuant to which Mr.
Crouch (1) received a one-time cash payment of $210,000 and (2) is guaranteed an
annual base salary of $225,000. An intangible asset of $210,000 was being
amortized over the ten-year term of the Employment Agreement. The assets and
liabilities and results of operations of MNX Trucking are included in
discontinued operations. In connection with the Asset Sale, the unamortized
balance of MNX Trucking's intangible assets of $505,000 was written off.
During 1992, HBOC received fees of $224,000 for financial consulting services
provided to the Company, primarily in connection with obtaining the Company's
$20 million line of credit. In 1993 and 1994, HBOC received $109,000 and
$712,000, respectively, for financial consulting services provided to the
Company, principally in connection with the previously proposed Distribution and
the Asset Sale. An additional $282,000 of financial consulting fees in
connection with the Asset Sale have been paid to HBOC in 1995.
QUARTERLY FINANCIAL DATA (in thousands, except per share data) (Unaudited):
The results of operations for each of the four quarters of 1993 and 1994 are
summarized below. The amounts below are unaudited, but, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such periods have been made.
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1993
-----------------------------------------------------
Operating revenues $ 79,543 $ 86,863 $ 84,703 $ 90,423
Operating income 919 1,934 859 745
Income from continuing operations before income taxes 840 1,862 783 714
Income from continuing operations 512 1,073 506 399
Income (loss) from and on discontinued operations (9,623) (277) 1,428 (5,282)
Net income (loss) (9,111) 796 1,934 (4,883)
Earnings (loss) per share:
Primary -
Income from continuing operations $ .11 $ .23 $ .11 $ .08
Income (loss) from and on discontinued operations (2.02) (.06) .30 (1.07)
Net income (loss) (1.91) .17 .41 (.99)
Fully Diluted -
Income from continuing operations $ .11 $ .22 $ .10 $ .08
Income (loss) from and on discontinued operations (2.02) (.06) .29 (1.07)
Net income (loss) (1.91) .16 .39 (.99)
1994
-----------------------------------------------------
Operating revenues $ 93,096 $109,712 $111,386 $114,578
Operating income 925 2,049 2,291 1,582
Income from continuing operations before income taxes 817 1,935 2,136 1,379
Income from continuing operations 462 1,137 1,257 811
Loss on discontinued operations - (1,286) - -
Net income (loss) 462 (149) 1,257 811
Earnings (loss) per share:
Primary -
Income from continuing operations $ .09 $ .23 $ .26 $ .17
Loss on discontinued operations - (.26) - -
Net income (loss) .09 (.03) .26 .17
Fully Diluted -
Income from continuing operations $ .09 $ .23 $ .26 $ .17
Loss on discontinued operations - (.26) - -
Net income (loss) .09 (.03) .26 .17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Mark VII, Inc.:
We have audited the accompanying consolidated balance sheets of MARK VII,
INC. (a Missouri corporation) AND SUBSIDIARIES as of January 1, 1994 and
December 31, 1994, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mark VII, Inc. and Subsidiaries
as of January 1, 1994 and December 31, 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied to our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Kansas City, Missouri,
February 24, 1995.
SCHEDULE II
MARK VII, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions
Beginning Charged to Balance at
of Year Expense Deductions Other End of Year
Allowance for doubtful accounts
(deducted from accounts receivable):
1992 $ 395,331 $ 350,000 $187,593 $ - $ 557,738
1993 557,738 887,169 393,023 - 1,051,884
1994 1,051,884 590,332 357,576 - 1,284,640
Allowance for uncollectible notes
(deducted from notes and other receivables):
1992 $ 74,010 $ 5,000 $ 17,444 $ - $ 61,566
1993 61,566 137,900 87,570 - 111,896
1994 111,896 381,732 65,180 89,022 517,470
Allowance for uncollectible notes
(deducted from other assets):
1992 $ 763,569 $ (259,904)(1) $ - $ - $ 503,665
1993 503,665 (503,665)(1) - - -
1994 - - - - -
<FN>
(1) In connection with the acquisition of certain assets of Tri-State
Consolidators, Inc., notes receivable from the sole shareholder of Tri-State
Consolidators, Inc. and Tri-State Transport, Inc. ("TST"), also owned by the
same individual, were to be repaid over ten years from the pre-tax earnings
of TST. Due to initial losses of TST, these notes were fully reserved.
Activity in 1992 and 1993 represents reversal of prior allowances based on
repayments from pre-tax earnings of TST.
EXHIBIT INDEX
Exhibit
Number Description
10.14 Amendment No. 1 to Asset Purchase Agreement dated
September 30, 1994 by and among Swift Transportation
Co., Inc. (Nevada), Swift Transportation Co., Inc.
(Arizona), Mark VII, Inc., MNX Carriers, Inc., and
Missouri-Nebraska Express, Inc.
11 Statement re: Computation of Earnings per Share
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule