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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-14810
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MARK VII, INC.
(Exact name of Registrant as specified in its charter)
Missouri 43-1074964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 5, 1995
Common stock, $.10 par value 4,834,936 Shares
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2
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
MARK VII, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended
April 2, 1994 April 1, 1995
Operating Revenues $93,095,684 $105,455,769
Transportation Costs: 80,948,653 89,790,539
----------- -----------
Net Revenues 12,147,031 15,665,230
Operating Expenses:
Salaries and related costs 3,122,099 3,903,029
Selling, general and administrative 7,053,001 8,730,594
Equipment rents 777,901 1,329,731
Depreciation and amortization 269,552 261,297
----------- -----------
Total Operating Expenses 11,222,553 14,224,651
----------- -----------
Operating Income 924,478 1,440,579
Interest and Other Expense, Net 107,867 104,867
------------ -----------
Income Before Provision for Income Taxes 816,611 1,335,712
Provision for Income Taxes 355,000 556,000
----------- -----------
Net Income $ 461,611 $ 779,712
=========== ===========
Income Per Share:
Primary $.09 $.16
Fully Diluted $.09 $.16
Average Common Shares and Equivalents Outstanding:
Primary 4,966,580 4,911,255
Fully Diluted 4,977,390 4,978,406
Dividends Paid - -
See "Notes to Consolidated Financial Statements."
3
MARK VII, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, April 1,
1994 1995
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,246,395 $ 817,798
Accounts receivable, net of allowance 51,187,642 45,319,209
Notes and other receivables, net of
allowance 5,747,731 6,457,820
Current deferred income taxes 1,731,995 1,507,211
Other current assets 642,705 901,108
----------- ----------
Total current assets 60,556,468 55,003,146
Deferred Income Taxes 1,110,000 1,190,000
Net Property and Equipment 5,078,148 4,731,870
Intangibles and Other Assets 3,651,040 3,438,407
Property Held for Sale or Lease 3,330,000 3,330,000
----------- -----------
$73,725,656 $67,693,423
=========== ===========
Liabilities and Shareholders' Investment
Current Liabilities:
Accrued transportation expenses $33,645,287 $29,272,807
Accrued income taxes 470,688 -
Other current and accrued liabilities 2,966,231 2,731,282
Borrowings under line of credit 8,546,310 9,310,162
Net current liabilities of discontinued
operations 2,708,256 -
----------- -----------
Total current liabilities 48,336,772 41,314,251
Long-Term Obligations 1,915,761 1,851,040
Contingencies and Commitments (Notes 2, 3 and 5)
Shareholders' Investment:
Common stock, $.10 par value, authorized
10,000,000 shares, issued and outstanding
4,781,234 shares and 4,823,936 shares,
respectively 478,123 482,394
Paid-in capital 26,768,983 27,040,009
Retained deficit (3,773,983) (2,994,271)
----------- -----------
Total shareholders' investment 23,473,123 24,528,132
----------- -----------
$73,725,656 $67,693,423
=========== ===========
See "Notes to Consolidated Financial Statements."
4
MARK VII, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
April 2, 1994 April 1, 1995
OPERATING ACTIVITIES:
Net income $ 461,611 $ 779,712
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 269,552 261,297
Amortization of intangibles 45,058 83,132
Provision for doubtful accounts and
notes receivable 185,000 223,559
Non-current deferred income taxes 631,027 (80,000)
CHANGES IN CERTAIN WORKING CAPITAL ITEMS:
Accounts receivable (1,420,645) 5,644,874
Accrued transportation 2,659,411 (4,372,479)
Accrued income taxes (1,075,808) (245,904)
Other working capital items (860,750) (810,527)
----------- ----------
Net cash provided by operating
activities 894,456 1,483,664
----------- ----------
INVESTING ACTIVITIES:
Additions to property and equipment (459,991) (18,898)
Net investment in discontinued operations (278,176) (2,846,900)
----------- ----------
Net cash used for investing activities (738,167) (2,865,798)
FINANCING ACTIVITIES:
Exercise of stock options - 275,297
Net borrowings under line of credit 1,759,698 763,852
Other (209,923) (85,612)
----------- ----------
New cash provided by financing activities 1,549,775 953,537
----------- ----------
Net increase (decrease) in cash and
cash equivalents 1,706,064 (428,597)
Cash and cash equivalents:
Beginning of period 291,238 1,246,395
----------- ----------
End of period $ 1,997,302 $ 817,798
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 134,015 166,132
Income taxes 508,675 885,927
See "Notes to Consolidated Financial Statements."
5
MARK VII, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) GENERAL:
The consolidated financial statements include Mark VII, Inc. and
its wholly owned subsidiaries, collectively referred to herein as
"the Company". The principal operations of the Company are
conducted by its transportation services subsidiary, Mark VII
Transportation Company, Inc. ("Mark VII"). As a result of the
sale of substantially all of the assets of the Company's
truckload subsidiaries completed on October 3, 1994 (the "Asset
Sale"), the operations of MNX Carriers, Inc., ("Carriers"), and
its 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.
The condensed, consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). In management's
opinion, these financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations for the interim
periods presented. Pursuant to SEC rules and regulations,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
from these statements unless significant changes have taken place
since the end of the most recent fiscal year. For this reason,
the condensed, consolidated financial statements and notes
thereto should be read in conjunction with the financial
statements and notes included in the Company's 1994 Annual Report
on Form 10-K.
The results for the three months ended April 1, 1995 are not
necessarily indicative of the results for the entire year 1995.
(2) CREDIT FACILITY:
The Company has a $20 million line of credit. This line bears
interest at 1/2% over the bank's prime rate and expires on July
31, 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 April 1, 1995 was $7,514,000.
Letters of credit totaling $3,176,000 have been issued 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 line of credit:
First Quarter
1994 1995
(in thousands)
Balance outstanding at end of period $12,836 $9,310
Average amount outstanding 6,733 4,637
Maximum monthend balance outstanding 12,836 9,310
Interest rate at end of period 6.8% 9.5%
Weighted average interest rate 6.5% 9.3%
The line of credit requires that the Company earn annual
consolidated income from continuing operations of $2 million and
maintain minimum consolidated tangible net worth of $19 million
in 1995, $21 million in 1996 and $23 million thereafter and
obtain approval from the lender prior to paying dividends.
6
(3) 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. The line is secured
by accounts receivable of ERX. Borrowings under this line have
averaged $995,000 in the three months ended April 1, 1995. The
maximum monthend borrowing was $2,005,000. The outstanding
borrowing at April 1, 1995 was $1,730,000.
(4) RELATED PARTY TRANSACTIONS:
Prior to the Asset Sale, the Company 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 and the Company's operating revenues on
Carriers' loads brokered to Mark VII for the three months ended
April 2, 1994 were $2,281,000 and $57,000, respectively.
(5) CONTINGENCIES
Letters of credit totaling $2,001,000 have been issued on Mo-
Neb's behalf. These letters of credit were secured by restricted
temporary investments of $2,256,925 at April 1, 1995, which
investments are included in other current assets.
7
MARK VII, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Three months ended April 1, 1995 vs. three months ended April 2, 1994.
The transportation services operation contracts with carriers for
the transportation of freight by rail, truck, ocean or air for
shippers. Operating revenues include the carriers' charges for
carrying shipments plus commissions and fees. The carriers with whom
the Company contracts provide transportation equipment, the charge for
which is included in transportation costs. As a result, the primary
operating cost in the transportation services operation is for
purchased transportation. Net revenues include only the commissions
and fees. Truck brokerage operations have higher average net revenues
as a percentage of total revenues than intermodal operations; however,
the amount of average net revenues per load is lower due to the
relatively smaller size of shipments (measured in volume, weight or
length of haul). Management expects truck brokerage operations to
continue to be the fastest growing part of the Company's transportation
services operations.
Selling, general and administrative expenses include the
percentage of the net revenues 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.
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 operation. 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 revenues and expense items to operating revenues for the
periods indicated:
Three Months
1994 1995
Operating revenues 100.0% 100.0%
Transportation costs 87.0 85.1
------- ------
Net revenues 13.0 14.9
Operating expenses:
Salaries, wages and related costs 3.3 3.7
Selling, general and administrative 7.6 8.3
Equipment rents .8 1.3
Depreciation and amortization .3 .2
------- -------
Total operating expenses 12.0 13.5
------- -------
Operating income 1.0 1.4
Interest and other expense, net .1 .1
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Income before income taxes .9 1.3
Provision for income taxes .4 .6
------- ------
Net Income .5 .7
======= ======
8
Operating Revenues - The increase in total operating revenues is
summarized in the following table:
Qtr 1 1995
vs.
Qtr 1 1994
-----------
(in thousands)
Increase (decrease) from:
Loads arranged $ 7,738
Revenues per load arranged (585)
Logistics management 5,661
Dedicated trucking 2,577
Temperature-controlled (3,031)
-------
Total increase $12,360
The 19% increase in the number of loads arranged resulted from the
expansion of services to existing and new customers, an increase in
the sales force and the increase in logistics management operations.
The active sales force, including agents, was 192 as of the end of the
first quarter of 1994 and 249 as of the end of the first quarter of
1995. Average revenues per load arranged decreased by 1% for the
quarter from the corresponding period of 1994 as the greatest increase
in business was generated in truck brokerage, which produces lower
average revenues per load than intermodal operations. The Company
has continued to increase its dedicated trucking and other logistics
management operations which had combined operating revenues of $14.4
million in the first quarter of 1994 compared to $22.6 million in the
first quarter of 1995. The decrease in temperature-controlled
revenues resulted from management's decision during the fourth quarter
of 1994 to reduce temperature-controlled operations to service only a
core group of customers.
Transportation Costs - The increase in purchased transportation
expense was the result of the following factors:
Qtr 1 1995
vs.
Qtr 1 1994
----------
(in thousands)
Increase (decrease) from:
Loads arranged $ 6,895
Costs per load arranged (2,081)
Logistics management 5,553
Dedicated trucking 641
Temperature-controlled (2,166)
-------
Total increase $ 8,842
Average transportation costs per load decreased 3% due to
increased volume incentives from carriers, the growth in truck
brokerage operations (which have lower transportation costs per load
than intermodal services) as a percentage of total transportation
services and favorable rates on purchased transportation resulting
from excess transportation equipment capacity.
Net Revenues - The increase in net revenues is summarized in the
following table:
Qtr 1 1995
vs.
Qtr 1 1994
----------
(in thousands)
Increase from:
Loads arranged $ 843
Net revenues per load arranged 1,496
Logistics management 108
Dedicated trucking 1,935
Temperature-controlled (864)
------
Total increase $3,518
9
The increase in net revenues of 29% for the quarter was
principally the result of increased net revenues per load arranged,
increased volume of loads arranged and increased dedicated trucking
operations. Net revenues per load arranged increased from the first
quarter of 1994 primarily due to the decrease in transportation costs
per load discussed above. Net revenues from dedicated trucking
operations increased substantially because a greater proportion of
their operating costs are included in salaries, wages and related
costs and selling, general and administrative expenses.
Salaries, Wages and Related Costs - The 25% increase in this
expense for the first quarter of 1995 was a result of the following:
Qtr 1 1995
vs.
Qtr 1 1994
----------
(in thousands)
Increase (decrease) from:
Transportation services and administration $ 367
Logistics management and dedicated trucking 684
Temperature-controlled (270)
-----
Total increase $ 781
The increase in salaries and wages was primarily due to the
addition of driver wages for the Company's dedicated trucking
operations, the increase in logistics management operations, 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 discussed below, exceeds the percentage
increase in operating revenues due to growth in the dedicated
trucking and logistics management operations. In addition, these
operations include new projects which have relatively higher fixed
costs compared to operating revenues in their initial stages. While
management expects logistics management and dedicated trucking to
continue to grow and, consequently, these expenses to increase as a
percentage of operating revenues, the impact on operating results
should be offset by the increase in net revenues as a percentage of
operating revenues.
Selling, General and Administrative Expenses - The increase in
these expenses is summarized below:
Qtr 1 1995
vs.
Qtr 1 1994
----------
(in thousands)
Increase (decrease) from:
Transportation services and administration $1,631
Logistics management and dedicated trucking 419
Fuel, maintenance and other equipment costs
for temperature-controlled (372)
------
Total increase $1,678
Selling, general and administrative expenses increased 24% in the
first quarter of 1995. Transportation services and administration
increased primarily due to commissions paid to agency operating
offices and the sales force, which are based on a percentage of net
revenues. Dedicated trucking operations also increased due to the
addition of several large projects subsequent to the first quarter of
1994.
Equipment Rents - The 71% increase in this expense is due to the
leasing of additional tractors and trailers for use in dedicated
trucking as well as the leasing of additional intermodal containers.
Net income - Net income increased from $461,611, or .5% of
operating revenues, in the first quarter of 1994 to $779,712, or .7%
of operating revenues, in the first quarter of 1995. Fully-diluted
earnings per share increased $0.07 from $0.09 in the first quarter of
1994 to $0.16 in the first quarter of 1995.
10
Liquidity and Capital Resources
The Company's working capital needs have been met through bank
lines of credit and cash flow provided from operations. 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 April 1, 1995, the available line of credit was $7.5 million
and letters of credit totaling $3.2 million had been issued on Mark
VII's behalf to secure the insurance deductibles and purchases of
operating services.
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 Company remains contingently liable for certain potential
claims which may arise in connection with its former truckload
operations.
At April 1, 1995, the Company had a ratio of current assets to
current liabilities of approximately 1.33 to 1. Management believes
that the Company will have sufficient cash flow from operations and
borrowing capacity to cover its operating needs and capital
requirements for at least the next two years.
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.
11
MARK VII, INC. AND SUBSIDIARIES
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings. NONE
Item 2. Changes in Securities. NONE
Item 3. Defaults Upon Senior Securities. NONE
Item 4. Submission of Matters to a Vote
of Security Holders. NONE
Item 5. Other Information. NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K. NONE
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Mark VII, Inc.
(Registrant)
May 8, 1995 /s/ J. Michael Head
----------- ----------------------------------------------
(Date) J. Michael Head, Executive VicePresident,
Chief Financial Officer, Treasurer (Principal
Financial and Accounting Officer)
13
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule