UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -------
EXCHANGE ACT OF 1934
For the period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13586
THE MORGAN GROUP, INC.
Delaware 22-2902315
(State of other jurisdiction of (I.R.S. Employer identification no.)
of incorporation or organization)
2746 Old U.S. 20 West Elkhart, Indiana 46514-1168
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(Address of principal executive offices) (Zip Code)
(219) 295-2200
(Registrant's telephone number, include area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.15 Par Value:
Class A - 1,514,975 shares as of March 31, 1996
Class B - 1,200,000 shares as of March 31, 1996
1
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 2 - 3
Condensed Consolidated Statements of
Operations for the Three Month Periods Ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the Three Month Periods Ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements as of March 31, 1996 6 - 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Mar. 31 Dec. 31,
1996 1995
---------- --------
(Unaudited) (Note)
(Dollars in thousands)
Assets
Current assets:
Cash and cash equivalents $ 2,663 $ 2,851
Trade accounts receivable, less allowance
for doubtful accounts of $50,000 in 1996
and $102,000 in 1995 13,135 11,285
Accounts receivable , other 801 514
Prepaid expenses and other current assets 2,781 2,875
Deferred income taxes 586 586
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Total current assets 19,966 18,111
Property and equipment, net 6,725 6,902
Intangible assets, net 5,179 5,285
Other assets 560 497
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Total assets $32,430 $30,795
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The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
Mar. 31, Dec. 31,
1996 1995
----------- ----------
(Unaudited) (Note)
(Dollars in thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Note payable to bank $1,800 $ - - -
Trade accounts payable 3,155 3,845
Accrued liabilities 1,994 2,039
Accrued driver pay 1,081 206
Accrued claims payable 3,783 3,623
Refundable deposits 1,321 1,607
Current portion of long-term debt 784 784
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Total current liabilities 13,918 12,104
Long-term debt 2,385 2,491
Deferred income taxes 622 622
Commitments and contingencies - - - - - -
Shareholders' equity
Preferred stock without par value
Authorized shares - 50,000 - - - - - -
No shares issued and outstanding
Common stock, $.015 par value
Class A 23 23
Authorized shares - 7,500,000;
Issued and outstanding shares - 1,514,975 and
1,449,554
Class B 18 18
Authorized shares - 2,500,000;
Issued and outstanding shares - 1,200,000
Additional paid-in capital 12,441 12,441
Retained earnings 4,335 4,370
----- -----
Total shareholders' equity 16,817 16,852
Less - treasury stock , 90,578 shares,at cost (752) (1,274)
- loan to officer for purchase of stock (560) - - -
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Total
shareholders' equity 15,505 15,578
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Total liabilities and shareholders' equity $32,430 $30,795
======= =======
Note:The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles or complete financial statements.
See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
------------------------
March 31, March 31,
1996 1995
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(Dollars in thousands
except per share data)
Operating revenues:
Manufactured housing outsourcing $15,553 $13,261
Specialized transport 7,148 7,639
Driver outsourcing 5,259 4,103
Other service revenues 2,546 1,800
----- -----
Total operating revenues 30,506 26,803
Costs and expenses:
Operating costs 28,199 23,972
Depreciation and amortization 362 261
Selling, general and administrative 1,993 1,833
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Operating income (loss) (48) 737
Net interest income (expense) (63) 18
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Income (loss) before income taxes (111) 755
Income tax expense (benefit) (120) 292
------ ---
Net income 9 463
Less preferred stock dividends - - - 60
----- --
Net income applicable to common stock $9 $403
== ====
Net income per common share:
Primary $- - - $.015
====== =====
Fully diluted $- - - $0.15
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Average number of common shares and common
stock equivalents 2,686,610 2,646,565
========= =========
See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
Three Months Ended
March 31,
1996 1995
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(Dollars in thousands)
Operating activities
Net income $ 9 $ 463
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 362 261
Debt amortization 10 8
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381 732
Changes in operating assets and liabilities:
Accounts receivable (1,850) (695)
Accounts receivable, other (287) (59)
Prepaid expenses and other current expenses 74 491
Accounts payable (680) (547)
Accrued liabilities (45) 281
Accrued drivers pay 875 207
Accrued insurance claims 160 102
Refundable deposits (286) (234)
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Net cash provided by (used in)
operating activities (1,658) 278
Investing activities
Purchases of property and equipment, net of disposals (79) (556)
Increase in other assets (63) (147)
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Net cash used in investing activities (142) (703)
Financing activities
Net proceeds from (payment on) bank and seller
financed notes and credit line 1,694 (166)
Dividends on common and preferred stock (44) (160)
Treasury stock purchase, net of officer loan (38) (76)
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Net cash provided by (used in) financing activities 1,612 (402)
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Net decrease in cash and equivalents (188) (827)
Cash and cash equivalents at beginning of period 2,851 6,694
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Cash and cash equivalents at end of period $ 2.663 $ 5,867
======= =======
See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1996
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of The Morgan Group, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for fair presentation have been
included. Operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. These financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto, for the year ended December 31, 1995.
The condensed consolidated financial statements include the accounts
of the Company and its subsidiaries, Morgan Drive Away, Inc.
("Morgan"), TDI, Inc. ("TDI"), Interstate Indemnity Company
("Interstate"), and Morgan Finance, Inc. ("Finance") all of which are
wholly owned. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Note 2. Indebtedness
The Company has extended, through July 31, 1996, various credit
facilities with banks at terms similar to those terms disclosed in the
December 31, 1995 financial statements. The Company expects to renew
or extend these agreements in the normal course of business.
Note 3. In February of 1996, Morgan Drive Away adopted a Special Employee
Stock Purchase Plan ("Plan") under which Morgan Drive Away's President
and Chief Executive Officer purchased 70,000 shares of Class A Common
stock from treasury stock at the then current market value price of
$560,000. Under the terms of the Plan, $56,000 was delivered to the
Company and a promissory note was executed in the amount of $504,000
bearing an interest rate of five (5%) percent per annum due in 2003.
The Plan allows for repayment of the note using shares at $8.00 per
share. Morgan Drive Away has the right to repurchase, at $8.00 per
share, 56,000 shares during the first year of the agreement and 28,000
during the second year.
PART I - FINANCIAL INFORMATION
Item 2 - Management Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of operations
data to revenue for the periods indicated.
Three Months Ended
March 31,
1996 1995
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(Unaudited)
Statement of Operations Data:
Operating revenue 100.0% 100.0%
Operating costs 92.4 89.4
Depreciation and amortization 1.2 1.0
Selling, general and administrative 6.5 6.8
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Operating income (.1) 2.8
Net interest expense (.2) .0
----- -----
Income before income taxes (.3) 2.8
Income taxes .3 (1.1)
----- -----
Net income 0% 1.7%
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Operating Revenues
Operating revenues for the first quarter of 1996 totaled $30.5 million,
representing an increase of 14% when compared to $26.8 million in the first
quarter of 1995. Prior to giving effect to the acquisition of TDI, Inc. which
closed on May 22, 1995, comparable operating revenues increased 6.5%. The
manufactured housing outsourcing revenues, which includes specialized
transportation to companies who produce new manufactured homes, modular homes,
and office trailers, increased 17% from $13.3 million in the first quarter of
1995 to $15.6 million in the first quarter of 1996. Unit shipments by the
manufactured housing industry (considering double-wides as two units) in the
United States, increased by approximately 9% through February 28, 1996.
Specialized transport revenues, which consist of the transportation of van
conversions, automobiles, semi-trailers, military vehicles, and other
commodities by utilizing specialized equipment, decreased from $7.6 million in
the first quarter of 1995 to $7.1 million in the first quarter of 1996. A slight
reduction in van conversion production and reduced orders for new van trailers
in the market place lead to the decline in specialized transport revenues. The
increase in driver outsourcing revenues of 28% from $4.1 million in 1995 to $5.3
million in 1996 was aided by the acquisition of TDI, Inc. Other service
revenues, which include revenues from Interstate Indemnity, Morgan Finance,
permit ordering services, and labor services, increased 41% to $2.5 million in
the first quarter of 1996 over the same period of the prior year.
Operating Costs
Operating costs as a percent of revenue increased from 89.4% in the first
quarter of 1995 to 92.4% in the first quarter of 1996. Drivers pay on a
percentage of revenue increased over 1.5%. The higher pay percentage was
principally attributed to margin compression in the Company's Specialized
Transport Division, harsh winter conditions in the Northwest and Southeast, and
a change in mix of manufactured housing business to lower margin accounts.
Operating costs also increased due to higher investment in safety, dispatching,
and sales personnel without a corresponding increase in revenue levels. Higher
operating costs as a percentage of revenues will continue throughout the year,
although they should be partially mitigated by rate increases which are expected
to be implemented primarily during the second quarter.
Depreciation and Amortization
Depreciation and amortization increased from $261,000, or 1% of revenue, in
the first quarter of 1995 to $362,000, or 1.2%, of revenue in 1996. The increase
in depreciation and amortization relates to higher capital expenditure levels in
1995 and amortization of the TDI acquisition..
Selling General and Administrative Expenses
Selling, general and administrative expenses increased from $1,833,000, or
6.8% of revenue, in the first quarter of 1995 to $1,993,000, or 6.5% of revenue,
in 1996. The growth in selling, general and administrative expenses for the
quarter was attributed to additional general and administrative costs of
$130,000 added with the acquisition of TDI, and higher computer lease expense
related to the automation of dispatch locations.
Operating Income (Loss)
Operating loss of $48,000 for the first quarter of 1996 compared
unfavorably to $737,000 of operating income in the first quarter of 1995. The
reduced operating income was attributed to higher operating expenses, which were
affected during the first quarter by several factors, including reduced
recreational vehicle margins with declining revenues and harsh winter conditions
in the Northwest and Southeast. In addition, due to seasonality, the TDI
operation produced an operating loss of $30,000 during the first quarter of
1996.
Interest Expense, Net
During the first quarter of 1996, the Company had net interest expense of
$63,000 compared to interest income of $18,000 in the first quarter of 1995. The
generation of expense in 1996 relates to interest expense costs of $38,000
associated with the TDI acquisition and higher interest expense associated with
the financing of independent contractor loans through Morgan Finance.
Pretax Income (Loss)
During the first quarter of 1996, the Company had a pretax loss of
$111,000, or .3% of revenue, versus pretax income of $755,000, or 2.8% of
revenue in the first quarter of 1995.
Income Taxes
The benefit recorded for federal and state income taxes in the first
quarter of 1996 of $120,000 relates to tax benefits associated with the losses
from The Morgan Group, Inc.'s subsidiaries, excluding the earnings of Interstate
Indemnity. This tax benefit compares with a 39% federal and state tax rate in
the first quarter of 1995.
Net Income
Net income was $9,000 in the first quarter of 1996, compared to net income
of $463,000, or 15(cent) primary earnings per common share in the first quarter
of 1995.
Seasonality
Shipments of manufactured housing tend to decline in the winter months in
areas where poor weather conditions inhibit transport. This may reduce revenues
in the first and fourth quarters of the year. RV movements are generally
stronger in the spring when dealers build stock in anticipation of the summer
vacation season and in late summer and early fall when new vehicle models are
introduced. The Company's revenues, therefore, are generally stronger in the
second and third quarters of the year.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased from $6,007,000 at December 31, 1995 to
$6,048,000 as of March 31, 1996. Cash and cash equivalents decreased from
$2,851,000 as of December 31, 1995 to $2,663,000 as of March 31, 1996. Net cash
used for operating activities was $1,658,000 in the first quarter compared to
cash provided from operations in the first quarter of 1995 of $278,000. In
addition, to the reduction in net income during the first quarter, cash used in
operating activities was affected by growth in accounts receivables of
$1,850,000 compared to receivable growth in the first quarter of 1995 of
$695,000. The growth in accounts receivable in 1996 compared to 1995 is directly
related to a 14% growth in operating revenues and increased days sales
outstanding from 28 in the first quarter of 1995 to 29 in the first quarter of
1996. The increase in accounts receivable, other of $287,000 in the first
quarter of 1996 is attributed to communication cost discounts earned but not yet
received and increased receivables from insurance companies for health costs.
The decline in prepaid expenses during the first quarter of 1995 is principally
attributed to reduced prepayments of insurance premiums of $466,000. This
decline also occurred in the first quarter of 1996, but was partially offset by
increased prepaid expenses for driver recruiting and retention programs that
will benefit the Company throughout the year. The increase in accrued drivers
pay of $875,000 for the first quarter is attributed to higher revenue levels.
Financing activities were comprised of borrowing to fund working capital of $1.8
million, principal payments made on acquisition debt and mortgage debt of over
$100,000, and treasury stock issuance in conjunction with the Special Employee
Stock Purchase Plan (Note 3).
At March 31, 1996, the Company had $2,663,000 in cash, marketable
securities and short-term investments. Additionally, the Company had over
$12,000,000 of unused credit facilities. The Company expects that current cash
flow from existing operations, existing cash, and the line of credit will be
adequate to fund the Company's existing operations for the foreseeable future.
PART II - OTHER
INFORMATION
Item 6
Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed during the three months ended
March 31, 1996.
(b) The following exhibits are included herein:
Exhibit 4.1 Amendment to Line of Credit Loan Agreement dated as of
May 8, 1996 between TDI, Inc. and Key Bank National
Association.
Exhibit 4.2 Fourth Amendment to Transactional Line of Credit
Agreement dated as of May 8, 1996 between Morgan Group,
Inc., and Key Bank National Association.
Exhibit 4.3 Second Amendment to Standby Letter of Credit Facility
Agreement dated May 8, 1996 between Morgan Drive Away,
Inc., Interstate Indemnity Company and Key Bank
National Association.
Exhibit 4.4 Third Amendment to Finance Line of Credit Agreement dated
May 8, 1996 between Morgan Finance, Inc. and Key Bank
National Association.
Exhibit 11 Statement re: computation of earnings per share.
Exhibit 27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MORGAN GROUP, INC.
BY: /s/ Richard B. DeBoer
------------------------------
Richard B. DeBoer
Vice President and
Chief Financial Officer
Date: May 14, 1996