UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1997
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
For the transition period from to
Commission File Number 1-13586
THE MORGAN GROUP, INC.
Delaware 22-2902315
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2746 Old U.S. 20 West, Elkhart, Indiana 46514-1168
(Address of principal executive offices) (Zip Code)
(219) 295-2200
(Registrant's telephone number, include area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 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 - 1,446,010 shares as of June 30, 1997 Class B - 1,200,000
shares as of June 30, 1997
The Morgan Group, Inc.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of
Operations for the Three and Six Month Periods
Ended June 30, 1997 and 1996
Condensed Consolidated Statements of
Cash Flows for the Six Month Periods Ended
June 30, 1997 and 1996
Notes to Condensed Consolidated Financial
Statements as of June 30, 1997
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of the Security Holders
Item 6 Exhibits and Reports on Form 8-K
Signatures
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, Dec. 31,
1997 1997
------- -------
Assets
Current assets:
Cash and cash equivalents $527 $1,308
Trade accounts receivable, less allowance for doubtful
accounts of $86,000 in 1997 and $59,000 in 1996 15,592 11,312
Accounts receivable, other 282 274
Refundable taxes 128 584
Prepaid expenses and other current assets 2,218 3,445
------- -------
Total current assets 18,747 16,923
Property and equipment, net 2,673 2,763
Assets held for sale 1,575 2,375
Intangible assets, net 8,922 8,911
Deferred income taxes 1,683 1,683
Other assets 787 411
------- -------
Total assets $34,387 $33,066
======= =======
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
June 30, Dec. 31,
1997 1997
------- -------
(Unaudited) (Note)
(Dollars in Thousands)
Liabilities and Shareholders' Equity Current liabilities:
Note payable to bank $2,554 $1,250
Trade accounts payable 5,159 3,226
Accrued liabilities 3,644 4,808
Accrued claims payable 1,863 1,744
Refundable deposits 1,477 1,908
Current portion of long-term debt 1,196 1,892
----- -------
Total current liabilities 15,893 14,828
Long-term debt, less current portion 1,791 2,314
Long-term accrued claims payable 3,065 2,820
Commitments and contingencies - - - - - -
Shareholders' equity
Class A
Authorized shares - 7,500,000;
Issued and outstanding shares - 1,446,010 and 1,485,520 23 23
Class B
Authorized shares - 2,500,000;
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,441 12,441
Retained earnings 3,010 2,126
----- ------
Total capital and retained earnings 15,492 14,608
Less - treasury stock, 159,543 and 120,043
shares, at cost (1,350) (1,000)
- loan to officer for purchase of stock (504) (504)
----- -------
Total shareholders' equity 13,638 13,104
------ ------
Total liabilities and shareholders' equity $34,387 $33,066
======= =======
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date, but does not include all of
the information and footnotes required by generally accepted accounting
principles or complete financial statements.
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
--------- --------- --------- ---------
Operating revenues:
Manufactured housing outsourcing $25,541 $20,008 $45,210 $35,566
Driver outsourcing 5,209 6,871 10,098 12,130
Specialized transport 4,742 6,938 10,879 14,081
Other service revenue 3,719 2,881 6,657 5,427
--------- --------- --------- ---------
Total operating revenues 39,211 36,698 72,844 67,204
Costs and expenses:
Operating costs 35,582 33,564 66,257 61,763
Depreciation and amortization 302 380 596 742
Selling, general and administrative 2,041 2,076 4,274 4,069
--------- --------- --------- ---------
Operating income 1,286 678 1,717 630
Interest expense, net 168 109 299 172
--------- --------- --------- ---------
Income before taxes 1,118 569 1,418 458
Income tax benefit 419 152 453 32
--------- --------- --------- ---------
Net income $699 $417 $965 $426
========= ========= ========= =========
Net income per common share:
Primary $.26 $.15 $.36 $.16
========= ========= ========= =========
Fully Diluted $.26 $.15 $.36 $.16
========= ========= ========= =========
Average number of common shares and common
stock equivalents 2,664,041 2,708,128 2,660,098 2,677,957
========= ========= ========= =========
See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
Six Months Ended
June 30,
------------------
1997 1996
------- -------
(Dollars in thousands)
Operating activities
Net income $ 995 $ 426
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 596 742
Debt amortization 18 16
------- -------
1,609 1,184
Changes in operating assets and liabilities:
Accounts receivable (4,280) (2,727)
Accounts receivable, other 8 (195)
Refundable taxes 476 - - -
Prepaid expenses and other current expenses 1,209 411
Accounts payable 1,917 (967)
Accrued liabilities (1,164) (473)
Accrued insurance claims 314 287
Refundable deposits (431) (31)
------- -------
Net cash provided by (used in operating activities) (342) (2,511)
Investing activities
Purchases of property and equipment, net of disposals (215) (285)
Sale of assets held 800 - - -
Intangible assets purchased (302) - - -
Increase in other assets (376) (167)
------- -------
Net cash used in investing activities (93) (452)
Financing activities
Net proceeds from bank and seller financed
notes and credit line 85 1,558
Dividends on common stock (81) (88)
Treasury stock purchase, net of officer loan (350) (115)
------- -------
Net cash provided by (used in) financing activities (346) 1,355
------- -------
Net (decrease) in cash and equivalents (781) (1,608)
Cash and cash equivalents at beginning of period 1,308 2,851
------- -------
Cash and cash equivalents at end of period $ 527 $ 1,243
======= =======
See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1997
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of The Morgan Group, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for fair presentation have been
included. Operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. These financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto, for the year ended December 31, 1996.
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries, Morgan Drive Away, Inc. ("Morgan"),
TDI, Inc. ("TDI"), Interstate Indemnity Company ("Interstate"), and
Morgan Finance, Inc. ("Finance") all of which are wholly owned.
Significant intercompany accounts and transactions have been eliminated
in consolidation
Note 2. Earnings Per Share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 Earnings Per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The impact on second quarter ended June 30, 1997 and year
to date June 30, 1997 earnings per share is not expected to be
material. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarter is not expected to be
material.
Note 3. Special Charges
The sale of the truckaway operation was completed during the second
quarter of 1997. The reserves established in 1996 for losses on the
sale of equipment and close down costs appear to be adequate. The
Company is still in the process of selling the four properties which
were written down to fair market value at the end of 1996.
PART I - FINANCIAL INFORMATION
Item 2 - Management Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets for the percentage relations of operations
data to revenue for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1997 1996 1997 1996
----- ----- ----- -----
(Unaudited) (Unaudited)
Statement of Operations Data:
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating costs 90.7 91.4 91.0 92.0
Depreciation and amortization .8 1.0 .8 1.1
Selling, general and administrative 5.2 5.7 5.9 6.1
----- ----- ----- -----
Operating income 3.3 1.9 2.3 .8
Net interest expense (.4) (.3) (.4) (.2)
----- ----- ----- -----
Income before income taxes 2.9 1.6 1.9 .6
Income taxes 1.1 .4 .6 - - -
----- ----- ----- -----
Net income 1.8 1.2 1.3 .6
===== ===== ===== =====
Operating Revenues:
Operating revenues for the second quarter of 1997 increased from $36.7 million
in 1996, to $39.2 million in 1997, an increase of 9%. Prior to giving effect to
the acquisition of Transit Homes which became effective on December 30, 1996,
comparable revenues decreased 8%. Backing out the revenues in 1997 and 1996 of
the recently sold truckaway operation, the revenue decline during the second
quarter before giving effect to the Transit Homes acquisition was 2%. The
manufactured housing outsourcing revenues, which includes revenues generated
from arranging delivery service for new manufactured homes, modular homes, and
office trailers, increased from $20.0 million in the second quarter of 1996, to
$25.5 million in the second quarter of 1997. The revenue growth is substantially
related to the acquisition of Transit Homes. Prior to giving effect to the
Transit acquisition, Morgan's manufactured housing revenues increased 4% while
industry production remained relatively flat with the second quarter of 1996.
Driver outsourcing revenues in the first quarter of 1997 of $5.2 million were
24% lower than first quarter of 1996 revenues of $6.9 million. Competitive
pressures, specifically on the relocation of rental trucks, have resulted in a
decline in driver outsourcing revenues. Specialized transport revenues consist
of arranging delivery services for van conversions, automobiles, semi-trailers,
military vehicles, and other commodities by utilizing specialized equipment.
This area's decrease was solely due to the sale of the truckaway operation.
Other services revenues, which include revenues from Interstate Indemnity,
Morgan Finance, permit ordering services, and labor services increased 29% to
$3.7 million in the second quarter of 1997 over the same period from the prior
year.
Year to date, operating revenues reached $72.8 million, a growth of 8% compared
to $67.2 million in the first six months of 1996. Prior to giving effect to the
Transit Homes acquisition, comparable revenues decreased 6%. Adjusting revenues
for the Transit acquisition and also the recently closed truckaway operation,
operating revenues were flat with 1996. The manufactured housing industry
production for the first six months of 1997 was flat with 1996 production. The
decline in driver outsourcing revenue from $12.1 million the first six months of
1996 to $10.1 million for the first six months of 1997 is related to competitive
pressures, specifically on the relocation of rental trucks.
Operating Costs:
Operating costs as a percent of revenue decreased from 91.4% in the second
quarter of 1996 to 90.7% in the second quarter of 1997. The improvement in the
operating ratio during the second quarter was the result of the closing of the
truckaway operation where operating costs were in excess of 100% of revenue in
1996. The improved operating margins, due to the sale of the truckaway
operation, were partially offset by an increase in claims cost of 1.3% compared
to 1996, specifically related to accident severity not frequency. Year to date
operating costs, as a percent of revenue, have decreased from 92% to 91%. The
improvement year to date is also reflective of the closing of the truckaway
operation where margin gains have been only partially offset by claims costs
which have increased .6% since 1996.
Depreciation and Amortization:
Depreciation and amortization decreased from $380,000, or 1.0% of revenue, in
the second quarter of 1996 to $302,000, or .8% of revenue, in 1997. Year to date
depreciation and amortization expenses are down .3%. The decrease in
depreciation and amortization expense relates to the discontinuance of
depreciation on equipment and properties which have been sold or are currently
held for sale. This reduction of depreciation expense has been partially offset
by higher amortization related to the Transit acquisition.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased from $2,076,000 or 5.6%
of revenue, in the second quarter of 1996 to $2,041,000, or 5.2% of revenue, in
1997. The decline in selling, general and administrative expenses for the
quarter are attributed to a reduction in corporate staff levels partially offset
by higher computer lease expenses. Year to date selling, general and
administrative expenses have increased from $4,069,000, or 6.1% of revenue, to
$4,274,000, or 5.9% of revenue this year. The year to date increase relates to
duplicate general and administrative costs occurring primarily in the first
quarter due to the the Transit acquisition and higher computer lease costs.
Operating Income:
Operating income was $1,286,000 for the second quarter of 1997 compared to
$678,000 in the second quarter of 1996. Year to date operating income increased
to $1,717,000 in 1997 from $630,000 in 1996. The increase in operating income
during the quarter and first six months was principally related to the fourth
quarter of 1996 decision to close the company's truckaway operation which lost
in excess of $400,000 in the second quarter of 1996 and approximately $750,000
during the first six months of last year.
Interest Expense, Net:
During the second quarter of 1997, the company had net interest expense of
$168,000 compared to net interest expense of $109,000 in the second quarter of
1996. The increase in interest cost is attributed to higher debt levels as a
result of the Transit acquisition.
Pretax Income:
During the second quarter of 1997, the company had pretax income of $1,118,000,
or 2.9% of revenue, versus a pretax income of $569,000 or 1.6% of revenue, in
the second quarter of 1996. Year to date pretax has increased from $458,000, or
.7% of revenue, to $1,418,000, or 1.3% of revenue.
Income Taxes:
The effective tax rate during the second quarter of 1997 was 37% compared to 27%
during the second quarter of 1996. Year to date the effective tax rate is 32%
versus 7% during the first six months of 1996. The lower tax rate in 1996
reflects the fact that the prior year's profits had a higher portion of earnings
generated by Interstate Indemnity, the Company's captive insurance company which
obtains favorable tax treatment.
Net Income:
Net income was $699,000 in the second quarter of 1997, or $.26 primary earnings
per common share, compared to net income of $417,000, of $.15 primary earnings
per common share, in the second quarter of 1996. Year to date net income of
$965,000, or $.36 primary earnings per common share, is double the $426,000, or
$.16 primary earnings per common share earned in the first six months of 1996.
Seasonality:
Shipments of manufactured housing tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This may reduce revenues in the
first and fourth quarters of the year. RV movements are generally stronger in
the spring when dealers build stock in anticipation of the summer vacation
season and late summer and early fall when new vehicle models are introduced.
The company's revenues, therefore, are generally stronger in the second and
third quarters of the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $1,308,000 as of December 31, 1996 to
$527,000 as of June 30, 1997, while debt level stayed approximately the same.
Cash was used during the first six months to finance receivable growth of
$4,280,000, associated with the strong second quarter revenues, and also
reflects a decrease in accrued liabilities of $1,164,000 which is principally
related to cash used in closing the truckaway operation. Further effects on cash
include decreases in refundable deposits of $431,000 as the Company eliminated
the need for driveaway drivers to hold deposits, increase in tractor financing
resulting in an increase in other assets of $376,000, and treasury stock
purchases of $350,000. Cash was generated during the first six months through
operating profits before depreciation and amortization of $1.6 million,
reduction of refundable tax receivable of $476,000, reduction in prepaid
expenses of $1,209,000 related to reduced prepayments to drivers and insurance
costs, increase in accounts payable $1,917,000, increase in accrued insurance
claims costs of $314,000, and cash generated from the assets held for sale at
the end of the year of $800,000.
As of June 30, 1997, the company has $527,000 in cash, marketable securities and
short-term investments. Additionally, the company has $3,182,000 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. (See next paragraph
for possible circumstances which could alter this expectation).
FORWARD LOOKING DISCUSSION
The company's improvement in operating performance during the first six months
of 1997 can be specifically traced to the closing of the truckaway operation and
reduced overhead expenses. Operating margins should continue to increase in
comparison to 1997 in comparison to 1996 operating margins as the company should
continue to receive the benefit of the closing of the truckaway operation and
should have increased manufactured housing margins due to the Transit Homes
acquisition. In addition, improvements in the safety and claims area, though
inherently unpredictable, should continue to aid improved operating margins if
recent positive reduction in accident frequency continues. The acquisition of
Transit Homes of America, which generated approximately $9.7 million of
additional revenues during the first six months, should more than offset the
lost operating revenue from the sale of the truckaway operation for the
remainder of 1997. Matters discussed in this paragraph and the adequacy of
available capital resources are forward looking statements that are subject to
important factors and involve risk and uncertainties. Potential risk and
uncertainties include, without limitation, continued competitive pressures in
the market place, the effect of overall economic conditions, the cost of
accident claims and the ability to continue to recruit qualified drivers to
service the business. These factors may cause actual results to differ
materially from what the Company is projecting.
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
On May 12, 1997, the Company held its annual meeting of
shareholders, the results of which follow:
Report of proxies received and shares voted May 12, 1997
Total Voted % of Total
--------- --------- ----------
Number of Shares of Class B
Common Stock 1,200,000 1,200,000 100%
Number of Shares of Class A
Common Stock 1,482,020 1,212,033 82%
1. Election of Directors Elected
by all Shareholders
(1-year term)
Against
For or Withheld Abstained Non-Votes
--------- ------------ --------- ---------
Charles C. Baum 1,206,633 5,400 269,957
Richard B. Black 1,204,463 7,570 269,957
Frank B. Grzelecki 1,206,633 5,400 269,957
2. Election of Directors
by Holders of Class A
Common Stock
(1-year term)
Bradley J. Bell 1,206,663 5,400 269,957
Item 6
Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 11 - Statement re: computation of earnings per share.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-k were filed for the quarter ended
June 30, 1997
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 CFO
Date: August ___, 1997