UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997
THE MORGAN GROUP, INC.
2746 Old U.S. 20 West
Elkhart, Indiana 46514
(219) 295-2200
Commission File Number 1-13586
Delaware 22-2902315
(State of Incorporation) (I.R.S. Employer Identification Number)
Securities Registered Pursuant to Section 12(b) of the Act:
American Stock Exchange
Class A Common Stock, without par value
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 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 the issuer's voting stock held by non-affiliates,
as of March 25, 1998 was $9,834,999. The number of shares of the Registrant's
Class A Common Stock $.015 par value and Class B Common Stock $.015 par value,
outstanding as of March 25 1998, was 1,434,810 shares, and 1,200,000 shares,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders are
incorporated into Part III of this report.
Exhibit Index on Pages ________
Page 1 of Pages
Part I
Item 1. BUSINESS
Overview
The Morgan Group, Inc. ("the Company") is the nation's largest publicly
owned service company in managing the delivery of manufactured homes, trucks,
specialized vehicles, and trailers in the United States, and through its wholly
owned subsidiary, Morgan Drive Away, Inc. ("Morgan") has been operating since
1936. The Company provides outsourcing transportation services through a
national network of approximately 1,560 independent owner operators and
approximately 1,350 other drivers. The Company dispatches its drivers from 123
locations in 35 states. The Company's largest customers include Fleetwood
Enterprises, Inc., Oakwood Homes Corporation, Champion Enterprises, Inc.,
Winnebago Industries, Inc., Clayton Homes, Inc., Cavalier Homes, Inc., Schult
Homes Corporation, Four Seasons Housing, Inc., Palm Harbor Homes, Inc., and
United Parcel Service. The Company's services also include providing certain
insurance and financing services to its owner operators.
As further described below, the Company's strategy is to grow through
expansion in the niche businesses already being serviced with heavy emphasis on
outsourcing, along with pursuing acquisitions of niche transportation carriers
who are servicing their customer base with unique service and/or equipment. In
addition, the Company will look to expand insurance product offerings to drivers
through its subsidiary Interstate Indemnity Company ("Interstate") and to
broaden its financing activities through Morgan Finance, Inc. ("Finance").
Morgan, the Company's principal subsidiary, was founded in 1936 in
Elkhart, Indiana and incorporated in 1942. The Morgan Group, Inc. is a Delaware
corporation formed by Lynch Corporation to acquire Morgan and Interstate. In
1994, the Company formed Finance for the purpose of offering financing to owner
operators. In 1995, the Company acquired the assets of Transfer Drivers, Inc.
("TDI"), a Northern Indiana-based outsourcing company. TDI is a market leader in
the fragmented truck delivery business focusing on relocation of consumer and
commercial vehicles for customers, including United Parcel Service, Ryder
System, Inc., Automotive Rentals, Inc., Budget One-Way Rental, and Grumman Corp.
In December 1996, the Company acquired the assets of Transit Homes of
America, Inc. ("Transit"), a national outsourcing company located in Boise,
Idaho. Transit, with 1997 operating revenues of $21.2 million, provides
outsourcing transportation services to Fleetwood Enterprises, Inc., Champion
Enterprises, Inc., Palm Harbor, and Cavalier Homes, Inc.
The Company decided in the fourth quarter of 1996 to discontinue the
"truckaway" operation of the Specialized Transport Group. Truckaway was a line
of business that transported van conversions, tent campers, and other automotive
products on company-owned equipment. The Company, in the fourth quarter of 1996,
recorded a special charge of $2,675,000 ($1,605,000 after tax) comprised
principally of the anticipated loss on the sale of the company-owned equipment,
projected losses through April 30, 1997, and write-downs of accounts receivable
and other assets. The equipment was principally sold by May 1997.
The Company's principal office is located at 2746 Old U.S. 20 West,
Elkhart, Indiana 46514; the telephone number is (219) 295-2200.
Industry Information
Manufactured Housing.
The largest portion of the Company's operating revenues are derived
from transportation of manufactured housing, primarily new manufactured homes.
Unit shipments by the manufactured housing industry (considering double-wide
homes as two shipments) in the U.S. increased by approximately 6% to 558,000 in
1997 from 553,000 in 1996, after 9% and 12% increases in 1996 and 1995,
respectively, according to data from the Manufactured Housing Institute ("MHI").
A manufactured home is an affordable housing alternative. The Company believes
the manufactured housing industry production should continue to grow along with
the general economy, especially while employment statistics and consumer
confidence remain strong. The Company believes that the principal economic
consideration of the typical manufactured home buyer is the monthly payment
required to purchase a manufactured home and that purchasers are generally less
affected by incremental increases in interest rates than those purchasers of
site built homes. There is no assurance, however, that manufactured housing
production will continue to increase.
Recreational Vehicles.
Recreational Vehicles (defined as travel trailers, motor homes, tent
campers, truck and van conversions) ("RV's") declined 4% in 1997 to 363,000 from
376,000 shipments in 1996 after declines of 1% in 1996, and 11% in 1995. This
data is obtained from the Recreational Vehicle Industry Association ("RVIA").
RV's are discretionary purchases, sales of which are cyclical. Consumer interest
rates remain relatively low which make RV's easier for purchasers to finance.
There is no assurance, however, that the current economic environment will
continue to support RV production.
Company Services
Based on industry shipment data available from the MHI and RVIA, and
the Company's knowledge of the industry and its principal competitors, the
Company is the largest publicly owned transporter of manufactured homes and
provider of outsourcing services to the motor home and commercial vehicle
markets in the United States. In addition to new manufactured housing and motor
homes, the Company transports used manufactured homes, commercial vehicles,
rental trucks, office trailers, new and used semi-trailers and other
miscellaneous commodities. The Company provides its specialized transportation
services as follows:
Manufactured Housing Group. The Manufactured Housing Group
("Manufactured Housing"), which includes Transit Homes acquired in
1996, provides specialized transportation to companies which
produce new manufactured homes, modular homes, and office
trailers. In addition, Manufactured Housing transports used
manufactured homes and offices for individuals, businesses, and
the U.S. Government. Manufactured Housing ships products through
approximately 1,250 independent owner operators who drive
specially modified semi-tractors, referred to as "toters," used in
manufactured housing transportation to reduce combined vehicle
length. Makers of manufactured housing generally ship their
products no more than a few hundred miles from their production
facilities. Therefore, to serve the regional structure of this
industry, the Company positions its dispatch offices close to the
production facilities it is serving. Approximately 19 of the
Company's dispatch offices are located in such a manner to serve
the needs of a single manufactured housing producer. Most
manufactured housing units, when transported by a toter require a
special permit prescribing the time and manner of transport for
over-dimensional loads. See "Business-Regulation." The Company
obtains for its owner operators the permits required for each
shipment from each state through which the shipment will pass. In
1997, Manufactured Housing delivered approximately 179,000 units.
Driver Outsourcing Group. The Driver Outsourcing Group
("Outsourcing"), which includes TDI acquired in May 1995, engages
the services of approximately 1,350 drivers which are outsourced
to customers to drive commercial and recreational vehicles. In
1997, Outsourcing delivered approximately 46,000 units through the
use of these drivers.
Specialized Transport Group. In 1997, the Specialized Transport
Group ("Specialized Transport") moved a variety of specialized
vehicles, including semi-trailers, military vehicles, travel
trailers and other commodities by utilizing specialized equipment.
A decision was made in 1996 to discontinue the truckaway sector of
Specialized Transport, which moved van conversions, automobiles,
and tent campers by utilizing company-owned trailers. In 1997,
Specialized Transport delivered approximately 34,000 units.
Other Services. Other services provided include permit ordering
services principally for manufactured housing customers and, to a
lessor degree, installation services related to the set up of
manufactured homes. The Company also currently provides physical
damage insurance to the owners of equipment under lease to the
Company through a captive insurance subsidiary. In addition, the
Company provides financing and certain guarantees of equipment
loans through its finance subsidiary.
Selected Operating Information
The following tables set forth operating information with respect to
the aforementioned Company services for each of the five years ended December
31, 1997.
Years Ended December 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Manufactured Housing Group:
Shipments 95,184 121,604 135,750 144,601 178,533
Operating revenues (in thousands) $39,930 $53,520 $63,353 $72,616 $93,092
Driver Outsourcing:
Shipments 30,978 32,060 49,885 58,368 45,857
Operating revenues (in thousands) $13,416 $15,197 $19,842 $23,090 $20,163
Specialized Transport:
Shipments 38,618 41,934 44,406 41,255 34,457
Operating revenues (in thousands) $25,835 $28,246 $29,494 $26,169 $19,173
Other service revenues $3,612 $4,917 $9,614 $10,333 $13,726
------ ------ ------ ------- -------
Total operating revenues (in thousands) $82,793 $101,880 $122,303 $132,208 $146,154
======= ======== ======== ======== ========
Industry Participation. The following tables set forth participation in the two
principal markets the Company operates in where industry information is
available:
Manufactured Homes 1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Industry production (1) 374,126 451,646 505,819 553,133 558,435
Shipments 76,188 98,181 114,890 121,136 154,389
Shares of units shipped 20.4% 21.7% 22.7% 21.9% 27.6%
Recreational Vehicles
Industry production (2) 406,300 426,100 380,300 376,400 362,700
Units moved (3) 71,792 67,502 64,303 57,703 39,102
Shares of units shipped (3) 17.7% 15.8% 16.9% 15.3% 10.8%
(1) Based on reports of Manufactured Housing Institute ("MHI"). To
calculate shares of homes shipped, the company assumes two unit
shipments for each multi-section home.
(2) Based on reports of Recreational Vehicle Industry Association ("RVIA"),
excluding van campers, truck campers, pick-up truck conversions, and
sport utility vehicle conversion. RVIA began reporting truck and sport
utility vehicle conversions in their industry shipment data in 1994.
(3) Shares of units shipped calculation includes travel trailers, two types
of motor homes, van conversions, and tent campers and truck conversions
in 1994 - 1997. The Company's shares of units shipped are based on
units moved compared to industry production rather than shipments
because certain RV shipments include more than one unit per shipment.
Growth Strategy
The Company's strategy is to focus on the profitable core
transportation services (Manufactured Housing and Outsourcing) so that operating
revenues and profitability can grow in its area of dominant market position. The
Company will also look for opportunities to capitalize and/or grow its market in
manufactured housing and outsourcing through acquisitions if suitable
opportunities arise. To enhance its profitability, the Company is continuing the
process of reconstructing its organization to reduce centralized overhead and
redundant field expense.
Manufactured Housing Growth. The Company believes it can take better
advantage of its position in the manufactured housing industry and its
relationship with manufacturers, retailers, and independent owner
operators, by expanding the service it offers within its specialized
business. The Company proposes to pursue opportunities to offer new
services, which may include financial, insurance, and to a lessor
degree, manufactured housing set up services. The Company will also
consider acquisition opportunities. The Company may also pursue the
purchase of certain manufacturers' private transport fleets. In such a
case, the Company would typically purchase the customer's tractors,
sell the equipment to interested drivers, and then engage these drivers
as independent owner operators.
Outsourcing. The Company believes it can capitalize on the growing
trend in the outsourcing of specialized vehicle transportation and
delivery by manufacturers. It is estimated that approximately 750,000
vehicles are delivered each year through driveaway services, a delivery
market estimated at $500 million or more. The number of vehicles to be
outsourced is expected to increase substantially as companies calculate
the cost benefits of not maintaining their own driver corps, paying
salaries and benefits, running dispatch points, and maintaining an
equipment base. Unlike companies with drivers on their payroll,
Morgan's drivers are paid only when deliveries are made. Morgan's
growth strategy within this market is to expand its market position in
this highly fragmented delivery transportation market. The future
growth rate of the Company's outsourcing business is dependent upon
continuing to add major vehicle customers and expanding the Company's
driver force.
Reconstruct for Margin Improvement. In the fourth quarter of 1996, the
Company made a decision to exit the Truckaway operation which
transported van conversions, tent campers, and other automotive
products utilizing company-owned equipment. This decision was in line
with the Company's growth strategy to focus on profitable operations
where the Company has a market position. The Company is continuing the
process of reconstructing its organization to reduce centralized
overhead and redundant field expense. It will continue to scrutinize
every facet of operations as the Company searches for ways to run the
business with greater efficiency, both to enhance management processes
and customer relationships, and to reduce or eliminate costs wherever
possible.
Acquisitions. The Company is considering acquisition opportunities
within the manufactured housing and outsourcing lines of business.
Thus, the Company may consider acquiring regional or national firms
which service the manufactured housing and/or the outsourcing industry.
The Company is continuously reviewing potential acquisitions and is
engaged in negotiations from time to time. There can be no assurance
that any future acquisitions will be effected, or, if effected, can be
successfully integrated with the Company's business.
Expansion of Related Services. The Company believes it can take better
advantage of its position in the manufactured housing and motor home
industries, and its relationships with manufacturers, retailers, and
independent owner operators, by expanding the services it offers within
its specialized business. The Company proposes to pursue opportunities
to offer new financial, insurance or other services.
The Company is currently offering financing opportunities to selected
existing and new owner operators, through Morgan Finance, a financial
subsidiary created in 1994 to support these activities. In 1995, Morgan
formed an alliance with a financial institution which is providing
financing to Morgan owner operators for tractor purchases. These
equipment financing programs are expected to solidify the Company's
relationships with independent owner operators, increase its fleet, and
further expand the Company's transportation capacity. The Company also
offers insurance services to independent owner operators.
The Company may begin offering new insurance products as a managing
general agent. The Company's insurance subsidiary may determine to
accept a limited portion of the underwriting risk, retaining an
appropriate proportion of the premiums.
The Company will carefully consider the feasibility of these and
similar opportunities over the next year. If the Company is successful in
offering new services such as these, it expects to enhance and diversify its
operating revenues and may reduce its vulnerability to broad production cycles
in the industries it serves. The Company cannot give any assurance that new
services, if any, will be profitable and such new services may result in
operating losses.
Forward-Looking Discussion
In 1998, the Company could benefit from better pricing, reduction of
overhead through corporate restructuring, elimination of redundant field
expense, and improvement of its safety record. Business expansion, including
possible acquisitions, could augment operating revenue gains. While the Company
remains optimistic over the long term, near term results could be affected by a
number of internal and external economic conditions.
This report contains a number of forward-looking statements, including
those contained in the preceding paragraph and the discussion of growth strategy
above. From time to time, the Company may make other oral or written
forward-looking statements regarding its anticipated sales, costs, expenses,
earnings and matters affecting its condition and operations. Such
forward-looking statements are subject to a number of material factors which
could cause the statements or projections contained therein to be materially
inaccurate. Such factors include, without limitation, the following:
Dependence on Manufactured Housing. Shipments of manufactured
housing have historically accounted for a substantial majority of
the Company's operating revenues. Therefore, the Company's
prospects are substantially dependent upon this industry which is
subject to broad production cycles. Shipments by the manufactured
housing industry could decline in the future relative to
historical levels which could have adverse impact on the
Company's operating revenues.
Costs of Accident Claims and Insurance. Traffic accidents occur
in the ordinary course of the Company's business. Claims arising
from such accidents can be significant. Although the Company
maintains liability and cargo insurance, the number and severity
of the accidents involving the Company's owner operators and
drivers can have significant adverse effect on the profitability
of the Company through premium increases and amounts of loss
retained by the Company below deductible limits or above its
total coverage. There can be no assurance that the Company can
continue to maintain its present insurance coverage on acceptable
terms nor that the cost of such coverage will not increase
significantly.
Customer Contracts and Concentration. Historically, a majority of
the Company's operating revenues have been derived under
contracts with customers. Such contracts generally have one, two,
or three year terms. There is no assurance that customers will
agree to renew their contracts on acceptable terms or on terms as
favorable as these currently in force. The Company's top ten
customers have historically accounted for a majority of the
Company's operating revenues. The loss of one or more of these
significant customers could adversely affect the Company's
results of operations.
Competition for Qualified Drivers. Recruitment and retention of
qualified drivers and owner operators is highly competitive. The
Company's contracts with owner operators are terminable by either
party on ten days' notice. There is no assurance that the
Company's drivers will continue to maintain their contracts in
force or that the Company will be able to recruit a sufficient
number of new drivers on terms similar to those presently in
force. The Company may not be able to engage a sufficient number
of new drivers to meet customer shipment demands from time to
time, resulting in loss of operating revenues that might
otherwise be available to the Company.
Independent Contractors, Labor Matters. From time to time, tax
authorities have sought to assert that independent contractors in
the transportation service industry are employees, rather than
independent contractors. Under existing interpretations of federal
and state tax laws, the Company maintains that its independent
contractors are not employees. There can be no assurance that tax
authorities will not challenge this position, or that such tax
laws or interpretations thereof will not change. If the
independent contractors were determined to be employees, such
determination could materially increase the Company's tax and
workers' compensation exposure.
Risks of Acquisitions. The Company has sought and will continue
to seek favorable acquisition opportunities. Its strategic plans
may also include the initiation of new services or products,
either directly or through acquisition, within its existing
business lines or which complement its business. There is no
assurance that the Company will be able to identify favorable
acquisition opportunities in the future. There is no assurance
that the Company's future acquisitions will be successfully
integrated into its operations or that they will prove to be
profitable for the Company. Similarly, there is no assurance that
any new products or services, individually or in the aggregate,
could materially change the Company's results of operations,
financial condition and capital requirements. Such changes could
have a material adverse effect on the Company.
Seasonality and General Economic Conditions. The Company's
operations have historically been seasonal, with generally higher
operating revenues generated in the second and third quarters than
in the first and fourth quarters. A smaller percentage of the
Company's operating revenues are generated in the winter months in
areas where weather conditions limit highway use. The seasonality
of the Company's business may cause a significant variation in its
quarterly operating results. Additionally, the Company's
operations are affected by fluctuations in interest rates and the
availability of credit to purchasers of manufactured homes and
motor homes, general economic conditions, and the availability and
price of motor fuels.
Customers and Marketing
The Company's customers requiring transportation of new manufactured
homes, motor homes, commercial vehicles, and specialized vehicles are located in
various parts of the United States. The Company's largest manufactured housing
customers include Fleetwood Enterprises, Inc., Oakwood Homes Corporation,
Champion Enterprises, Inc., Clayton Homes, Inc., Cavalier Homes, Inc., Schult
Homes Corporation, Four Seasons Housing, Inc., and Palm Harbor. The Company's
largest outsourcing customers include Winnebago Industries, Inc., United Parcel
Service, Ryder System, Inc., Automotive Rentals, Inc., and Fleetwood
Enterprises, Inc. Specialized Transport customers include Utility Trailer Mfg.
Co., United Parcel Service, Thor Industries, Inc., Great Dane, and Xtra Lease,
Inc. While most manufacturers rely solely on carriers such as the Company, other
manufacturers operate their own equipment and may employ outside carriers on a
limited basis.
A substantial portion of the Company's operating revenues are generated
under one, two, or three year contracts with producers of manufactured homes,
motor homes, and other products. In these contracts, the manufacturers agree
that a specific percentage (up to 100%) of their transportation service
requirements from a particular location will be performed by the Company on the
basis of a prescribed rate schedule, subject to certain adjustments to
accommodate increases in the Company's transportation costs. Operating revenues
generated under customer contracts in 1995, 1996, and 1997 were 58%, 62%, 68% of
total operating revenues, respectively.
The Company's ten largest customers all have been served for at least
three years and accounted for approximately 59%, 59%, and 66% of its operating
revenues in 1995, 1996, and 1997, respectively. Operating revenues under
contract with Fleetwood Enterprises, Inc. ("Fleetwood"), accounted for 24%, 20%,
and 21% of operating revenues in 1995, 1996, and 1997, respectively. Operating
revenues with Oakwood Homes Corporation ("Oakwood") accounted for 9%, 11%, and
16% of operating revenues in 1995, 1996, and 1997, respectively. The Fleetwood
motor home contracts are re-negotiated on a regional basis when they expire and
the Fleetwood and Oakwood manufactured housing contracts are continuous until
canceled. The Company has been servicing Oakwood for nine years and Fleetwood
for over 25 years.
The Company markets and sells its services through 13 regional offices
and 123 locations in 35 states, concentrated where manufactured housing and
motor home production facilities are located. Marketing support personnel are
located both at the Company's Elkhart, Indiana headquarters and at regional
offices. Dispatch offices are supervised by regional offices.
The Company has 26 dispatch offices devoted primarily to a single
customer facility. This allows the dispatching agent and local personnel to
focus on the needs of each individual customer while remaining supported by the
Company's nationwide operating structure. Sales personnel at regional offices
and at the corporate headquarters meet periodically with manufacturers to review
production schedules, requirements and maintain contact with customers' shipping
personnel. Senior management maintains personal contact with corporate officers
of the Company's largest customers. Regional and terminal personnel also develop
relationships with manufactured home park owners, retailers, military
installation officials and others to promote the Company's shipments of used
manufactured homes. The Company also participates in industry trade shows
throughout the country and advertises in trade magazines, newspapers, and
telephone directories.
Independent Owner Operators
The shipment of product by both Manufactured Housing and Specialized
Transport is conducted by contracting for the use of the equipment of
independent owner operators.
Owner operators are independent contractors who own toters, tractors or
pick-up trucks which they contract to, and operate for, the Company on a
long-term basis. Independent owner operators are not generally approved to
transport commodities on their own in interstate or intrastate commerce. The
Company, however, possesses such approvals and/or authorities (see
"Business-Regulation"), and provides marketing, insurance, communication,
administrative, and other support required for such transportation.
The Company attracts owner operators mainly through driver recruiters,
trade magazines, referrals, and truck stop brochures. The Company has in the
past been able to attract new owner operators primarily because of its
competitive compensation structure, its ability to provide loads and its
reputation in the industry. Recruitment and retention of qualified drivers is
highly competitive and there can be no assurance that the Company will be able
to attract a sufficient number of qualified owner operators in the future.
The contract between the Company and each owner operator can be
canceled upon ten day's notice by either party. The average length of service of
the Company's current owner operators is approximately 2.5 years, compared to
3.2 years in 1996. At December 31, 1997, 1,560 owner operators were under
contract to the Company, including 1,250 operating toters, 132 operating
semi-tractors, and 178 operating pick-up trucks.
In Manufactured Housing, independent owner operators utilizing toter
equipment tend to exclusively transport manufactured housing, modular
structures, or office trailers. Once modified from a semi-tractor, a toter has
limited applications for hauling general freight. Toter drivers are, therefore,
unlikely to be engaged by transport firms that do not specialize in manufactured
housing. This gives the Company an advantage in retaining toter independent
owner operators. The average tenure with the Company of its toter independent
owner operators is 2.8 years, compared to 3.3 years in 1996. The change in
tenure is due in part to the addition of drivers from the Transit Acquisition.
In Specialized Transport, Morgan is competing with national carriers
for the recruitment and retention of independent owner operators who own
tractors. The average length of service of the Company's tractor owner operators
is approximately 1.8 years, compared to 2.7 years in 1996. The average length of
service among the Pickup owner operators is 2.9 years, compared to 3.0 years in
1996.
The change in the tenure of owner operators is due, in part, to the
discontinuance of the truckaway operation and was offset by the effective
recruiting efforts by the Company.
Independent owner operators are generally compensated for each trip on
a per mile basis. Owner operators are responsible for operating expenses,
including fuel, maintenance, lodging, meals, and certain insurance coverages.
The Company provides required permits, cargo and liability insurance (coverage
while transporting goods for the Company), and communications, sales and
administrative services. Independent owner operators, except for owners of
certain pick-up trucks, are required to possess a commercial drivers license and
to meet and maintain compliance with requirements of the U.S. Department of
Transportation and standards established by the Company.
From time to time, tax authorities have sought to assert that
independent owner operators in the trucking industry are employees, rather than
independent contractors. No such tax claims have been successfully made with
respect to owner operators of the Company. Under existing industry practice and
interpretations of federal and state tax laws, as well as the Company's current
method of operation, the Company believes that its owner operators are not
employees. Whether an owner operator is an independent contractor or employee
is, however, generally a fact-sensitive determination and the laws and their
interpretations can vary from state to state. There can be no assurance that tax
authorities will not successfully challenge this position, or that such tax laws
or interpretations thereof will not change. If the owner operators were
determined to be employees, such determination could materially increase the
Company's employment tax and workers' compensation exposure.
Outsourcing
The Company utilizes both independent contractors and employees in its
outsourcing operations. The Company outsources its over 1,350 drivers on a
trip-by-trip basis for delivery to retailers and rental truck agencies,
commercial and recreational vehicles such as motor homes, buses, tractors,
rental trucks, and commercial vans. These individuals are recruited through
driver recruiters, trade magazines, brochures, and referrals. Prospective
drivers are required to possess at least a chauffeur's license and are
encouraged to obtain a commercial driver's license. They must also meet and
maintain compliance with requirements of the U.S. Department of Transportation
and standards established by the Company. Outsourcing drivers are utilized as
needed, depending on the Company's transportation volume and driver
availability. Outsourcing drivers are paid on a per mile basis. The driver is
responsible for most operating expenses, including fuel, return travel, lodging,
and meals. The Company provides licenses, cargo and liability insurance,
communications, sales, and administrative services.
Agents and Employees
The Company has 140 terminal managers and assistant terminal managers
who are involved directly with the management of equipment and drivers. Of these
140 staff, approximately 120 are full-time employees and the remainder are
independent contractors who earn commissions. The terminal personnel are
responsible for the Company's terminal operations including safety, customer
relations, equipment assignment, invoicing, and other matters. Because terminal
personnel develop close relationships with the Company's customers and drivers,
from time to time the Company has suffered a terminal personnel defection,
following which the former staff has sought to exploit such relationships in
competition with the Company. The Company does not expect that future
defections, if any, would have a material affect on its operations. In addition
to the 140 terminal personnel, the Company employs approximately 232 full-time
employees. The Company also has 17 employee drivers in Manufactured housing and
six in Outsourcing.
Seasonality
Shipments of manufactured homes tend to decline in the winter months in
areas where poor weather conditions inhibit transport. This usually reduces
operating revenues in the first and fourth quarters of the year. Motor home and
travel trailer 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 operating
revenues, therefore, tend to be stronger in the second and third quarters.
Risk Management, Safety and Insurance
The risk of substantial losses arising from traffic accidents is
inherent in any transportation business. The Company carries insurance to cover
such losses up to $25 million per occurrence with a deductible of up to $250,000
per occurrence for personal injury and property damage. The Company carries
cargo insurance of $1 million per occurrence with a $250,000 deductible. The
frequency and severity of claims under the Company's liability insurance affects
the cost and potentially the availability of such insurance. If the Company is
required to pay substantially greater insurance premiums, or incurs substantial
losses above $25 million or below its $250,000 deductibles, its results could be
materially adversely affected. The Company does have an "aggregate stop loss"
insurance policy for the period July 1, 1997 through June 30, 1998 whereby
personal injury, property damage, and worker's compensation losses below its
$250,000 deductible cannot exceed $4.3 million (could be adjusted up dependent
on operating revenues). The Company has been approved for self-insurance
authority of up to $1 million. There are no immediate plans to institute this
self-insurance. The granting of self-insurance would provide the Company
alternatives if insurance pricing levels do not meet the Company's expectations.
There can be no assurance that the Company can continue to maintain its present
insurance coverage on acceptable terms.
The following table sets forth information with respect to bodily
injury and property damage and cargo claims reserves for the years ended
December 31, 1995, 1996, and 1997, respectively.
Bodily Injury/Property Damage and Cargo
Claims Reserve History
Years Ended December 31,
(in thousands)
1995 1996 1997
------- ------- -------
Beginning Reserve Balance $3,326 $3,623 $4,564
Provision for Claims 4,849 6,080 6,591
Payments, net (4,552) (5,139) (5,938)
------- ------- -------
Ending Reserve Balance $3,623 $4,564 $5,217
====== ====== ======
The Company has implemented and is enhancing driver screening and
training procedures to promote safe driver practices and enhance compliance with
Department of Transportation regulations. The Company's driver recognition
programs emphasize safety and provide for equipment maintenance, helping to
enhance the Company's overall safety record. In 1997, over 1,340 drivers were
honored and obtained recognition for accident free driving. In addition to
periodic recognition for safe operations and regulatory compliance, the Company
has implemented several award programs associated with particular customers.
These programs are intended to provide incentives for drivers to drive safely,
perform well and maintain their equipment. One such program provides certain
toter drivers with a credit for miles traveled while meeting standards for
safety and professional performance. The owner operator is entitled to use the
amount credited to obtain reimbursement from the Company for equipment
purchases, maintenance, or upgrade expenses. (This program paid out $213,000 in
1997 to owner operators). The Company has a Senior Vice President of Risk
Management and Safety, Director of Compliance and Legalization, four Safety
Directors, and a Driver Trainer dedicated to assist the operating groups in
training and highway safety. The Company has incentives for dispatchers based
upon accident free miles. In 1997, over $77,000 was paid out under this program
and it is expected that over $80,000 will be paid in 1998 for 1997 performance.
Interstate, a wholly-owned insurance subsidiary of the Company, makes
available physical damage insurance coverage for the Company's owner operators.
Interstate also writes performance surety bonds for Morgan. The Company may also
utilize its wholly-owned insurance subsidiary to secure business insurance for
Morgan through re-insurance contracts.
Interstate may begin offering new insurance products as a managing
general agent. Interstate may determine to accept a limited portion of the
underwriting risk, retaining an appropriate proportion of the premiums.
Competition
All of the Company's activities are highly competitive. In addition to
fleets operated by manufacturers, the Company competes with large national
carriers and numerous small regional or local carriers. The Company's principal
competitors in the Manufactured Housing and Outsourcing marketplaces are
privately owned. In the specialized transport market, the Company competes with
large national interstate carriers, many of whom have substantially greater
resources than the Company. No assurance can be given that the Company will be
able to maintain its competitive position in the future.
Competition among carriers is based on the rate charged for services,
quality of service, financial strength, and insurance coverage. The availability
of tractor equipment and the possession of appropriate registration approvals
permitting shipments between points required by the customer may also be
influential.
Regulation
The Company's interstate operations (Morgan and TDI) are subject to
regulation by the Federal Highway Administration ("FHWA") which is an agency of
the United States Department of Transportation ("D.O.T."). Effective August 26,
1994, essentially all motor common carriers were no longer required to file
individually determined rates, classifications, rules or practices with the
former Interstate Commerce Commission. Effective January 1, 1995, the economic
regulation of certain intrastate operations by various state agencies was
preempted by federal law. The states will continue to have jurisdiction
primarily to insure that carriers providing intrastate transportation services
maintain required insurance coverage, comply with all applicable safety
regulations, and conform to regulations governing size and weight of shipments
on state highways. Most states have adopted D.O.T. safety regulations and
actively enforce them in conjunction with D.O.T. personnel.
Carriers normally are required to obtain approval and/or authority from
the FHWA as well as various state agencies. Morgan is approved and/or holds
authority to provide transportation services from, to, and between all points in
the continental United States.
The Company provides services to certain specific customers under
contract and non-contract services to the shipping public pursuant to governing
rates and charges maintained at its corporate and various dispatching offices.
Transportation services provided pursuant to a written contract are designed to
meet a customer's specific shipping needs or by dedicating equipment exclusively
to a given customer for the movement of a series of shipments during a specified
period of time.
Federal regulations govern not only operating authority and
registration, but also such matters as the content of agreements with owner
operators, required procedures for processing of cargo loss and damage claims,
and financial reporting. The Company believes that it is in substantial
compliance with all material regulations applicable to its operations.
The D.O.T. regulates safety matters with respect to the interstate
operations of the Company. Among other things, the D.O.T. regulates commercial
driver qualifications and licensing; sets minimum levels of carrier liability
and cargo insurance; requires carriers to enforce limitations on drivers' hours
of service; prescribes parts, accessories and maintenance procedures for safe
operation of commercial/motor vehicles; establishes noise emission and employee
health and safety standards for commercial motor vehicle operators; and utilizes
audits, roadside inspections and other enforcement procedures to monitor
compliance with all such regulations. The D.O.T. has established regulations
which mandate random, periodic, pre-employment, post-accident and reasonable
cause drug testing for commercial drivers. The D.O.T. has also established
similar regulations for alcohol testing. The Company believes that it is in
substantial compliance with all material D.O.T. requirements applicable to its
operations.
In Canada, provincial agencies grant both intraprovincial and
extraprovincial authority; the latter permits transborder operations to and from
the United States. The Company has obtained from Canadian provincial agencies
all required extraprovincial authority to provide transborder transportation of
manufactured homes and motor homes throughout most of Canada.
Most manufactured homes, when being transported by a toter, exceed the
maximum dimensions allowed on state highways without a special permit. The
Company obtains these permits for its owner operators from each state which
allows the Company to transport their manufactured homes on state highways. The
states and Canadian provinces have special requirements for over-dimensional
loads detailing permitted routes, timing required, signage, escorts, warning
lights and similar matters.
Most states and provinces also require operators to pay fuel taxes,
comply with a variety of other tax and/or registration requirements, and keep
evidence of such compliance in their vehicles while in transit. The Company
coordinates compliance with these requirements by its drivers and owner
operators, and monitors their compliance with all applicable safety regulations.
Interstate, the Company's insurance subsidiary, is a captive insurance
company incorporated under Vermont law. It is required to report annually to the
Vermont Department of Banking Insurance & Securities and must submit to an
examination by this Department on a triennial basis. Vermont regulations require
Interstate to be audited annually and to have its loss reserves certified by an
approved actuary. The Company believes Interstate is in substantial compliance
with Vermont insurance regulations.
Finance, the Company's finance subsidiary, is incorporated under
Indiana law. Finance is subject to Indiana's Equal Credit Opportunity Laws and
other state and federal laws relating generally to fair financing practices.
Item 2. PROPERTIES
The Company owns approximately 24 acres of land with improvements in
Elkhart, Indiana. The improvements include a 23,000 square foot office building
housing the Company's principal office and Manufactured Housing; a 7,000 square
foot building housing Outsourcing; a 9,000 square foot building used for the
Company's safety and driver service departments; and an 8,000 square foot
building partially used for driver training and licensing. Most of the Company's
13 regional and 123 locations are situated on leased property. The Company also
owns and leases property for parking and storage of equipment at various
locations throughout the United States, usually in proximity to manufacturers of
products moved by the Company. The property leases have term commitments of a
minimum of thirty days and a maximum of five years, at monthly rentals ranging
from $100 to $11,048. The Elkhart facility is currently mortgaged to one of the
Company's lenders. The following table summarizes the Company's owned real
property.
Property Location Property Description Approximate Acreage
- ----------------- -------------------- -------------------
Elkhart, Indiana Corporate and region 24
Wakarusa, Indiana Terminal and storage 4
Middlebury, Indiana Terminal and storage 13
Mocksville, North Carolina Terminal and storage 8
Edgerton, Ohio Terminal and storage 2
Woodburn, Oregon Storage 4
Woodburn, Oregon Region and storage 1
Fort Worth, Texas Region and storage 6
Ocala, Florida Terminal and storage 4
Montevideo, Minnesota Terminal and storage 3
Item 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are party to litigation in the
ordinary course of business, generally involving liability claims in connection
with traffic accidents incidental to its transport business. From time to time
the Company may become party to litigation arising outside the ordinary course
of business. The Company does not expect such pending suits to have a material
adverse effect on the Company or its results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange
under the symbol MG. As of March 25, 1998, the approximate number of
shareholders of record of the Company's Class A Common Stock was 161. This
figure does not include shareholders with shares held under beneficial ownership
in nominee name or within clearinghouse position of brokerage firms and banks.
The Class B Common Stock is held of record by Lynch Corporation.
Market Price of Class A Common Stock:
1997 1996
Quarter Ended High Low High Low
March 31 $ 8.38 $7.00 $9.38 $7.56
June 30 10.25 8.25 9.75 8.00
September 30 10.25 8.38 9.19 7.25
December 31 10.38 8.88 7.75 7.13
Dividends Declared:
Class A Class B
Cash Dividends Cash Dividends
Quarter Ended 1997 1996 1997 1996
March 31 $.02 $.02 $.01 $.01
June 30 .02 .02 .01 .01
September 30 .02 .02 .01 .01
December 31 .02 .02 .01 .01
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE MORGAN GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993
Operations
Operating Revenues $ 146,154 $ 132,208 $ 122,303 $ 101,880 $ 82,793
Operating Income (Loss)(1) 1,015 (3,263) 3,371 3,435 2,267
Pre-tax Income (Loss) 296 (3,615) 3,284 3,367 1,714
Net Income (Loss) before
Extraordinary Item 196 (2,070) 2,269 2,212 1,595
Net Income (Loss) 196 (2,070) 2,269 2,212 1,595
Per Share
Basic Net Income (Loss)
Class A Common Stock $ 0.09 $ (0.76) $ 0.81 $ 0.79 $ 0.75
Class B Common Stock 0.05 (0.80) 0.77 0.75 0.72
Diluted Net Income (Loss)
Class A Common Stock 0.09 (0.76) 0.79 0.76 0.70
Class B Common Stock 0.05 (0.80) 0.77 0.72 0.68
Cash Dividends Declared
Class A Common Stock 0.08 0.08 0.08 0.08 0.02
Class B Common Stock 0.04 0.04 0.04 0.04 0.01
Financial Position
Total Assets $ 32,746 $ 33,066 $ 30,795 $ 28,978 $ 24,399
Working Capital 2,129 1,635 8,293 11,045 9,600
Long-term Debt 2,513 4,206 3,275 1,925 2,347
Redeemable Preferred Stock -- -- -- 3,104 3,089
Common Shareholders' Equity 12,724 13,104 15,578 12,980 11,170
Common Shares Outstanding at Year End
Class A Common Stock 1,437,910 1,485,520 1,449,554 1,366,665 1,366,665
Class B Common Stock 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000
Weighted Average Shares Outstanding:
Class A Common Stock
Basic 1,456,690 1,484,242 1,382,548 1,366,665 680,730
Diluted 1,463,184 1,486,272 1,422,445 1,447,179 834,816
Class B Common Stock
Basic and Diluted 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000
Other Information
Company Unit Moves
New Manufactured Homes 154,389 121,136 114,821 98,181 76,188
Driver Outsourcing 45,857 58,368 49,885 32,060 30,978
- --------------
(1) Operating Income (Loss) in 1997 and 1996 is after special charges of
$624,000 and $3,500,000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Year 1997 Compared to 1996
Operating results for the year ended December 31, 1997, compared to
1996 were significantly impacted by the acquisition of Transit Homes of America
("Transit") in December of 1996 and the discontinuance of the Truckaway
operation in May of 1997. Transit is a provider of outsourcing services
primarily to the Manufactured housing and Specialized transport industries.
Operating revenues increased 11% from $132.2 million in 1996 to $146.2
million in 1997. Transit contributed $21.2 million of the 1997 operating
revenues. Revenues from continued operations, including Transit and excluding
the Truckaway operating revenues of $3.3 million, increased 19% in 1997 over
1996.
Manufactured housing operating revenues are generated from arranging
delivery services for new manufactured homes, modular homes and office trailers.
The increase in Manufactured housing operating revenues of 28% was primarily due
to the Transit acquisition.
Driver outsourcing operating revenues consist of the relocation of
consumer rental trucks, delivery of motor homes, and delivery of new commercial
vehicles. Decreases in relocation of rental trucks, principally due to
management's decision to de-emphasize participation in this cyclical industry
segment and competitive pressures, was a significant factor contributing to the
13% decline in Driver outsourcing operating revenues. Additionally, motor home
operating revenues decreased through a combination of reduced production from a
major customer and other competitive issues. Operating revenues from the
delivery of new commercial vehicles declined slightly in 1997 primarily due to
the realignment of our customer base in order to better position this product
line for greater profitability.
The discontinuance of the Truckaway operation in May of 1997 resulted
in a decline in comparable Specialized transport operating revenues. The
Specialized transport operating revenues increased $2.6 million after giving
effect to the discontinuance of the Truckaway operation. This increase was
attributed to a renewed focus on the Towaway business and the Transit
acquisition which brought new travel trailer operating revenues.
The increase in other service revenues of 32% relates primarily to
highway permits and labor billings added through the Transit acquisition.
Operating income increased from a loss of $3.3 million in 1996 to
operating income of $1.0 million in 1997. The operating loss in 1996 included a
special charge of $3.5 million taken in connection with the closing of
unprofitable operations. 1996 operating income before the special charge was
$0.2 million. The 1997 operating income included two special items, for a net
charge to income of $0.6 million. The first item was for a change in accounting
of $1.0 million; the second item was a special credit of $0.4 million. The
change in accounting was to account for certain components of driver pay on an
accrual rather than a cash basis. The special credit related primarily to the
gain on the sale of Truckaway assets in excess of reserves established in the
prior year. 1997 operating income before the net special charge was $1.6
million.
Operating income in 1997 was aided by the Transit acquisition and the
discontinuance of the Truckaway operation, which had an operating loss of $1.8
million in 1996. The discontinuance of the Truckaway operation was in line with
the Company's plan to exit lines of business which are unrewarding. Operating
income was negatively impacted by reduced profits from the Company's Driver
outsourcing business. Additionally, operating costs and expenses increased due
to terminal manager training, safety training for all Morgan's employees and
drivers, and an increase in employee-related health benefit cost. The investment
in safety training was in line with the Company's objective of improving its
safety performance. Claims costs in 1997, as a percent of operating revenues,
increased slightly from 4.6% in 1996 to 4.7% in 1997.
Selling, general and administrative expenses increased from $8.2
million in 1996 to $9.7 million in 1997 of which approximately $0.6 million
related to costs associated with the addition of the Transit operation.
Additionally, expenses increased because of higher computer lease costs and
higher employee related benefit costs. These increased expenses were partially
offset by lower corporate compensation costs as a result of a partial
restructuring of the corporate office.
The decrease in depreciation and amortization expenses in 1997 related
to the discontinuance of the Truckaway operation partially offset by increased
amortization from the Transit acquisition.
Net interest expense increased from $0.4 million to $0.7 million
primarily due to increases in debt related to the Transit operation and
increased borrowing on the credit facility.
In 1997, the income tax provision of $0.1 million resulted in an
effective tax rate of 34%, a more normalized rate than the 43% effective tax
benefit in 1996.
Net income for the Company in 1997 was $0.2 million (Class A $0.09 and
Class B $0.05 per basic share). The net loss in 1996 was $2.1 million (Class A
$0.76 loss and Class B $0.80 loss per basic share).
Year 1996 Compared to 1995
Operating revenues rose by 8% to $132.2 million in 1996 from $122.3
million in 1995. Prior to giving effect to the TDI acquisition, which closed on
May 22, 1995, comparable operating revenues increased 6%. Morgan's Manufactured
housing operating revenues increased 15%, outpacing the 1996 national production
growth of 9%. The growth in Manufactured housing was partially offset by an 11%
decline in the Company's Specialized transport operations. Specialized transport
was impacted by weakened demand which drove down the Company's utilization of
equipment and rates. The Truckaway operation of Specialized transport was
discontinued in 1997.
During 1996, the Company reported an operating loss, after special
charges of $3.3 million and a net loss of $2.1 million. In 1995, the Company
reported operating income of $3.4 million and net income of $2.3 million (Class
A $0.81 and Class B $0.77 per basic share). The special charge for 1996 amounted
to $3.5 million before taxes ($2.1 million after tax or $0.78 per share of Class
A and Class B) and resulted from the discontinuance of the Truckaway operation
and the write down of four properties.
The Truckaway operation generated approximately 10% of the Company's
1996 total revenue. The operating loss from this operation was approximately
$1.8 million in 1996. During 1996, the Company also initiated a plan to dispose
of certain land and buildings, two of which were associated with the Truckaway
operation, that were carried at values which prove to be higher than fair market
value.
Excluding the special charges of $3.5 million, operating income
declined from $3.4 million in 1995 to $0.2 million in 1996. The decline in
operating income in 1996 was attributed to (i) weakened freight demand in the
Specialized transport, (ii) increases of $1.3 million in claims costs,
especially in the Driver outsourcing and Specialized transport, and (iii) an
increase in operating costs specifically to build infrastructure and to invest
in the operating structure.
The investment in operating costs included, but were not limited to,
dispatch personnel, regional personnel, and driver retention programs. Selling,
general and administrative costs increased from $7.3 million in 1995 to $8.2
million in 1996. Investments in 1996 were made in automation of dispatch
facilities and personnel. In addition, the Company had a full year of selling,
general and administrative expenses for the TDI organization.
Net interest expense increased from $0.1 million to $0.4 million
primarily due to increases in debt related to the TDI acquisition and reduced
cash on hand during the year.
In 1996, the income tax benefit of $1.5 million, including federal and
state tax benefits, resulted in an effective tax benefit of 43% compared to an
effective tax rate of 31 % in 1995.
Liquidity and Capital Resources
Operating activities used $0.3 million of cash in 1997. Net income plus
the non-cash special charge and depreciation and amortization were more than
offset by increases primarily in trade accounts receivable. Trade accounts
receivables increased $2.1 million due to the increase in 1997 fourth quarter
operating revenues of 17% and an increase in days sales outstanding to 37 days.
The Company is focused on reducing overhead, including selling, general
and administration expense, and redundant operating costs. Management has also
initiated processes to expedite customer billings and collections to improve
cash flow.
Investing activities provided cash of $0.7 million in 1997. Proceeds
from the sale of property and equipment principally from the Truckaway operation
were greater than capital expenditures and acquisitions expenditures. 1997
capital expenditures were $0.9 million. Presently, the 1998 capital expenditure
plan approximates $1.0 million which will be primarily funded through revolving
credit notes.
Net cash used in financing activities increased to $1.3 million in
1997. An increase of $1.0 million in revolving credit notes, additional
financing of $0.7 million, and cash were used for payments on term and
promissory notes, purchases of 47,600 shares of Class A common stock, and the
regular dividend payments. Payments on term and promissory notes were $2.4
million in 1997. Payments on term and promissory notes for 1998 will approximate
$1.2 million.
Outstanding revolving credit notes increased to $2.5 million at
December 31, 1997. The Company, at December 31, 1997, had total borrowings
available for revolving credit notes and letters of credit of $10.0 million, of
which there was $3.3 million available. On March 25, 1998, the Company replaced
this facility with a $15.0 million revolving line of credit with a bank which
matures on April 30, 2001. Additionally, the Company also obtained from the same
bank an $8.0 million facility for letters of credit which expires on April 30,
1999. Revolving credit borrowings are limited to 80% of qualified trade accounts
receivable. These facilities provide financing for working capital needs,
letters of credit, and general corporate needs.
It is the current policy of the Company to pay annual Class A common
stock dividends totaling $.08 per share and Class B common stock dividends
totaling $.04 per share. Payment of any future dividends will be dependent,
among other things, upon earnings, capital expenditure requirements, financing
agreement covenants, future growth plans, legal restrictions, and the financial
condition of the Company.
It is management's opinion that the Company's foreseeable cash
requirement will be met through a combination of improved internally generated
funds and the credit available from the new facility.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in
areas where poor weather conditions inhibit sales and transport. This usually
reduces operating revenues in the first and fourth quarters of the year. Motor
home and travel trailer movements are generally strong 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
operating revenues, therefore, tend to be stronger in the second and third
quarters.
Impact of Year 2000
Some of the Company's older purchased software applications were
written using two digits rather than four digits to define the applicable year.
As a result, that software may interpret a date using "00" as the year 1900
rather than the year 2000. This could possibly cause a system failure or
miscalculations, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, or engage in normal
business activities.
The Company is in the process of completing an assessment and will have
to modify or replace portions of its software to ensure that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total cost of this year 2000 project has not been fully
quantified, but preliminary assessments are that conversion costs will be
immaterial to the Company. The Company believes that with the necessary
modifications to existing software and any necessary conversions to new
software, the year 2000 issue does not pose significant operational problems for
its computer systems.
The cost of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
The Company has not completed an evaluation of its major customers and
suppliers to determine if they have taken adequate measures to ensure that
necessary modifications are made to their software prior to the year 2000. While
the Company is not dependent on any one customer or supplier, failure to make
necessary year 2000 modifications by any large group of customers or suppliers
could result in a material adverse impact on the Company.
Forward-Looking Discussion
This report contains a number of forward-looking statements. From time
to time, the Company may make other oral or written forward-looking statements
regarding its anticipated operating revenues, costs and expenses, earning and
other matters affecting its operations and condition. Such forward-looking
statements are subject to a number of material factors which could cause the
statements or projections contained therein to be materially inaccurate. Such
factors include, without limitation, the risk of declining production in the
Manufactured housing industry; the risk of losses or insurance premium increases
from traffic accidents; the risk of loss of major customers; risks of
competition in the recruitment and retention of qualified drivers and in the
transportation industry generally; risks of acquisitions or expansion into new
business lines that may not be profitable; risks of changes in regulation and
seasonality of the Company's business. Such factors are discussed in greater
detail in the Company's Annual Report on Form 10-K for 1997 under Part I, Item
1, Business.7
Item 8. Financial Statements and Supplementary Data
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
December 31
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 380 $ 1,308
Trade accounts receivable, less allowance for doubtful 13,362 11,312
accounts of $183 in 1997 and $59 in 1996
Accounts receivable, other 126 274
Refundable taxes 263 584
Prepaid expenses and other current assets 2,523 2,985
Deferred income taxes 1,095 --
-------- --------
Total current assets 17,749 16,463
Property and equipment, net 4,315 2,763
Assets held for sale -- 2,375
Intangible assets, net 8,451 8,911
Deferred income taxes 767 1,683
Other assets 1,464 871
-------- --------
Total assets $ 32,746 $ 33,066
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 2,250 $ 1,250
Trade accounts payable 3,410 3,226
Accrued liabilities 4,966 4,808
Accrued claims payable 2,175 1,744
Refundable deposits 1,666 1,908
Current portion of long-term debt 1,153 1,892
-------- --------
Total current liabilities 15,620 14,828
Long-term debt, less current portion 1,360 2,314
Long-term accrued claims payable 3,042 2,820
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000 23 23
Issued shares - 1,605,553
Class B: Authorized shares - 2,500,000 18 18
Issued and outstanding shares - 1,200,000
Additional paid-in capital 12,453 12,441
Retained earnings 2,160 2,126
-------- --------
Total capital and retained earnings 14,654 14,608
Less - treasury stock at cost; 167,643 and (1,426) (1,000)
120,043 Class A shares
- loan to officer for stock purchase (504) (504)
-------- --------
Total shareholders' equity 12,724 13,104
-------- --------
Total liabilities and shareholders' equity $ 32,746 $ 33,066
======== ========
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
For the twelve months ended
December 31
1997 1996 1995
--------- --------- ---------
Operating revenues:
Manufactured housing $ 93,092 $ 72,616 $ 63,353
Driver outsourcing 20,163 23,090 19,842
Specialized transport 19,173 26,169 29,494
Other service revenues 13,726 10,333 9,614
--------- --------- ---------
146,154 132,208 122,303
Costs and expenses:
Operating costs 133,732 122,238 110,408
Special charges 624 3,500 --
Selling, general and administration 9,708 8,235 7,260
Depreciation and amortization 1,075 1,498 1,264
--------- --------- ---------
145,139 135,471 118,932
--------- --------- ---------
Operating income (loss) 1,015 (3,263) 3,371
Net interest expense 719 352 87
--------- --------- ---------
Income (loss) before income taxes 296 (3,615) 3,284
Total Income tax expense (benefit):
Current 279 268 859
Deferred (179) (1,813) 156
--------- --------- ---------
Total income tax expense (benefit) 100 (1,545) 1,015
--------- --------- ---------
Net income (loss) 196 (2,070) 2,269
Less preferred dividends -- -- 221
--------- --------- ---------
Net income (loss) applicable to common stocks $ 196 ($ 2,070) $ 2,048
========= ========= =========
Net income (loss) per common share:
Basic:
Class A common stock $ 0.09 ($ 0.76) $ 0.81
Class B common stock $ 0.05 ($ 0.80) $ 0.77
Diluted:
Class A common stock $ 0.09 ($ 0.76) $ 0.79
Class B common stock $ 0.05 ($ 0.80) $ 0.77
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Redeemable Preferred
Stock, Common Stocks, and Other Shareholders' Equity
(Dollars in thousands, except per share amounts)
Redeemable
Series A Class A Class B Additional
Preferred Common Common Paid-in Officer Treasury Retained
Stock Stock Stock Capital Loan Stock Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 3,104 $20 $18 $ 10,459 $ 2,483 $ 16,084
Net income 2,269 2,269
Redeemable preferred
Stock dividends:
Accrued 221 (221) --
Paid (337) (337)
Redemption of Series A
Preferred stock (2,988) 2 1,686 (1,300)
Conversion of warrants,
including tax benefit 1 296 297
Purchase of treasury stock (1,274) (1,274)
Common stock dividends:
Class A ($.08 per share) (113) (113)
Class B ($.04 per share) (48) (48)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 23 18 12,441 (1,274) 4,370 15,578
Net (loss) (2,070) (2,070)
Sale of treasury stock, net (504) 274 (230)
Common stock dividends:
Class A ($.08 per share) (126) (126)
Class B ($.04 per share) (48) (48)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 23 18 12,441 (504) (1,000) 2,126 13,104
Net income 196 196
Purchase of treasury stock (426) (426)
Common stock dividends:
Class A ($.08 per share) (114) (114)
Class B ($.04 per share) (48) (48)
Issuance of a director's
stock options 12 12
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 23 $ 18 $ 12,453 ($ 504) ($ 1,426) $ 2,160 $ 12,724
===================================================================================================================================
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the twelve months ended
December 31
1997 1996 1995
------- ------- -------
Operating activities:
Net income (loss) $ 196 ($2,070) $ 2,269
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,108 1,533 1,304
Deferred income taxes (179) (1,719) 156
Special charges 624 3,500 --
Non-cash compensation expense for stock options 12
(Gain) loss on disposal of property and equipment (37) 37 (19)
Changes in operating assets and liabilities:
Trade accounts receivable (2,050) (27) (1,743)
Other accounts receivable 148 240 (92)
Refundable taxes 321 (584) --
Prepaid expenses and other current assets 429 (431) (372)
Other assets (593) (374) (44)
Trade accounts payable 184 (779) 45
Accrued liabilities (890) 86 433
Accrued claims payable 653 341 297
Refundable deposits (242) 363 157
------- ------- -------
Net cash (used in) provided by operating activities (316) 116 2,391
Investing activities:
Purchases of property and equipment (919) (780) (1,955)
Proceeds from sale of property and equipment 159 94 28
Proceeds from disposal of assets held 1,656 -- --
Business acquisitions (227) (895) (1,018)
------- ------- -------
Net cash provided by (used in) investing activities 669 (1,581) (2,945)
Financing activities:
Net proceeds from notes payable to bank 1,000 1,250 --
Principle payments on long-term debt (2,366) (924) (514)
Proceeds from long-term debt 673 -- --
Conversion of warrants -- -- 297
Purchase of treasury stock (426) (286) (1,274)
Proceeds from sale of treasury stock -- 56 --
Redemption of series A preferred stock -- -- (1,300)
Common stock dividends paid (162) (174) (161)
Redeemable preferred stock dividends paid -- -- (337)
------- ------- -------
Net cash used in financing activities (1,281) (78) (3,289)
------- ------- -------
Net decrease in cash and cash equivalents (928) (1,543) (3,843)
Cash and cash equivalents at beginning of period 1,308 2,851 6,694
------- ------- -------
Cash and cash equivalents at end of period $ 380 $ 1,308 $ 2,851
===================================================================================================
See accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Morgan Group, Inc. ("Company"), through its wholly owned
subsidiaries, Morgan Drive Away, Inc. ("Morgan") and TDI, Inc. ("TDI"), provides
outsourced transportation and logistical services to the manufactured housing
and motor home industries and is a leading provider of delivery services to the
commercial truck and trailer industries in the United States. Lynch Corporation
("Lynch") owns all of the 1,200,000 shares of the Company's Class B Common stock
and 155,000 shares of the Company's Class A Common stock, which in the aggregate
represents 67% of the combined voting power of the combined classes of the
Company's Common Stock.
The Company's services also include certain insurance and financing
services to its owner operators through Interstate Indemnity Company
("Interstate") and Morgan Finance, Inc. ("Finance"), both wholly owned
subsidiaries. Operating revenues, operating profits, or identified assets of
these subsidiaries do not account for over 10% of the Company's operating
revenues, operating profits, or identifiable assets, and accordingly, no
segment information is required.
A majority of the Company's accounts receivable are due from companies
in the manufactured housing, motor home, and commercial truck and trailer
industries located throughout the United States. While the Company does not
consider its business to be dependent upon any one customer, services provided
to Fleetwood Enterprises, Inc. accounted for approximately 21%, 20%, and 24% of
operating revenues in 1997, 1996, and 1995 and 15% and 12% of gross accounts
receivables at December 31, 1997 and 1996, respectively. In addition, Oakwood
Homes Corporation accounted for approximately 16% of operating revenues in 1997,
and 10% of gross accounts receivables at December 31, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan, TDI, Interstate, and Finance. Significant
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements; and (ii) the reported amounts of operating revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Recognition of Operating Revenues
Operating revenues and related driver pay are recognized when movement
of the product is completed. Other operating expenses are recognized when
incurred.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the property
and equipment.
Intangible Assets
Intangible assets, including goodwill, are being amortized by the
straight-line method over their estimated useful lives.
Impairment of Assets
The Company periodically assesses the net realizable value of its
long-lived assets and evaluates such assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. For assets to be held, impairment is determined to exist if
estimated undiscounted future cash flows are less than the carrying amount. For
assets to be disposed of, impairment is determined to exist if the estimated net
realizable value is less than the carrying amount. As discussed in Note 17, the
Company recognized an adjustment during 1996 for write-downs of certain assets.
Insurance and Claim Reserves
The Company maintains liability insurance coverage of up to $25,000,000
per occurrence, with a deductible of $250,000 per occurrence for personal injury
and property damage. The Company currently maintains cargo damage insurance of
$1,000,000 per occurrence with a deductible of $250,000. The Company carries
statutory insurance limits on workers' compensation with a deductible of
$50,000. Claims and insurance accruals reflect the estimated ultimate cost of
claims for cargo loss and damage, personal injury and property damage not
covered by insurance. The Company accrues its self-insurance liability using a
case reserve method based upon claims incurred and estimates of unasserted and
unsettled claims and these reserves have not been discounted.
Stock Based Compensation
The Company accounts for stock based compensation under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees".
Because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Pro forma information regarding net income and earnings
per share as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method, which is required
by Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," is immaterial.
Net Income (Loss) Per Common Share
Effective for the Company's consolidated financial statements for the
year ended December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which replaces the
presentation of primary earnings per share ("EPS") and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to each class of common
stock by the weighted average number of common shares outstanding for the
period. Similar to fully diluted EPS, diluted EPS assumes the issuance of common
stock for all potentially dilutive equivalent shares outstanding. All
prior-period EPS data have been restated. The adoption of this new accounting
standard did not have a material effect on the Company's reported EPS amounts
other than disclosing EPS for each class of common stock.
Earnings available to each class of common stock are computed by
reducing net income by the amount of dividends declared in the current period
for each class of stock and by the contractual amounts that must be paid to
preferred stockholders, if any. The remaining undistributed earnings are
allocated to each class of common stock equally per share. The earnings
available to each class of common stock are determined by adding together the
amount allocated for dividends and the amount of undistributed earnings
allocated.
The net income (loss) applicable to common stocks is the same for the
basic and diluted EPS computations for 1997 and 1996. For 1995, the difference
between the net income applicable to common stocks used in the EPS calculations
is the reallocation of undistributed earnings of $13,000 between Class A common
stock and Class B common stock. The following table reconciles the differences
between basic and diluted weighted average shares outstanding.
For the twelve months ended December 31
1997 1996 1995
--------- --------- ---------
Weighted average shares outstanding
Class A stock:
Basic 1,456,690 1,484,242 1,382,548
Dilutive effect of stock options 6,494 2,030 4,742
Dilutive effect of warrants -- -- 35,155
--------- --------- ---------
Diluted 1,463,184 1,486,272 1,422,445
========= ========= =========
Class B stock - basic and diluted 1,200,000 1,200,000 1,200,000
========= ========= =========
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," which is effective beginning in
1998. SFAS No. 130 establishes standards for reporting and display for
comprehensive income and its components in a full set of general purpose
financial statements. Comparative periods are required to be reclassified to
reflect the provisions of the statement. The adoption of this SFAS will not
affect earnings as previously reported.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This SFAS requires
disclosure of selected financial and descriptive information for each operating
segment based on management's internal organizational decision-making structure.
Additional information is required on a company-wide basis for operating
revenues by product or service, operating revenues and identifiable assets by
geographic location and information about significant customers. The Company
will begin presenting any additional information as required by SFAS No. 131 in
its financial statements for the year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
Estimated December 31
Useful Life 1997 1996
- --------------------------------------------------------------------------------
(Years)
Land -- $925 $487
Buildings 25 1,763 524
Transportation equipment 3 to 5 620 1,470
Office and service equipment 5 to 8 3,293 3,145
- --------------------------------------------------------------------------------
6,601 5,626
Less accumulated depreciation 2,286 2,863
- --------------------------------------------------------------------------------
Property and equipment, net $4,315 $2,763
- --------------------------------------------------------------------------------
3. INTANGIBLE ASSETS
The components of intangible assets and their estimated useful lives
are as follows (in thousands):
Estimated December 31
Useful Life 1997 1996
- --------------------------------------------------------------------------------
(Years)
Trained work force 3 to 12 $ 880 $ 880
Covenants not to compete 5 to 15 1,206 1,170
Trade name and goodwill - original 40 1,660 1,660
Trade name and goodwill - purchased 20 6,894 6,812
- --------------------------------------------------------------------------------
10,640 10,522
Less accumulated amortization 2,189 1,611
- --------------------------------------------------------------------------------
Intangible assets, net $8,451 $8,911
- --------------------------------------------------------------------------------
4. INDEBTEDNESS
The Company at December 31, 1997 had credit facilities of $10,000,000,
of which $2,250,00 of revolving credit notes (bearing interest at 8.5% per
annum), and $4,490,000 of letters of credit were outstanding. The remaining
$3,260,000 was available for borrowing. On March 25, 1998, the Company replaced
this facility with a $15,000,000 revolving line of credit that matures on April
30, 2001. Additionally, the Company obtained from the same bank an $8,000,000
facility for letters of credit which expires on April 30, 1999. Revolving credit
borrowings are limited to 80% of qualified trade accounts receivable. These
facilities provide financing for working capital needs, letters of credit, and
general corporate needs.
Interest on the line of credit is determined at the Company's option at
the time of the borrowing, based on the bank's prime rate or until December 31,
1998 at the London Interbank Offering Rate ("LIBOR"), plus 165 basis points. The
LIBOR rate will be adjusted after December 31, 1998. The letter of credit rate
is the applicable LIBOR margin rate.
The agreement requires payment of a closing fee of $25,000 and a
facility fee of 25 basis points payable quarterly on the $15,000,000 revolving
line of credit. The Company, beginning in 1998, is to maintain certain minimum
levels of net worth and a debt to net worth and interest coverage ratio.
Borrowings are secured by the trade accounts receivable, transportation
equipment, office and service equipment, and general intangible assets.
As of December 31, 1997 and 1996, long-term debt consisted of the
following (in thousands):
December 31
1997 1996
------ ------
Promissory note, principal due on January 2, 1997 -- $ 697
Real estate note with principal and interest
payable monthly through November 1, 1997 -- 330
Term note with imputed interest at 6.509%,
principal and interest payments due
monthly through April 25, 1998 $ 303 --
Promissory note with imputed interest at 8.0%,
principal and interest payments due
annually through September 1, 1998 112 270
Term note with principal and interest payable
monthly at 8.25% through July 31, 2000 232 341
Promissory note with imputed interest at 7.81%,
principal and interest payments due
annually through August 11, 2000 914 1,154
Promissory note with imputed interest at 7.0%,
principal and interest payments due
monthly through October 31, 2001 205 256
Promissory note with imputed interest at 6.31%,
principal and interest payments due
quarterly through December 31, 2001 747 1,158
------ ------
2,513 4,206
Less current portion 1,153 1,892
------ ------
Long-term debt, net $1,360 $2,314
====== ======
Maturities on long-term debt for the five succeeding
years are as follows:
1998 $1,153
1999 627
2000 545
2001 140
2002 48
------
$2,513
======
Cash payments for interest were $717,000 in 1997, $482,000 in 1996, and $308,000
in 1995.
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The income tax provisions (benefits) are summarized as follows (in
thousands):
1997 1996 1995
---- ---- ----
Current:
State -- $ 28 $ 180
Federal $279 240 679
------ ------- ------
279 268 859
Deferred
State 45 (267) --
Federal (224) (1,546) 156
------ ------- ------
(179) (1,813) 156
------ ------- ------
$ 100 $(1,545) $1,015
====== ======= ======
Deferred tax assets (liabilities) are comprised of the following at
December 31 (in thousands):
1997 1996
------- -------
Deferred tax assets:
Accrued insurance claims $ 2,080 $ 1,595
Special charges 734 1,260
Minimum tax carryforward 42 96
------- -------
2,856 2,951
Deferred tax liabilities:
Depreciation (684) (709)
Prepaid expenses (290) (482)
Other (20) (77)
------- -------
(994) (1,268)
------- -------
$ 1,862 $ 1,683
======= =======
A reconciliation of the income tax provisions and the amounts computed
by applying the statutory federal income tax rate to income before income taxes
follows (in thousands):
1997 1996 1995
------- ------- -------
Income tax provision (benefit)
at federal statutory rate $ 101 $(1,229) $ 1,117
Increases (decreases):
State income tax, net of
federal tax benefit 3 (155) 118
Reduction attributable to
special election by captive
insurance company (155) (216) (223)
Permanent differences 94 50 --
Other 57 5 3
------- ------- -------
$ 100 $(1,545) $ 1,015
======= ======= =======
Cash payments for income taxes were $54,000 in 1997, $934,000 in 1996,
and $736,000 in 1995.
6. COMMON STOCKS
The Company has two classes of common stock outstanding, Class A and
Class B. Under the bylaws of the Company: (i) each share of Class A is entitled
to one vote and each share of Class B is entitled to two votes; (ii) Class A
stockholders are entitled to a dividend ranging from one to two times the
dividend declared on Class B stock; (iii) any stock distributions will maintain
the same relative percentages outstanding of Class A and Class B; (iv) any
liquidation of the Company will be ratably made to Class A and Class B
stockholders after satisfaction of the Company's other obligations; and (v)
Class B stock is convertible into Class A stock at the discretion of the holder;
Class A stock is not convertible into Class B stock.
7. REDEEMABLE PREFERRED STOCK
The Company redeemed the Series A Redeemable Preferred Stock in a
transaction approved by a special meeting of the Board of Directors on November
22, 1995. The transaction involved the redemption of the 1,493,942 preferred
shares owned by Lynch Corporation in exchange for $1,300,000 in cash and 150,000
shares of Class A Common stock. The consideration received in exchange for the
shares of Class A Common stock exceeded the book value at the date of the
exchange by $450,000. The resulting premium was recorded as an increase to the
paid-in capital account in the Company's shareholders' equity.
On December 7, 1994, June 22, 1995 and November 22, 1995, the Board of
Directors declared Series A Redeemable Preferred Stock cash dividends pursuant
to its terms. Accordingly, $337,000 of cash dividends were paid to Lynch during
1995.
8. STOCK WARRANTS
In June 1995, an officer exercised warrants to purchase 88,888 shares
of Class A Common stock at an option price of $.75 per share. This exercise
represented two-thirds of the total outstanding warrants. The final third of the
warrants, representing 44,445 shares, were cancelled.
The Company accepted 22,660 shares of stock from the officer to satisfy
the federal income tax withholding resulting from the warrant exercise. The
stock price on the warrant exercise date was $8.375 per share.
9. STOCK OPTION PLAN
On June 4, 1993, the Board of Directors approved the adoption of a
stock option plan which provides for the granting of incentive or non-qualified
stock options to purchase up to 200,000 shares of Class A Common stock to
officers, including members of the Board of Directors, and other key employees.
No options may be granted under this plan for less than the fair market value of
the Common stock at the date of the grant, except for certain non-employee
directors. Although the exercise period is determined when options are actually
granted, an option shall not be exercised later than ten years and one day after
it is granted. Stock options granted will terminate if the grantee's employment
terminates prior to exercise for reasons other than retirement, death, or
disability. Stock options vest over a four year period pursuant to the terms of
the plan, except for stock options granted to a non-employee director, which are
immediately vested.
Employees have been granted non-qualified stock options to purchase
118,000 shares of Class A Common stock, net of cancellations and exercises, at
prices ranging from $7.38 to $9.38 per share. Non-employee directors have been
granted non-qualified stock options to purchase 49,000 shares of Class A Common
stock, net of cancellations and exercises, at prices ranging from $6.20 to $9.00
per share. As of December 31, 1997, there were 110,625 options to purchase
shares granted to employees and non-employee directors which were exercisable
based upon the vesting terms, of which all shares had option prices less than
the December 31, 1997 closing price of $9.25. The following table summarizes
activity under the option plan:
Shares Option Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 160,500
Grants 15,000 $7.88 - $8.38
Exercises (1,250)
Cancellations (35,250)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1995 139,000
Grants 48,500 $7.38 - $8.69
Exercises ------
Cancellations (12,000)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1996 175,500
Grants 25,500 $6.20 - $9.38
Exercises ------
Cancellations (34,000)
- --------------------------------------------------------------------------------
Outstanding at December 31, 1997 167,000
10. SPECIAL EMPLOYEE STOCK PURCHASE PLAN
In February of 1996, the Company adopted a Special Employee Stock
Purchase Plan ("Plan") under which an 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. Interest for 1997 was forgiven.
The Plan allows for repayment of the note using shares at $8.00 per share.
11. TREASURY STOCK
The Company's Board of Directors has approved the purchase of up to
250,000 shares of Class A Common stock for its Treasury at various dates and
market prices. As of December 31, 1997, 149,255 shares had been repurchased at
prices between $7.25 and $10.25 per share for a total of $1,266,000. In addition
to these purchases, the 22,660 shares tendered to the Company as a result of the
exercise of warrants (see Note 8) were placed in the Treasury at a value of
$190,000. On December 15, 1995, the Company's Board of Directors approved the
repurchase of 66,228 shares from a prior officer of the Company at a market
price of $8.00 per share totaling $530,000.
12. BENEFIT PLAN
The Company has a 401(k) Savings Plan covering substantially all
employees, which matches 25% of the employee contributions up to a designated
amount. The Company's contributions to the Plan were $38,000 in 1997, $27,000 in
1996, and $23,000 in 1995.
13. TRANSACTIONS WITH LYNCH
The Company pays Lynch an annual service fee of $100,000 for executive,
financial and accounting, planning, budgeting, tax, legal, and insurance
services. Additionally, Lynch charged the Company for officers' and directors'
liability insurance $16,000 in 1997, $15,000 in 1996, and $15,000 in 1995. As
discussed in Note 7, the Redeemable Preferred Stock owned by Lynch Corporation
was redeemed during 1995 at a discount.
The Company's Class A and Class B Common Stock owned by Lynch is
pledged to secure a Lynch Corporation line of credit.
14. LEASES
The Company leases certain land, buildings, computer equipment,
computer software, and motor equipment under non-cancelable operating leases
that expire in various years through 2002. Several land and building leases
contain monthly renewal options. Total rental expenses were $2,531,000 in 1997,
$2,087,000 in 1996, and $1,804,000 in 1995.
Future payments under non-cancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1997 (in
thousands):
1998 $1,732
1999 813
2000 260
2001 6
2002 1
--------------------------------------------
Total lease payments $2,812
============================================
15. ACQUISITIONS
Effective May 22, 1995, the Company purchased the assets of TDI, a
market leader in the driver outsourcing services business focusing on relocating
rental equipment for a total purchase price of $2,750,000. The acquisition was
financed through a payment of $1,000,000 on May 11, 1995, with the balance of
$1,725,000 financed with the seller over five years. The present value of the
acquisition was $2,462,000; $75,000 of which related to the operating assets
purchased and $2,387,000 to the purchase of intangible assets. In addition, the
Company entered into a consulting agreement with two of the principals from the
seller, pursuant to which the principals agreed to provide consulting services
to the Company for sixty-three months for consideration totaling $202,500,
payable over the consulting period. The book value of the promissory note in
this transaction was $914,000 at December 31, 1997.
Effective December 30, 1996, the Company purchased the assets of
Transit Homes of America, Inc., a provider of outsourcing services to the
manufactured housing and specialized transport industries. The aggregate
purchase price was $4,417,000 which includes the cost of the acquisition and
certain limited liabilities assumed as part of the acquisition. The acquisition
was financed through available cash resources and issuance of a promissory note.
In addition, the Company entered into an employment agreement with the seller
which provides for incentive payments up to $300,000 and $200,000 in years 1998
and 1999, respectively, and $100,000 in each of the years 2000 and 2001. The
incentive payments are based upon achieving certain profit levels in the
Company's Manufactured Housing Group and will be treated as compensation expense
if earned. The excess purchase price over assets acquired was approximately
$4,091,000 and is being amortized over twenty years. In connection with the
acquisition, liabilities assumed were as follows (in thousands):
Fair value of assets acquired $326
Goodwill acquired 4,091
Cash paid (940)
Note issued due January 2, 1997 (697)
Note issued at acquisition date (1,158)
-------
Liabilities assumed $ 1,622
=======
16. CONTINGENCIES
The Company has general liabilities claims pending, incurred in the
normal course of business for which the Company maintains liability insurance
covering amounts in excess of its self-insured retention. Management believes
that adequate reserves have been established on its self-insured claims and that
their ultimate resolution will not have a material adverse effect on the
consolidated financial position, liquidity, or operating results of the Company.
17. SPECIAL CHARGES
In the fourth quarter of 1996, the Company recorded special charges of
$2,675,000 ($1,605,000 after tax) associated with exiting the truckaway
operation. The special charges were comprised principally of the anticipated
loss on sales of revenue equipment, projected losses through April 30, 1997, and
write-downs of accounts receivable and other assets. Additionally, the Company
recognized an adjustment to the carrying value of four properties of $825,000
($495,000 after tax).
A pretax special charge for 1997 of $624,000 ($412,000 after tax or
$0.16 per Class A and Class B share) is comprised of gains in excess of the
estimated net realizable value associated with exiting the truckaway operation
discussed above of $361,000, offset by charges related to driver pay. During
1997, management concluded that certain components of driver pay were being
accounted for on a cash basis. Accordingly, the Company recorded total charges
of $1.2 million ($985,000 in special charges and $215,000 as operating costs) in
the fourth quarter of 1997 to account for all components of driver pay on an
accrual basis. It is the opinion of management that the effects of this change
in accounting are immaterial to the results of operations of the previous years
presented.
18. OPERATING COSTS AND EXPENSES (in thousands)
1997 1996 1995
- ------------------------------------------------------------------------------------------------
Purchased transportation costs $100,453 $ 92,037 $84,315
Operating taxes and licenses 7,284 6,460 6,052
Insurance 3,524 3,502 4,000
Claims 6,913 6,080 4,797
Dispatch costs 9,492 8,204 6,997
Regional costs 4,917 3,733 2,900
Repairs and maintenance 350 918 770
Other 799 1,304 577
- ------------------------------------------------------------------------------------------------
$133,732 $122,238 $110,408
================================================================================================
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1997 and 1996 (in thousands, except share
data):
1997 ----- Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Operating revenues $33,633 $39,211 $38,290 $35,020
Operating income (loss) 431 1,286 1,251 (1,953)
Net income (loss) 266 699 705 (1,474)
Net income (loss) per common share:
Class A common stock
Basic 0.10 0.27 0.27 (0.55)
Diluted 0.10 0.27 0.26 (0.55)
Class B common stock
Basic 0.09 0.26 0.26 (0.56)
Diluted 0.09 0.26 0.25 (0.56)
1996 ----- Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Operating revenues $30,506 $36,698 $35,305 $29,699
Operating income (loss) (48) 678 788 (4,681)
Net income (loss) 9 417 495 (2,991)
Net income (loss) per common share:
Class A common stock
Basic 0.01 0.16 0.19 (1.11)
Diluted 0.01 0.16 0.19 (1.11)
Class B common stock
Basic 0.00 0.15 0.18 (1.12)
Diluted 0.00 0.15 0.18 (1.12)
In the fourth quarter of 1997, the Company recorded special charges of
$624,000 ($412,000 after tax, or $0.16 per Class A and Class B share). In the
fourth quarter of 1996, the Company recorded special charges of $3,500,000
($2,100,000 after taxes, or $0.78 per Class A and Class B share). See Note 17.
Report of Independent Auditors
The Board of Directors
The Morgan Group, Inc.
We have audited the accompanying consolidated balance sheets of The Morgan
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in redeemable preferred stock,
common stocks and other shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 consolidated financial position of The Morgan Group,
Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Greensboro, North Carolina
March 4, 1998, except for Note 4,
as to which the date is
March 25, 1998
To the Shareholders and Board of Directors of
The Morgan Group, Inc.:
We have audited the accompanying consolidated statements of operations,
changes in redeemable preferred stock, common stocks and other shareholders'
equity and cash flows of The Morgan Group, Inc. (a Delaware Corporation) and
Subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
The Morgan Group, Inc. and Subsidiaries for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
February 5, 1996
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the section entitled "Proposal One - Election of Directors" of the Company's
Proxy Statement for its 1998 Annual Meeting of Stockholders expected to be filed
with the Commission on or about April 30, 1998 (the "1998 Proxy Statement").
Item 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive
compensation is incorporated by reference to the section entitled "Management
Remuneration" of the 1998 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference to
the sections entitled "Voting Securities and Principal Holders Thereof" and
entitled "Proposal One - Election of Directors" of the 1998 Proxy
Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the section entitled "Certain Transactions with Related Persons" of the 1998
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements are included in Item 8:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Change in Redeemable Preferred
Stock, Common Stocks and Other Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Auditors
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(a)(3) Exhibits Filed.
The exhibits filed herewith or incorporated by reference herein
are set forth on the Exhibit Index. Included in those exhibits
are management contracts and compensatory plans and arrangements
which are identified as Exhibits 10.1 through 10.10.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the
quarter ending December 31, 1997.
(c) The exhibits filed herewith or incorporated by reference
herein are set forth on the Exhibit Index.
Schedule II
The Morgan Group Inc. and Subsidiaries
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
-----------------------------------------------------------------------------------
Additions Amounts
Beginning Charged to Costs Written Off Ending
Description Balance and Expenses Net of Recoveries Balance
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 $59,000 $336,000 $212,000 $183,000
Year ended December 31, 1996 $102,000 $244,000 $287,000 $59,000
Year ended December 31, 1995 $171,000 $184,000 $253,000 $102,000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
THE MORGAN GROUP, INC.
Date: March 31, 1998 BY: /s/ Charles C. Baum
--------------------------------
Charles C. Baum, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 27th day of March, 1998.
1) Chief Executive Officer:
By: /s/ Charles C. Baum
-------------------------------
Charles C. Baum
2) Chief Financial Officer and
Chief Accounting Officer
By: /s/ Dennis R. Duerksen
-------------------------------
Dennis R. Duerksen
3) A Majority of the Board of Directors:
/s/ Charles C. Baum Director
-------------------------------
Charles C. Baum
/s/ Bradely J. Bell Director
-------------------------------
Bradley J. Bell
Director
-------------------------------
Richard B. Black
/s/ Frank E. Grzelecki Director
-------------------------------
Frank E. Grzelecki
/s/ Robert S. Prather, Jr. Director
-------------------------------
Robert S. Prather, Jr.
EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
3.1 Registrant's Restated Certificate of Incorporation, as
amended, is incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
3.2 Registrant's Code of By-Laws, as restated and amended,
is incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.1 Form of Class A Stock Certificate is incorporated by
reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
4.2 Fourth Article - "Common Stock" of the Registrant's
Certificate of Incorporation, is incorporated by
reference to the Registrant's Certificate of
Incorporation, as amended, filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.3 Article II - "Meeting of Stockholders," Article VI -
"Certificate for Shares" and Article VII - "General
Provisions" of the Registrant's Code of By-Laws,
incorporated by reference to the Registrant's Code of
By-Laws, as amended, filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
4.4 Loan Agreements, dated September 13, 1994, between the
Registrant and Subsidiaries and Society National Bank,
are incorporated by reference to Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1994, filed November 15,
1994.
4.5 Amended and Restated Credit and Security Agreement,
effective March 25, 1998, among the Registrant, Morgan
Drive Away, Inc., TDI, Inc., Interstate Indemnity
Company and KeyBank National Association. _____
4.6 Revolving Credit Facility Agreement, effective March 27,
1997, among Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company and KeyBank National
Association is incorporated by reference to Exhibit
4.5(a) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 31,
1997.
4.7 Master Revolving Note, dated March 27, 1997, among
Morgan Drive Away, Inc., TDI, Inc., and Interstate
Indemnity Company to KeyBank National Association is
incorporated by reference to Exhibit 4.5(b) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996, filed March 31, 1997.
4.8 Amended and Restated Revolving Credit Note, dated March
31, 1998, among Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company to KeyBank National
Association is incorporated by reference to Exhibit A to
the Amended and Restated Credit and Security Agreement,
effective March 25, 1998, among the Registrant, Morgan
Drive Away, Inc., TDI, Inc., Interstate Indemnity
Company and KeyBank National Association, filed herewith
as Exhibit 4.5.
4.9 Security Agreement, effective as of March 27, 1997,
between Morgan Drive Away, Inc. and KeyBank National
Association is incorporated by reference to Exhibit
4.5(c) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996, filed March 31,
1997.
4.10 Absolute, Unconditional and Continuing Guaranty,
effective as of March 27, 1997, by the Registrant to Key
Bank National Association is incorporated by reference
to Exhibit 4.5(d) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, filed
March 31, 1997.
4.11 Amended and Restated Continuing Guaranty, effective as
of March 31, 1998, by the Registrant to KeyBank
National Association is incorporated by reference to
Exhibit D to the Amended and Restated Credit and
Security Agreement, effective March 25, 1998, among the
Registrant, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company and KeyBank National
Association, filed herewith as Exhibit 4.5. _____
10.1 The Morgan Group, Inc. Incentive Stock Plan is
incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-641-22, effective July 22, 1993.
10.2 First Amendment to the Morgan Group, Inc. Incentive
Stock Plan is incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, filed November 14,
1997.
10.3 Memorandum to Charles Baum and Philip Ringo from Lynch
Corporation, dated December 8, 1992, respecting Bonus
Pool, is incorporated by reference to Exhibit 10.2 to
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.4 Term Life Policy from Northwestern Mutual Life Insurance
Company insuring Paul D. Borghesani, dated August 1,
1991, is incorporated by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.5 Long Term Disability Insurance Policy from Northwestern
Mutual Life Insurance Company, dated March 1, 1990, is
incorporated by reference to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
10.6 Long Term Disability Insurance Policy from CNA Insurance
Companies, effective January 1, 1998. _____
10.7 The Morgan Group, Inc. Employee Stock Purchase Plan, as
amended, is incorporated by reference to Exhibit 10.16
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 30, 1995.
10.8 Consulting Agreement between Morgan Drive Away, Inc. and
Paul D. Borghesani, effective as of April 1, 1996, is
incorporated by reference to Exhibit 10.19 the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, filed on April 1, 1996.
10.9 Employment Agreement between Morgan Drive Away, Inc. and
Terence L. Russell is incorporated by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on
April 1, 1996.
10.10 Stock Purchase Agreement between Morgan Drive Away, Inc.
and Terence L. Russell is incorporated by reference to
Exhibit 10.21 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on
April 1, 1996.
10.11 Asset Purchase Agreement, dated May 21, 1993, between
Registrant, Transamerican Carriers, Inc., Ruby and Billy
Davis and Morgan Drive Away, Inc., is incorporated by
reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
10.12 Management Agreement between Skandia International and
Risk Management (Vermont), Inc. and Interstate Indemnity
Company, dated December 15, 1992, is incorporated by
reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1, File No. 33-641-22,
effective July 22, 1993.
10.13 Agreement for the Allocation of Income Tax Liability
between Lynch Corporation and its Consolidated
Subsidiaries, including the Registrant (formerly Lynch
Services Corporation), dated December 13, 1988, as
amended, is incorporated by reference to Exhibit 10.13
the Registrant's Registration Statement on Form S-1,
File No. 33-641-22, effective July 22, 1993.
10.14 MCI Corporate Service Agreement, dated December 12,
1994, between MCI Telecommunications Corporation and
Morgan Drive Away, Inc., is incorporated by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994, filed on
March 30, 1995.
10.15 First Amendment to MCI Corporate Service Plan and other
service agreements dated May 7, 1996 and September 30,
1997. _____
10.16 Certain Services Agreement, dated January 1, 1995,
between Lynch Corporation and the Registrant is
incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, filed on March 30, 1995.
10.17 Asset Purchase Agreement for Transfer Drivers Inc. and
List of Schedules is incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995, filed on
April 1, 1996.
10.18 Asset Purchase Agreement between Registrant and Transit
Homes of America, Inc., dated as of November 19, 1996,
as amended as of December 30, 1996, is incorporated by
reference to Exhibit (2)-1 to the Registrant's Form 8-K
filed January 14, 1997.
10.19 Amendment to Asset Purchase Agreement between Registrant
and Transit, Inc., dated as of December 29, 1996 is
incorporated by reference to Exhibit (2)-2 to the
Registrant's Form 8-K filed January 14, 1997.
11 Statement Re: Computation of Per Share Earnings _____
21 Subsidiaries of the Registrant _____
23.1 Consent of Arthur Andersen LLP _____
23.2 Consent of Ernst & Young LLP _____
27.1 Financial Data Schedule (1997) _____
27.2 Restated Financial Data Schedule (1996) _____