UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1998
THE MORGAN GROUP, INC.
2746 Old U. S. 20 West
Elkhart, Indiana 46515-1168
(219) 295-2200
Delaware 1-13586 22-2902315
(State of (Commission File Number) (I.R.S. Employer
Incorporation) Identification Number)
The Company (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
The number of shares outstanding of each of the Company's classes of common
stock at July 31, 1998 was:
Class A - 1,438,035 shares
Class B - 1,200,000 shares
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Statements of
Operations for the Three and Six Month Periods
Ended June 30, 1998 and 1997 4
Consolidated Statements of
Cash Flows for the Six Month Periods Ended
June 30, 1998 and 1997 5
Notes to Consolidated Financial
Statements as of June 30, 1998 6 - 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION 11
Item 4 Submission of Matter to a Vote of Security Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
PART I FINANCIAL INFORMATION
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
June 30, December 31,
1998 1997
ASSETS (unaudited)
------------- ----------------
Current assets:
Cash and cash equivalents $538 $380
Trade accounts receivable, less allowance for doubtful
accounts of $242 in 1998 and $183 in 1997 16,090 13,362
Accounts receivable, other 351 126
Refundable taxes 113 263
Prepaid expenses and other current assets 2,528 2,523
Deferred income taxes 1,095 1,095
------- -------
Total current assets 20,715 17,749
------- -------
Property and equipment, net 4,313 4,315
Intangible assets, net 8,154 8,451
Deferred income taxes 767 767
Other assets 863 1,464
------- -------
Total assets $34,812 $32,746
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $3,000 $2,250
Trade accounts payable 3,839 3,410
Accrued liabilities 6,101 4,966
Accrued claims payable 2,165 2,175
Refundable deposits 1,725 1,666
Current portion of long-term debt 676 1,153
------- -------
Total current liabilities 17,506 15,620
------- -------
Long-term debt, less current portion 1,180 1,360
Long-term accrued claims payable 3,094 3,042
Commitments and contingencies - - - - - - - -
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,605,553 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,453
Retained earnings 2,464 2,160
------- -------
Total capital and retained earnings 14,964 14,654
Less - treasury stock at cost 166,918 and
167,643 Class A shares (1,428) (1,426)
Loan to officer for stock purchase (504) (504)
------- -------
Total shareholders' equity 13,032 12,724
------- -------
Total liabilities and shareholders' equity $34,812 $32,746
======= =======
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Operating revenues:
Manufactured housing $26,073 $25,541 $47,297 $45,210
Driver outsourcing 6,111 5,209 11,478 10,098
Specialized transport 5,699 4,742 10,022 10,879
Other service revenues 3,640 3,719 6,697 6,657
------- ------- ------- -------
Total operating revenues 41,523 39,211 75,494 72,844
Costs and expenses:
Operating costs 37,123 35,582 68,778 66,257
Selling, general and administration 2,873 2,041 5,241 4,274
Depreciation and amortization 288 302 583 596
------- ------- ------- -------
40,284 37,925 74,602 71,127
Operating income 1,239 1,286 892 1,717
Interest expense, net 189 168 333 299
------- ------- ------- -------
Income before income taxes 1,050 1,118 559 1,418
Income tax expense 433 419 173 453
------- ------- ------- -------
Net income $617 $699 $386 $965
======= ======= ======= =======
Net income per common share:
Basic:
Class A common stock $0.24 $0.27 $0.16 $0.37
======= ======= ======= =======
Class B common stock $0.23 $0.26 $0.14 $0.35
======= ======= ======= =======
Diluted:
Class A common stock $0.24 $0.27 $0.15 $0.37
======= ======= ======= =======
Class B common stock $0.23 $0.26 $0.13 $0.35
======= ======= ======= =======
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
------- -------
Operating activities:
Net income $ 386 $ 965
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 583 596
Gain on disposal of property and equipment (15) (51)
Changes in operating assets and liabilities:
Trade accounts receivable (2,728) (4,280)
Other accounts receivable (225) (8)
Refundable taxes 156 456
Prepaid expenses and other current assets (5) 1,227
Other assets 601 (376)
Trade accounts payable 429 1,933
Accrued liabilities 1,135 (1,164)
Accrued claims payable 42 364
Refundable deposits 59 (431)
------- -------
Net cash provided by (used in) operating activities 418 (769)
Investing activities:
Purchases of property and equipment (358) (260)
Proceeds from sale of property and equipment 89 896
Business acquisitions -- (302)
------- -------
Net cash provided by (used in) investing activities (269) 334
Financing activities:
Net proceeds from note payable to bank 750 1,304
Principle payments on long-term debt (657) (1,219)
Purchase of treasury stock (64) (350)
Proceeds from sale of treasury stock 62 --
Common stock dividends paid (82) (81)
------- -------
Net cash provided by (used in) financing activities 9 (346)
------- -------
Net increase (decrease) in cash and equivalents 158 (781)
Cash and cash equivalents at beginning of period 380 1,308
------- -------
Cash and cash equivalents at end of period $ 538 $ 527
======= =======
The Morgan Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1998
Note 1.Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The consolidated interim financial
statements should be read in conjunction with the financial statements,
notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of
normal recurring items) necessary for a fair presentation, in all
material respects, of the financial position and results of operations
for the periods presented. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company, MDA Corporation, and Morgan Finance,
Inc., all of which are wholly owned. Significant intercompany accounts
and transactions have been eliminated in consolidation.
Note 2. Net Income Per Common Share
Net income available to each class of common stock is determined by
adding together the amount of applicable dividends declared and the
amount of undistributed earnings allocated. Undistributed earnings are
allocated to each class of common stock equally per share.
Net income applicable to common stocks is the same for the basic and
diluted EPS computations for all periods presented. The following table
reconciles basic and diluted earnings per share (dollars in thousands,
except share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Allocation of net income to common stocks:
Class A Stock:
Dividends $ 29 $ 30 $ 58 $ 60
Allocation of undistributed earnings 314 362 166 486
---------- ---------- ---------- ----------
Net income applicable to Class A stock -
basic and diluted $ 343 $ 392 $ 224 $ 546
---------- ---------- ---------- ----------
Class B Stock:
Dividends 12 12 24 24
Allocation of undistributed earnings 262 295 138 395
---------- ---------- ---------- ----------
Net income applicable to Class B stock -
basic and diluted $ 274 $ 307 $ 162 $ 419
---------- ---------- ---------- ----------
Net income $ 617 $ 699 $ 386 $ 965
========== ========== ========== ==========
Weighted average shares outstanding:
Class A stock:
Basic 1,437,421 1,462,487 1,436,821 1,475,677
Dilutive effect of stock options 17,779 9,636 13,116 6,483
---------- ---------- ---------- ----------
Diluted 1,455,200 1,472,123 1,449,937 1,482,160
========== ========== ========== ==========
Class B stock-basic and diluted 1,200,000 1,200,000 1,200,000 1,200,000
========== ========== ========== ==========
Class A basic EPS $ 0.24 $ 0.27 $ 0.16 $ 0.37
========== ========== ========== ==========
Class B basic EPS $ 0.23 $ 0.26 $ 0.14 $ 0.35
========== ========== ========== ==========
Class A diluted EPS $ 0.24 $ 0.27 $ 0.15 $ 0.37
========== ========== ========== ==========
Class B diluted EPS $ 0.23 $ 0.26 $ 0.13 $ 0.35
========== ========== ========== ==========
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Morgan Group, Inc. is the nation's largest service company managing the
delivery of manufactured homes, trucks, specialized vehicles, and trailers
in the United States. Morgan provides outsourcing transportation services
principally through a national network of independent owner operators. The
Company dispatches its drivers from approximately 112 offices in 32 states.
The Company's services also include providing certain insurance and
financing services to its owner operators. The Manufactured housing group
provides specialized transportation to companies which produce new
manufactured homes, modular homes, and office trailers. In addition, the
Manufactured housing group transports used manufactured homes and offices.
The Driver outsourcing group provides drivers to customers to deliver
commercial trucks and recreational vehicles. The Specialized transport
group moves a variety of specialized vehicles, including semi-trailers,
military vehicles, travel trailers and other commodities by utilizing
specialized equipment.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of operations
data to revenue for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
------ ------ ------ ------
Statement of Operations Data:
Operating revenues 100.0% 100.0% 100.0% 100.0%
Operating costs 89.4 90.7 91.1 91.0
Selling, general and administration 6.9 5.2 6.9 5.9
Depreciation and amortization .7 .8 .8 .8
------ ------ ------ ------
Operating income 3.0 3.3 1.2 2.3
Interest expense, net .5 .4 .5 .4
------ ------ ------ ------
Income before income taxes 2.5 2.9 .7 1.9
Income tax expense 1.0 1.1 .2 .6
------ ------ ------ ------
Net income 1.5% 1.8% .5% 1.3%
====== ====== ====== ======
Operating revenues for the second quarter increased from $39.2 million in 1997,
to a record amount of $41.5 million in 1998. The second quarter of 1997 included
$0.7 million of revenues from the discontinued truckaway operation which was
part of Specialized transport. The increase was primarily in the Specialized
transport and Driver outsourcing operating revenues which increased 20.2% and
17.3%, respectively. Specialized transport operating revenues increased 41.0%
after giving effect to the discontinuance of the truckaway operation in May of
1997.
The increase in Driver outsourcing is principally due to the growth in delivery
of Class Eight vehicles and also increases in the delivery of recreational
vehicles. The increase in Specialized transport is primarily due to the
reconstruction of this business segment and the growth of the driver force.
Operating costs as a percent of operating revenues decreased from 90.7% in the
second quarter of 1997 to 89.4% in the second quarter of 1998. This improvement
was principally due to the effect of higher volume and less bodily injury and
cargo claims expense in 1998, compared to 1997. Additionally, fixed costs were
less in 1998 primarily due to the discontinuance of the truckaway operation and
reductions in Manufactured housing, partially offset by increased dispatch and
regional costs in Specialized transport.
Selling, general and administration expenses increased from 5.2% of operating
revenues in the second quarter of 1997 to 6.9% in the second quarter of 1998,
primarily due to increased salaries, health care expense and professional fees
principally relating to information systems initiatives and Year 2000
compliance.
Operating income was 3.0% of operating revenues in the second quarter of 1998
compared to 3.3% in 1997. Net income was 1.5% of operating revenues in the
second quarter of 1998 compared to 1.8% in 1997.
Operating revenues for the six months ended June 30, increased from $72.8
million in 1997 to $75.5 million in 1998. The first six months of 1997 included
$3.3 million of revenues from the discontinued truckaway operation.
The increases were 4.6% in Manufactured housing, 13.7% in Driver outsourcing,
and 32.2% in Specialized transport after giving effect to the discontinuance of
the truckaway operation. Manufactured housing principally experienced increased
volume with the existing customer base. The increases in Driver outsourcing and
Specialized transport primarily are due to the reasons stated in the second
quarter analysis.
Operating costs for the first six months as a percent of operating revenue
remained at approximately 91% of operating revenues. The adverse bodily injury
and cargo claim expense in the first quarter of 1998 offset the benefits
previously discussed.
Selling, general and administration expenses for the first six months increased
from 5.9% of operating revenue in 1997 to 6.9% in 1998, primarily due to
increased salaries, information systems costs, and bad debt expense.
Operating income was 1.2% of operating revenues for the first six months of 1998
compared to operating income of 2.3% in 1997. Net income was 0.5% of operating
revenues in 1998 compared to 1.3% in 1997.
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. Recreational vehicles 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from $380,000 as of December 31, 1997 to
$538,000 as of June 30, 1998, while debt levels increased $93,000. Cash was used
during the first six months of 1998 to finance trade accounts receivable growth
of $2.7 million associated with record operating revenues. The Company has
generated net cash of $418,000 from operations in the first six months of 1998,
compared to $769,000 net cash used in the first six months of 1997. This
improvement in cash management has been due to accelerated trade accounts
receivable collections and more stringent treasury management. The increase in
trade accounts receivable was partially offset by increases in trade accounts
payable and accrued liabilities.
Trade accounts receivable days sales outstanding decreased from 37 days at
December 31, 1997 to 32 days at June 30, 1998.
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, earnings 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 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.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On June 18, 1998, the Company held its Annual Meeting of Shareholders,
the results of which follow:
Report of proxies received and shares voted June 18, 1998
Total Voted % of Total
----- ----- ----------
Number of shares of Class B
common stock 1,200,000 1,200,000 100%
Number of shares of Class A
common stock 1,433,910 1,359,367 95%
1. Election of directors elected by
all shareholders (1-year term)
Against or
For Withheld Abstained Non-Votes
--- -------- --------- ---------
Charles C. Baum 1,353,367 6,000 -0- 74,543
Richard B. Black 1,353,062 6,305 -0- 74,543
Frank E. Grzelecki 1,353,367 6,000 -0- 74,543
Robert S. Prather, Jr. 1,353,367 6,000 -0- 74,543
2. Election of directors by holders of
Class A common stock (1-year term)
Bradley J. Bell 1,353,367 6,000 -0- 74,543
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 27(1) - Financial Data Schedule for Six Month Period
Ended June 30, 1998 Exhibit 27(2) - Restated Financial Data
Schedule for Six Month Period Ended June 30, 1997
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MORGAN GROUP, INC.
BY: /s/ Dennis R. Duerksen
--------------------------
Dennis R. Duerksen
Chief Financial Officer
Date: August 14, 1998