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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-14810
MARK VII, INC.
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(Exact name of Registrant as specified in its charter)
Missouri 43-1074964
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10100 N.W. Executive Hills Boulevard, Suite 200
Kansas City, Missouri 64153
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 891-0500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1995
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Common stock, $.10 par value 4,888,161 Shares
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MARK VII, INC. AND SUBSIDIARIES
Form 10-Q -- For the Quarter Ended July 1, 1995
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Consolidated Statements of Income--Three Months Ended
July 1, 1995 and July 2, 1994 3
b) Consolidated Statements of Income--Six Months Ended
July 1, 1995 and July 2, 1994 4
c) Consolidated Balance Sheets--July 1, 1995 and
December 31, 1994 5
d) Consolidated Statements of Cash Flows for the Six Months
Ended July 1, 1995 and July 2, 1994 6
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 14
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Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
MARK VII, INC. AND SUBSIDIARIES
Consolidated Statements of Income
($ in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
--------------------------
July 1, 1995 July 2, 1994
------------ ------------
OPERATING REVENUES $ 112,031 $ 109,712
TRANSPORTATION COSTS 94,956 95,112
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NET REVENUES 17,075 14,600
OPERATING EXPENSES:
Salaries and related costs 4,011 3,261
Selling, general and administrative 9,056 8,049
Equipment rents 1,210 962
Depreciation and amortization 302 279
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Total Operating Expenses 14,579 12,551
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OPERATING INCOME 2,496 2,049
INTEREST AND OTHER EXPENSE, NET 206 114
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,290 1,935
PROVISION FOR INCOME TAXES 930 798
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INCOME FROM CONTINUING OPERATIONS 1,360 1,137
LOSS ON DISCONTINUED OPERATIONS, LESS INCOME TAX
BENEFIT OF $1,054 -- (1,286)
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NET INCOME (LOSS) $ 1,360 $ (149)
========= ==========
EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .27 $ .23
Loss on discontinued operations -- (.26)
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Net income (loss) $ .27 $ (.03)
========= ==========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 5,010 4,959
See "Notes to Consolidated Financial Statements."
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MARK VII, INC. AND SUBSIDIARIES
Consolidated Statements of Income
($ in thousands, except per share amounts)
(Unaudited)
For the Six Months Ended
------------------------
July 1, 1995 July 2, 1994
------------ ------------
OPERATING REVENUES $217,488 $ 202,808
TRANSPORTATION COSTS 184,747 176,061
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NET REVENUES 32,741 26,747
OPERATING EXPENSES:
Salaries and related costs 7,914 6,382
Selling, general and administrative 17,787 15,102
Equipment rents 2,540 1,740
Depreciation and amortization 563 549
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Total Operating Expenses 28,804 23,773
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OPERATING INCOME 3,937 2,974
INTEREST AND OTHER EXPENSE, NET 311 222
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,626 2,752
PROVISION FOR INCOME TAXES 1,486 1,153
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INCOME FROM CONTINUING OPERATIONS 2,140 1,599
LOSS ON DISCONTINUED OPERATIONS, LESS INCOME TAX
BENEFIT OF $1,054 -- (1,286)
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NET INCOME $ 2,140 $ 313
======== =========
EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ .43 $ .32
Loss on discontinued operations -- (.26)
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Net income $ .43 $ .06
======== =========
AVERAGE COMMON SHARES AND EQUIVALENTS OUTSTANDING 4,961 4,959
DIVIDENDS PAID -- --
See "Notes to Consolidated Financial Statements."
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MARK VII, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands)
July 1, December 31,
1995 1994
Assets ----------- ------------
------ (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,408 $ 1,246
Accounts receivable, net of allowance 46,720 51,188
Notes and other receivables, net of allowance 4,958 5,748
Deferred income taxes 1,025 1,732
Other current assets 610 643
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Total current assets 55,721 60,557
DEFERRED INCOME TAXES 771 1,110
NET PROPERTY AND EQUIPMENT 4,580 5,078
INTANGIBLES AND OTHER ASSETS 3,200 3,651
PROPERTY HELD FOR SALE OR LEASE 3,330 3,330
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$ 67,602 $ 73,726
========= =========
Liabilities and Shareholders' Investment
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CURRENT LIABILITIES:
Accrued transportation expenses $ 34,532 $ 33,646
Accrued income taxes -- 471
Other current and accrued liabilities 3,597 2,966
Borrowings under line of credit -- 8,546
Net current liabilities of discontinued operations 1,340 2,708
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Total current liabilities 39,469 48,337
LONG-TERM OBLIGATIONS 1,748 1,916
CONTINGENCIES AND COMMITMENTS (Notes 2 and 3)
SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, authorized 10,000,000 shares, issued
and outstanding 4,888,161 shares and 4,781,234 shares, respectively 489 478
Paid-in capital 27,530 26,769
Retained deficit (1,634) (3,774)
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Total shareholders' investment 26,385 23,473
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$ 67,602 $ 73,726
========= =========
See "Notes to Consolidated Financial Statements."
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MARK VII, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six Months Ended
--------------------------
July 1, 1995 July 2, 1994
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OPERATING ACTIVITIES:
Net income $ 2,140 $ 313
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Loss on discontinued operations -- 1,286
Depreciation and amortization 563 549
Amortization of intangibles 166 109
Provision for doubtful accounts and notes receivable 419 387
Non-current deferred income taxes 339 607
CHANGES IN CERTAIN WORKING CAPITAL ITEMS:
Accounts receivable 4,048 (9,694)
Accrued transportation 886 7,433
Accrued income taxes 237 (631)
Other working capital items 1,748 (638)
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Net cash provided by (used for) operating activities 10,546 (279)
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INVESTING ACTIVITIES:
Additions to property and equipment (168) (585)
Net investment in discontinued operation (1,264) 1,475
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Net cash provided by (used for) investing activities (1,432) 890
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FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (8,546) 498
Proceeds received from exercise of stock options 772 --
Repayments of long-term obligations (178) (125)
Other -- (73)
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Net cash provided by (used for) financing activities (7,952) 300
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Net increase in cash and cash equivalents 1,162 911
Cash and cash equivalents:
Beginning of period 1,246 291
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End of period $ 2,408 $ 1,202
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 275 $ 140
Income taxes 915 654
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Direct financing under capital lease obligations $ -- $ 1,292
See "Notes to Consolidated Financial Statements."
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MARK VII, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) GENERAL:
The consolidated financial statements include Mark VII, Inc. and its
wholly owned subsidiaries, collectively referred to herein as "the
Company". The principal operations of the Company are conducted by its
transportation services subsidiary, Mark VII Transportation Company,
Inc. ("Mark VII"). As a result of the sale of substantially all of the
assets of the Company's truckload subsidiaries completed on October 3,
1994 (the "Asset Sale"), the operations of MNX Carriers, Inc.
("Carriers") and its subsidiaries (Missouri-Nebraska Express, Inc.
("Mo-Neb"), MNX Trucking, Inc. and MNX Transport, Inc.) are reported
as a discontinued operation in these consolidated financial
statements.
The condensed, consolidated financial statements included herein have
been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). In management's opinion, these
financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
results of operations for the interim periods presented. Pursuant to
SEC rules and regulations, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from these statements unless significant changes
have taken place since the end of the most recent fiscal year. For
this reason, the condensed, consolidated financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's 1994 Annual Report on
Form 10-K.
The results for the three and six months ended July 1, 1995 are not
necessarily indicative of the results for the entire year 1995.
(2) CREDIT FACILITY:
The Company has a $20 million line of credit. This line bears interest
at 1/2% over the bank's prime rate and expires on July 31, 1997. The
line is secured by accounts receivable and other assets of Mark VII
and is guaranteed by the Company. The available line of credit at July
1, 1995 was $14,823,000. Letters of credit totaling $5,177,000 have
been issued to secure insurance deductibles and purchases of operating
assets. The line of credit has no restrictions on intercompany
advances among the Company's subsidiaries.
The following is a summary of data on the line of credit:
Second Quarter Six Months
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1995 1994 1995 1994
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Balance outstanding at end of period $ -- $11,575 $ -- $11,575
Average amount outstanding 1,568 6,707 3,103 6,720
Maximum monthend balance outstanding 2,558 11,575 9,310 12,836
Interest rate at end of period 9.50% 7.75% 9.50% 7.75%
Weighted average interest rate 9.50% 7.44% 9.35% 6.98%
The line of credit requires that the Company earn annual consolidated
income from continuing operations of $2 million and maintain minimum
consolidated tangible net worth of $19 million in 1995, $21 million in
1996 and $23 million thereafter and obtain approval from the lender
prior to paying dividends.
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(3) JOINT VENTURE:
The Company has guaranteed $1 million of a $5 million line of credit
to provide working capital for ERX Logistics ("ERX"). ERX is a
partnership formed by Mark VII and a warehousing and distribution
company to provide contract management services for a number of
regional distribution centers for one of the Company's largest
customers. The line is secured by accounts receivable of ERX.
Borrowings under this line have averaged $987,000 in the six months
ended July 1, 1995. The maximum monthend borrowing was $2,188,000. The
outstanding borrowing at July 1, 1995 was $2,188,000.
(4) RELATED PARTY TRANSACTIONS:
Prior to the Asset Sale, the Company and Carriers routinely engaged in
intercompany transactions as Carriers hauled freight for Mark VII's
customers and as Mark VII brokered shipments for Carriers' customers.
Transportation costs on Mark VII's shipments hauled by Carriers for
the second quarter and six months ended July 2, 1994 were $1,940,000
and $4,221,000, respectively. The Company's operating revenues on
Carriers' shipments brokered to Mark VII were $48,000 and $106,000 for
the second quarter and six months ended July 2, 1994, respectively.
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MARK VII, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Three and six months ended July 1, 1995 vs. three and six months ended July 2,
1994.
The following table sets forth the percentage relationship of the
Company's revenues and expense items to operating revenues for the periods
indicated:
Second Quarter Six Months
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1995 1994 1995 1994
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Operating revenues 100.0% 100.0% 100.0% 100.0%
Transportation costs 84.8 86.7 84.9 86.8
----- ----- ----- -----
Net revenues 15.2 13.3 15.1 13.2
Operating expenses:
Salaries and related costs 3.5 3.0 3.6 3.1
Selling, general and administrative 8.1 7.3 8.2 7.4
Equipment rents 1.1 .9 1.2 .9
Depreciation and amortization .3 .2 .3 .3
----- ----- ----- -----
Total operating expenses 13.0 11.4 13.3 11.7
----- ----- ----- -----
Operating income 2.2 1.9 1.8 1.5
Interest and other expense, net .2 .1 .1 .1
----- ----- ----- -----
Income from continuing operations before
income taxes 2.0% 1.8% 1.7% 1.4%
===== ===== ===== =====
General. The transportation services operation contracts with carriers
for the transportation of freight by rail, truck, ocean or air for shippers.
Operating revenues include the carriers' charges for carrying shipments plus
commissions and fees. The carriers with whom the Company contracts provide
transportation equipment, the charge for which is included in transportation
costs. As a result, the primary operating cost in the transportation services
operation is for purchased transportation. Net revenues include only the
commissions and fees.
Selling, general and administrative expenses include the percentage of
the net revenues paid to agencies as consideration for providing sales and
marketing, arranging for movement of shipments, entering billing and accounts
payable information on shipments and maintaining customer relations, as well as
other operating expenses. The logistics management and dedicated trucking
operations incur a greater portion of their costs in equipment rents, salaries
and related costs, and selling, general and administrative costs than do the
Company's transportation services operation. Lease payments for tractors,
trailers and domestic containers are included in equipment rents.
Revenues. The total number of shipments for the quarter increased 13%
to 105,000 in 1995 versus 93,000 for the same period of 1994. Year-to-date, the
number of shipments was 198,000, up 16% from the 171,000 shipments for the same
period in 1994. This increase in the number of shipments resulted from the
expansion of services to existing and new customers, an increase in the sales
force and an increase in the logistics management
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and dedicated trucking operations. The Company's logistics management and
dedicated trucking operations have increased 34% and 54% for the quarter and
year-to-date periods, respectively, compared to the same periods of 1994.
Although there has been a softness in the transportation market place
since early 1995, the Company has been able to maintain volume and margin
growth. While operating revenues have increased 2.1% for the quarter and 7.2%
for the year-to-date period, transportation costs have decreased similarly as a
percentage of revenue, resulting in net revenue growth of 17% for the quarter
and 22% for the year-to-date period. During this period of slow economic
growth, the Company has been able to purchase transportation at reduced costs,
resulting in both lower operating revenues and lower transportation costs.
Consequently, net revenues were not significantly impacted by the economy
during the first half of the year as the Company was able to increase the
number of shipments arranged. Net revenues were impacted, however, by the
significant increase in logistics management and dedicated trucking operations
discussed above, as a greater portion of their costs are included in equipment
rents, salaries and related costs, and selling, general and administrative
costs compared to the Company's transportation services operations.
Operating revenues from the Company's temperature-controlled operations
declined $4.3 million and $7.3 million for the quarter and year-to-date
periods, respectively, compared to 1994. Net revenues from these operations
declined $0.2 million and $1.1 million for the quarter and year-to-date
periods. These decreases resulted from management's decision during the fourth
quarter of 1994 to reduce temperature-controlled operations to service only a
core group of customers.
Salaries and Related Costs. Salaries and related costs increased 23%
and 24% in the second quarter and year-to-date period, respectively, compared
to 1994. This was primarily due to the addition of driver wages for the
Company's dedicated trucking operations, the increase in logistics management
operations, salary increases to existing employees and the addition of
administrative and operations personnel to handle continued growth in the
number of shipments arranged. This increase, as well as the increase in
selling, general and administrative expenses discussed below, exceeds the
percentage increase in operating revenues due to growth in the dedicated
trucking and logistics management operations. In addition, these operations
include new projects which have relatively higher fixed costs compared to
operating revenues in their initial stages. While management expects logistics
management and dedicated trucking to continue to grow and, consequently, these
expenses to increase as a percentage of operating revenues, the impact on
operating results should be offset by the increase in net revenues as a
percentage of operating revenues.
Selling, General and Administrative. Selling, general and
administrative expenses increased 13% and 18% in the second quarter and
year-to-date period, respectively. This increase was primarily due to
commissions paid to agency operating offices and the sales force, which are
based on a percentage of net revenues, as well as the addition of several large
dedicated trucking projects.
Equipment Rents. The 26% and 46% increase in this expense for the
quarter and year-to-date periods, respectively, is due to the leasing of
additional tractors and trailers for use in dedicated trucking as well as the
leasing of additional intermodal containers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been met through bank lines of
credit and cash flow provided from operations. Mark VII maintains a $20 million
line of credit. This line bears interest at 1/2% over the bank's prime rate and
expires in July 1997. The line is secured by accounts receivable and other
assets of Mark VII and is guaranteed by the Company.
At July 1, 1995, the available line of credit was $14.8 million and
letters of credit totaling $5.2 million had been issued on Mark VII's behalf to
secure insurance deductibles and purchases of operating services. The line of
credit has no restrictions on intercompany advances among the Company's
subsidiaries. Among other restrictions, the terms of the line of credit require
that the Company earn $2 million in consolidated income from
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continuing operations annually, maintain consolidated tangible net worth of $19
million in 1995, $21 million in 1996 and $23 million thereafter and obtain
approval of the lender before paying dividends.
The Company remains contingently liable for certain potential claims
which may arise in connection with its former truckload operations.
At July 1, 1995, the Company had a ratio of current assets to current
liabilities of approximately 1.41 to 1. Management believes that the Company
will have sufficient cash flow from operations and borrowing capacity to cover
its operating needs and capital requirements for at least the next two years.
Other Information
In the transportation industry generally, results of operations show a
seasonal pattern, as customers reduce shipments during and after the winter
holiday season. In recent years, the Company's operating income and earnings
have been higher in the second and third quarters than in the first and fourth
quarters.
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MARK VII, INC. AND SUBSIDIARIES
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings. NONE
Item 2. Changes in Securities. NONE
Item 3. Defaults Upon Senior Securities. NONE
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Company was held on May
17, 1995.
(b) Not Applicable
(c) 1. Election of Directors. All nominees for director were elected
pursuant to the following vote:
Name of Nominee Votes in favor Withheld
--------------- -------------- --------
R. C. Matney 4,070,631 7,121
J. Michael Head 4,075,014 2,738
Roger M. Crouch 4,055,623 22,129
James T. Graves 4,063,981 13,771
David H. Wedaman 4,039,104 38,648
Douglas Wm. List 4,075,289 2,463
William E. Greenwood 4,075,439 2,313
Dr. Jay U. Sterling 4,075,589 2,163
2. Approval of the adoption of the Mark VII, Inc. 1995 Omnibus
Stock Incentive Plan and the reservation of 600,000 shares of
common stock for issuance thereunder: 2,327,512 votes in favor;
953,158 votes against; 1,078,540 broker non-votes; and 15,367
shares abstained from voting.
Item 5. Other Information.
On July 19, 1995, the Company elected a new outside director, Thomas
J. Fitzgerald.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
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10.1 The Mark VII, Inc. 1995 Omnibus Stock Incentive
Plan (incorporated by reference to Annex A to the
Registrant's 1995 Annual Meeting Proxy statement
filed with the SEC on April 21, 1995)
27 Financial Data Schedule (SEC use only)
(b) Reports on Form 8-K.
The Registrant filed a current report on Form 8-K,
dated May 9, 1995, reporting under Item 5 - Other Events the
filing of a registration statement in connection with the
underwritten secondary offering of shares of common stock held
by Roger M. Crouch, a former director of the Registrant, and
certain relatives of Mr. Crouch and related entities . Under
Item 7 - Financial
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Statements and Exhibits, the Registrant filed the following: a
press release dated May 9, 1995 announcing the offering;
Employment and Noncompete Agreement between Roger M. Crouch
and the Registrant dated as of December 23, 1992; Employment
and Noncompete Agreement between R.C. Matney and the
Registrant dated as of April 1, 1992; Revised Addendum to
Employment and Noncompete Agreement between R.C. Matney and
the Registrant dated as of July 1, 1994; Employment and
Noncompete Agreement between J. Michael Head and the
Registrant dated as of August 1, 1992; Addendum to Employment
and Noncompete Agreement between J. Michael Head and the
Registrant dated as of February 1, 1995; Employment and
Noncompete Agreement between David H. Wedaman and the
Registrant dated as of January 1, 1992; Employment and
Noncompete Agreement between Robert E. Liss and Jupiter
Transportation, Inc., an indirect wholly owned subsidiary of
the Registrant dated as of July 1, 1994; Employment and
Noncompete Agreement between James T. Graves and the
Registrant dated as of August 1, 1992.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mark VII, Inc.
(Registrant)
August 15, 1995 /s/ J. Michael Head
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(Date) J. Michael Head, Executive Vice President,
Chief Financial Officer, Treasurer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule (SEC use only)