-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P12nKVvpyDEBXOvH+fANv9Id2c7LpzYtYFnmXtqENxwTL4gBr0zRyCIrODoR6uWL kVIrRNgZL0nRmeGS7yQSOA== 0000791014-96-000007.txt : 19960312 0000791014-96-000007.hdr.sgml : 19960312 ACCESSION NUMBER: 0000791014-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960311 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIL BOXES ETC CENTRAL INDEX KEY: 0000791014 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 330010260 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14821 FILM NUMBER: 96533500 BUSINESS ADDRESS: STREET 1: 6060 CORNERSTONE CT CITY: SAN DIEGO STATE: CA ZIP: 92121-3791 BUSINESS PHONE: 6194558800 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended January 31, 1996 ----------------------------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to --------------- --------------- Commission File Number 0-14821 -------------- MAIL BOXES ETC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 33-0010260 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 6060 Cornerstone Ct. West, San Diego, California 92121 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (619) 455-8800 --------------- 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. Common Stock, No Par Value 11,089,744 - -------------------------- --------------------------------- (Class) (Outstanding at January 31, 1996) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL BOXES ETC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
January 31, April 30, 1996 1995 ------------ --------- (Unaudited) Current Assets: Cash and cash equivalents $ 5,468,643 $ 390,841 Restricted cash - franchisee deposits 1,379,676 1,613,569 Short-term investments 15,110,475 10,036,718 Accounts receivable, net 7,028,195 6,723,128 Receivable from National Media Fund 2,820,000 1,600,000 Inventories 681,246 983,095 Current portion of notes receivable 7,998,404 6,065,275 Current portion of net investment in sales-type and direct financing leases 2,450,607 2,488,654 Deferred income taxes 1,453,583 1,453,583 Re-acquired area and center rights held for resale 489,568 1,015,744 Other current assets 933,163 1,005,482 ----------- ----------- TOTAL CURRENT ASSETS 45,813,560 33,376,089 Notes receivable, net 10,217,023 11,429,381 Net investment in sales-type and direct financing leases 7,883,762 8,839,949 Property and equipment, net 5,362,508 5,615,060 Excess of cost over assets acquired, net 455,031 498,078 Re-acquired area rights 3,182,923 3,030,670 Deferred income taxes 651,322 651,322 Other assets 997,894 852,555 ----------- ----------- TOTAL ASSETS $74,564,023 $64,293,104 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $1,947,517 $1,151,375 Franchisee deposits 2,029,449 2,152,904 Royalties, referrals and commissions payable 3,626,722 2,448,624 Accrued employee expenses and related taxes 1,629,274 1,462,933 Other accrued expenses 2,002,312 1,173,580 Income taxes payable 159,749 717,381 Current maturities of debt and notes payable 2,989,330 1,704,848 ----------- ----------- TOTAL CURRENT LIABILITIES 14,384,353 10,811,645 Long-term debt, net of current maturities 1,414,099 1,336,627 Shareholders' equity: Preferred stock, no par value, 10,000,000 shares authorized, with none issued and outstanding -- -- Common stock, no par value, 40,000,000 shares authorized, with 11,089,744 and 11,058,387 shares issued outstanding at January 31, 1996 and April 30, 1995, respectively 14,653,493 14,454,524 Retained earnings 44,112,078 37,690,308 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 58,765,571 52,144,832 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $74,564,023 $64,293,104 =========== ===========
See accompanying notes. MAIL BOXES ETC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Nine months ended 01/31/96 01/31/95 01/31/96 01/31/95 ----------- ----------- ----------- ----------- REVENUE: Royalty and marketing fees $10,088,377 $8,419,256 $23,389,834 $18,467,986 Franchise fees 1,870,833 1,908,788 6,292,818 6,093,472 Sales of supplies and equipment 2,162,774 2,669,653 8,047,529 7,727,765 Interest income on leases and other 1,583,887 1,248,507 4,947,265 3,789,168 Company centers 458,378 468,508 1,387,355 1,189,891 ----------- ----------- ----------- ----------- TOTAL REVENUES 16,164,249 14,714,712 44,064,801 37,268,282 COST AND EXPENSES: Franchise operations 4,740,592 3,842,847 10,982,284 8,902,994 Franchise development 1,245,614 1,286,170 4,196,727 3,835,592 Cost of supplies and equipment sold 1,618,679 2,113,796 6,425,824 6,079,182 Marketing 866,356 1,176,583 2,952,052 3,306,274 General and administrative 2,918,802 2,145,593 7,969,549 5,921,602 Company centers 480,212 522,257 1,426,184 1,229,025 ----------- ----------- ----------- ----------- TOTAL COST AND EXPENSES 11,870,255 11,087,246 33,952,620 29,274,669 Operating Income 4,293,994 3,627,466 10,112,181 7,993,613 Interest on investments and other 165,159 122,672 441,484 313,485 Income before provision for income taxes 4,459,153 3,750,138 10,553,665 8,307,098 Provision for income taxes 1,750,981 1,434,020 4,131,895 3,290,007 ----------- ----------- ----------- ----------- NET INCOME $ 2,708,172 $ 2,316,118 $ 6,421,770 $ 5,017,091 =========== =========== =========== =========== NET INCOME PER COMMON SHARE: $ .24 $ .20 $ .56 $ .44 =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding 11,495,085 11,373,723 11,409,608 11,417,487 =========== =========== =========== ===========
See accompanying notes. MAIL BOXES ETC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended January 31 1996 1995 ------------- ------------- Operating Activities: Net income $6,421,770 $5,017,091 Adjustments to reconcile net income to net cash provided from (used in) operating activities: Depreciation and amortization 768,895 773,758 Gain on sale of equipment under sales-type lease agreements (437,092) (509,336) Loss on retirement of fixed Assets 129,293 Changes in assets and liabilities: Restricted cash 233,893 267,848 Accounts and notes receivable (1,025,838) (3,892,066) Receivable from National Media Fund (1,220,000) (2,950,671) Assets leased to franchisees and inventories (1,082,275) (1,554,638) Re-acquired area and center rights 526,176 58,344 Other current assets 72,319 613,209 Other assets (145,339) 6,963 Accounts payable 796,142 159,417 Franchisee deposits (123,455) 599,979 Royalties, referrals and commissions payable 1,178,098 1,044,213 Accrued employee expenses and related taxes 166,341 468,665 Other accrued expenses 828,732 509,017 Income taxes payable (557,632) 723,695 ------------- ------------- NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES 6,400,735 1,464,781 Investing Activities: Net change in short-term investments (5,073,757) (1,616,254) Additions to property and equipment (246,019) (352,222) Principal payments received on sales-type leases 2,815,449 2,396,321 Re-acquired area rights (135,000) (886,618) ------------- ------------- NET CASH FLOWS USED IN INVESTMENT ACTIVITIES (2,639,327) (458,773) Financing Activities: Borrowings under revolving loan 3,520,000 3,800,000 Repayments under revolving loan (2,300,000) (849,329) Repayments on notes payable (102,576) (21,802) Repurchase of common shares (1,129,214) (3,160,673) Proceeds from the issuance of common shares 996,952 272,400 Other changes in equity 331,232 -- ------------- ------------- NET CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES 1,316,394 40,596 INCREASE IN CASH AND CASH EQUIVALENTS 5,077,802 1,046,604 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 390,841 251,055 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,468,643 $1,297,659 ============= ============= Supplemental Disclosure for Cash Flow Information: Cash paid during the period for income taxes $4,736,710 $3,452,164 Interest 117,555 70,913 Supplemental Schedule with Non-Cash Investment and Financing Activities: Equipment sold under sales-type agreements $1,821,216 $2,122,235 Additions to debt for acquisition of equipment 109,530 --
See accompanying notes. PART I - FINANCIAL INFORMATION MAIL BOXES ETC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ITEM 1. BASIS OF PRESENTATION: ---------------------- Note 1. Presentation ------------ The condensed consolidated balance sheet as of January 31, 1996, the condensed consolidated statements of income for the three-month periods and nine-month periods ended January 31, 1996 and 1995, and the condensed consolidated statements of cash flows for the nine-month periods then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the 1995 Annual Report on Form 10-K. The results of operations for the quarter and the nine months ended January 31, 1996 are not necessarily indicative of the operating results for the full year. Certain reclassifications have been made to prior period balances to conform to current period presentations. Note 2. Litigation ---------- The company has become subject to various lawsuits and claims from its franchisees and employees in the course of conducting its business. The company intends to vigorously defend these actions and believes that the ultimate resolution will not have a material adverse effect on the company's financial condition or liquidity. However, there can be no assurance that an unfavorable result would not have a material adverse effect on the company's results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: - ---------------------- Three months ended January 31, 1996 compared to Three months ended - ------------------------------------------------------------------ January 31, 1995: - ----------------- Revenues for Mail Boxes Etc. ("MBE" or the "Company") for the three months ended January 31, 1996, increased by $1,449,537 or 10% from the same quarter of the prior year. Revenues from royalty and marketing fees increased by $1,669,121 or 20% over the prior period. The increase in royalty and marketing fees is due to the approximately 12% same-store sales increase experienced by the network during the third quarter of FY 96 and the increased number of centers in operation to 2,996 at January 31, 1996, compared with 2,644 at January 31, 1995. Revenues from franchise fees decreased slightly by $37,955 or 2%. Revenues from individual domestic franchise fees decreased by $21,880 when compared to the three months ended January 31, 1995 as the result of the sale of 57 new Individual Franchises sold in the third quarter of FY 96 as compared to 59 during the third quarter of FY 95. Individual franchise sales cannot be predicted and may vary from quarter to quarter. The remainder of this revenue category includes sales of 2 new area franchises for $255,000, sales of individual and area franchises by master licensees for $84,871, and transfer and renewal fees for $262,412 which represents a 47% increase over same period in FY 95. Revenues from the sale of supplies and equipment decreased by $506,879 or 19% because there were less individual centers opened during the third quarter of FY 96 compared with that of FY 95 (67 compared to 100). Interest income on leases and other increased by $335,380 or 27% as compared to the three months ended January 31, 1995. The major components of this revenue category include interest income earned on leases and notes receivable, late fees, and various administrative fees. Interest on notes receivable increased by $110,124 or 27% because of additional financing for franchisees. Administrative fees on national vendor contracts which yet are not significant, increased 72% as the transaction volumes increased. Revenues from the Company owned and operated centers decreased slightly by $10,130 because of reduced operations at one of the company's experimental centers. Cost and expenses for the three months ended January 31, 1996 increased by $783,009 or 7% when compared to the three months ended January 31, 1995. The increase in franchise operations expenses was $897,745 or 23% over FY 95 and resulted primarily from the increase in royalties paid to area franchisees for their share of the royalty income, which they earn, in part by providing ongoing support to the network. These costs will generally increase in the same manner as the network's royalty revenue growth. Royalties paid to area franchisees increased by $485,083 or 15% over third quarter FY 95. This increase is directly related to the increase in royalty fees booked during the third quarter of FY 96. Franchise development expenses decreased by 3%. This decrease is due to the sale of less centers which resulted in less commissions being paid to area franchisees during third quarter FY 96. Cost of supplies and equipment decreased by $495,117 or 23%. This decrease is due to the decrease in sales of supplies and equipment as discussed earlier. Gross margins fluctuate from period to period due to product mix. Marketing expenses decreased by $310,227 or 26% when compared to the third quarter ended January 31, 1995 because last year's expenses reflect a contribution made by the Company to the national advertising program to assist the start-up of National Media Fund. General and administrative expenses increased by $773,209 or 36% over the third quarter of FY 95. This increase is primarily attributed to the growth of franchise centers in operation, and an increase in legal expenses and reserves. These expenses will continue to grow with domestic and international growth of the Network. As of January 31, 1996, there were 2,564 MBE centers operating in the USA and 432 MBE centers operating outside the USA for a total of 2,996 worldwide. The Company centers' cost and expenses decreased by $42,045 or 8%. This decrease is directly related to the decrease in revenues. Other income (interest on investments and other) increased by $42,487 or 35% for the quarter ended January 31, 1996, compared to the quarter ended January 31, 1995. This increase is due to the increase in short-term investments. Net income increased by $392,054 or 17% in third quarter FY 96. Earnings per share increased from $.20 to $.24 or 20%. Nine months ended January 31, 1996 compared to Nine months ended - ---------------------------------------------------------------- January 31, 1995: - ----------------- Revenues for the nine months ended January 31, 1996 increased by $6,796,519 or 18% over the prior year's same period. Revenues from royalty and marketing fees increased by $4,921,848 or 27% over the prior period because of the increased number of centers in operation and the increase in the same store sales as noted earlier. The increase in same store sales is due in part to increased customer counts responding to our expanding national media campaign, and the introduction of new profit centers such as No-Limit Shipping and Color Copying. Revenues from franchise fees increased by $199,346 or 3%. Revenues from individual domestic franchise fees decreased by $306,080 or 6% during the first nine months FY 96 when compared to the same period FY 95. This decrease is due to the sale of fewer new individual franchises, 202 centers in the first nine months of FY 96 compared to 220 centers in the same period of FY 95. Revenues from master license fees increased 21% because of sale of master licenses to countries of Israel, Egypt, Jordan, Syria, and Lebanon. MBE believes that master license sales may be a less significant source of revenue during the remainder of FY 96 and beyond, and that the timing of these sales will not be predictable. The remainder of this revenue category includes sales of 2 new area franchises for $255,000, international sales of individual and area franchises by master licensees for $239,324, and transfer and renewal fees of $717,444 which indicates a 39% increase over the same period of FY 95. Revenues from the sale of supplies and equipment increased by $319,764 or 4%. This increase was due in part to the opening of more centers in the first nine months of FY 96. During the first nine months of FY 96, 223 centers opened as compared to 220 centers in the same period of FY 95. Interest income on leases and other increased by $1,158,097 or 31%. The major components of this revenue category include interest income on leases, interest on notes receivable, late fees, and various administrative fees. Interest income on notes receivable increased by $417,145 or 37% during the first nine months of FY 96 as compared to the first nine months of FY 95 because of MBE's expanded financing to promote network growth. Administration fees on national vendor contracts increased by 96% over the same period of FY 95. Interest income earned on leases and late fees decreased slightly when compared to the period ended January 31, 1995. Revenues from the company owned and operated centers increased by $197,464 or 17% as compared to the same period in FY 95 due to the addition of another center in the third quarter of FY 95. Costs and expenses for the nine months ended January 31, 1996 increased by $4,677,951 or 16% when compared to the nine months ended January 31, 1995. The increase in franchise operations expense was $2,079,290 or 23%. This increase is mostly due to the increase in royalties paid to area franchisees. Total royalties paid were $8,868,851, for the nine months ended January 31, 1996 compared to $7,335,900 in the same period last year. This increase of 21% is lower than the 27% increase in royalty fees booked in the first nine months of FY 96 because of the increase in the number of company owned areas and the fact that no royalties are paid out on company owned areas. Franchise development expenses increased by $361,135 or 9% for the nine months ended January 31, 1996. Costs of supplies and equipment increased by $346,642 or 6% as compared to the nine months ended January 31, 1995. This increase is due to the increase in sale of supplies and equipment. Gross margin decreased from 21% to 20% due to the product mix and a higher increase in cost of sales than increase in revenues. Marketing expenses decreased by $354,222 or 11% when compared to the nine months ended January 31, 1995 for the reasons discussed above. Administrative expenses increased by $2,047,947 or 35% over the prior nine months period ended January 31, 1995. This increase is due to the growth of franchise centers in operation and other items as discussed above. The company centers' costs increased by $197,159 or 16% due to the addition of another center noted above. Other income (interest on investments and other) increased by $127,999 or 41% for the nine months ended January 31, 1996, compared to the nine months ended January 31, 1995, due primarily to the increase in investments. Net income increased by $1,404,679 or 28% and earnings per share increased from $.44 to $.56 or 27% for the nine months ended January 31, 1996 compared to the nine months ended January 31, 1995. LIQUIDITY AND CAPITAL RESOURCES Working capital at January 31, 1996 was $31,429,207 compared to $22,564,444 at April 30, 1995. The Company believes it has adequate financial resources for its present and projected operating requirements. The Company has become subject to various lawsuits and claims from its franchisees and employees in the course of conducting its business. The Company intends to vigorously defend these actions and believes that the ultimate resolution will not have a material adverse effect on the Company's financial condition or liquidity. However, there can be no assurance that an unfavorable result would not have a material adverse effect on the Company's results of operations. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In January 1996, the suit styled Kellert v. Mail Boxes Etc. USA et al., which was filed in 1988 and is described in the Company's 10-K Report for the year ended April 30, 1995, was dismissed by the court on the grounds of abandonment of the action by the plaintiff. In Helm et al v. Mail Boxes Etc. and Mail Boxes Etc. v. B. J. Postal Service Corp. et al., which is described in the Company's 10-K Report for the year ended April 30, 1995, and 10-Q Report for the quarter ended July 31, 1995, the court delayed the start of trial until late spring 1996 to enable the parties to complete discovery efforts. The Company intends to vigorously defend these actions and believes that the ultimate resolution will not have a material adverse effect on the Company's financial condition or liquidity. However, there can be no assurance that an unfavorable result would not have a material adverse effect on the Company's results of operations. ITEM 6. REPORTS ON FORM 8-K (b) No reports on Form 8-K were filed during the quarter ended January 31, 1996. 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. MAIL BOXES ETC. ---------------------------- Registrant By: Gary S. Grahn Date: March 11, 1996 --------------------------------------- ------------- Gary S. Grahn Chief Financial Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 1996 10-Q
5 1,000 APR-30-1996 MAY-01-1995 JAN-31-1996 9-MOS 6,848 15,110 31,874 3,810 681 45,814 9,390 4,027 74,564 14,384 0 0 0 14,653 44,112 74,564 8,048 44,065 6,426 33,953 0 0 0 10,554 4,132 6,422 0 0 0 6,422 .56 .56
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