-----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, NmxKP7ozderPqqc5nC1/aHJ+sjkr1YGQcCnYljrK4aI+n+MiaKzcIHBWHzTddYAZ iXfd5cYA52Wlk228DBjG5w== 0000791014-96-000014.txt : 19960911 0000791014-96-000014.hdr.sgml : 19960911 ACCESSION NUMBER: 0000791014-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960910 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: 96627744 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 July 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 11,188,639 - -------------------------- ------------------------------ (Class) (Outstanding at July 31, 1996) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL BOXES ETC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
July 31, April 30, ASSETS 1996 1996 --------- --------- (Unaudited) Current Assets: Cash and cash equivalents $985 $1,416 Restricted cash - franchisee deposits 2,389 2,073 Short-term investments 23,772 21,825 Accounts receivable, net 7,063 6,799 Receivable from National Media Fund 125 770 Inventories 768 544 Current portion of notes receivable 7,153 6,756 Current portion of net investment in sales-type and direct financing leases 2,402 2,414 Deferred income taxes 1,845 1,846 Re-acquired area and center rights held for resale 813 638 Other 1,273 1,063 --------- --------- Total current assets 48,588 46,144 Notes receivable, net 10,522 10,831 Net investment in sales-type and direct financing leases 7,177 7,518 Property and equipment, net 5,355 5,381 Excess of cost over assets acquired, net 426 441 Re-acquired area rights 3,196 3,240 Deferred income taxes 1,307 1,307 Other assets 845 904 --------- --------- Total assets $77,416 $75,766 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $1,676 $2,096 Franchisee deposits 2,911 2,619 Royalties, referrals and commissions payable 2,412 2,515 Accrued employee expenses and related taxes 878 1,963 Other accrued expenses 2,065 2,012 Income taxes payable 2,122 838 Current maturities of long-term debt 314 958 --------- --------- Total current liabilities 12,378 13,001 Long-term debt, net of current maturities 1,328 1,402 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 11,188,639 and 11,139,698 shares issued outstanding at July 31, 1996 and April 30, 1996, respectively 15,221 14,944 Retained earnings 48,489 46,419 --------- --------- Total shareholders' equity 63,710 61,363 --------- --------- Total liabilities and shareholders' equity $77,416 $75,766 ========= =========
See accompanying notes. MAIL BOXES ETC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (Unaudited)
Three months ended July 31, 1996 1995 ---------- ---------- Revenue: Royalty and marketing fees $ 7,600 $ 6,463 Franchise fees 1,795 1,780 Sales of supplies and equipment 3,030 2,458 Interest income on leases and other 1,988 1,684 Company centers 366 418 ---------- ---------- Total revenues 14,779 12,803 Cost and Expenses: Franchise operations 4,160 3,198 Franchise development 1,212 1,164 Cost of supplies and equipment sold 2,277 1,940 Marketing 1,347 1,174 General and administrative 2,242 2,378 Company centers 396 425 ---------- ---------- Total cost and expenses 11,634 10,279 Operating Income 3,145 2,524 Interest on investments and other 256 134 ---------- ---------- Income before provision for income taxes 3,401 2,658 Provision for income taxes 1,331 1,036 ---------- ---------- Net income $ 2,070 $ 1,622 ========== ========== Net income per common share: $ .18 $ .14 ========== ========== Weighted average common and common equivalent shares outstanding 11,740,649 11,208,445 ========== ==========
See accompanying notes. MAIL BOXES ETC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
Three months ended July 31, 1996 1995 ---------- -------- Operating Activities: Net income $2,070 $1,622 Adjustments to reconcile net income to net cash provided from (used in) operating activities: Depreciation and amortization 259 257 Gain on sale of equipment under sales-type lease agreements (134) (155) Changes in assets and liabilities: Restricted cash (316) (144) Accounts and notes receivable (352) (1,029) Receivable from National Media Fund 645 500 Assets leased to franchisees and inventories (606) (206) Re-acquired area and center rights (175) 243 Other current assets (210) (69) Other assets (144) 254 Accounts payable (420) 60 Franchisee deposits 292 282 Royalties, referrals and commissions payable (103) (128) Accrued employee expenses and related taxes (1,085) (575) Other accrued expenses 53 350 Income taxes payable 1,284 1,074 ---------- -------- Net cash flows provided from operating activities 1,058 2,336 Investing Activities: Net change in short-term investments (1,947) (1,999) Additions to property and equipment (173) (106) Principal payments received on sales-type leases 869 866 ---------- -------- Net cash flows used in investment activities (1,251) (1,239) Financing Activities: Borrowings under revolving loan 730 450 Repayments under revolving loan (1,375) (950) Repayments on notes payable (73) (32) Repurchase of common shares (155) (191) Proceeds from the issuance of common shares 635 674 ---------- -------- Net cash flows used in financing activities (238) (49) Increase (decrease) in cash and cash equivalents (431) 1048 Cash and cash equivalents at beginning of period 1,416 391 ---------- -------- Cash and cash equivalents at end of period $ 985 $ 1,439 ========== ======== Supplemental Disclosure for Cash Flow Information: Cash paid during the period for income taxes $344 $112 Interest 31 47 Supplemental Schedule with Non-Cash Investment and Financing Activities: Equipment sold under sales-type leases $515 $574
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 July 31, 1996, the consolidated statements of income for the three-month periods ended July 31, 1996 and 1995, and the condensed consolidated statements of cash flows for the three-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. In addition, certain Risk Factors may also impact future financial reports. It is suggested that the consolidated financial statements contained in this report be read in conjunction with the financial statements and notes thereto included in the 1996 Annual Report on Form 10-K, as well as the Risk Factors discussed in the Form 10-K Report. The results of operations for the quarter ended July 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 in the course of conducting its business. While the Company intends to vigorously defend these actions, management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of all pending litigation. It is possible that the Company's results of operations in a particular quarter or annual period could be materially adversely affected by an ultimate unfavorable outcome of certain pending litigation. Management believes, however, that the ultimate outcome of all pending litigation should not have a material adverse effect on the Company's financial position or liquidity. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Three months ended July 31, 1996 compared to Three months ended July 31, 1995: Revenues for Mail Boxes Etc. ("MBE" or the "Company") for the three months ended July 31, 1996, increased by $1.976 million or 15% from the same quarter of the prior year. Revenues from royalty and marketing fees increased by $1.137 million or 18% over the prior period. These increases are the result of growth of the network through the opening of 68 domestic individual centers and a 12 percent increase in same store sales during the first quarter of FY 97. At close of business on July 31, 1996, there were 2,650 domestic centers and 483 centers outside the U.S.A. for a total of 3,133 centers operating worldwide. Total franchise fees, which mostly consist of individual, renewal and transfer, and international sales, increased slightly by .8% during first quarter of FY 97 when compared to the same quarter of FY 96. Revenues from domestic individual franchise fees decreased by 3% compared to the three months ended July 31, 1995 as the result of the sale of 62 new Individual Franchises sold in the first quarter of FY 97 as compared to 65 during the first quarter of FY 96. The remainder of this revenue category includes international sales of individual and area franchises by master licensees for $60 thousand which represents more than 50% decrease as compared to the first quarter of FY 96, and transfer and renewal fees of $306 thousand which represents a 43% increase over same period in FY 96. Revenues from the sale of supplies and equipment increased by $572 thousand or 23% despite the slight decrease in the number of centers opening in the quarter ended July 31, 1996, compared to the same period ended July 31, 1995. This increase was due to a strong emphasis on existing center upgrades during first quarter of FY 97. The sales margin increased from 21% to 25% due to a slightly more favorable sales mix in first quarter of FY 97 compared to the same period of FY 96. Interest income on leases and other increased by $304 thousand or 18% as compared to the three months ended July 31, 1995. The major components of this revenue category include interest income earned on leases and notes receivable, late fees, finance charges, and various administrative fees. Interest income on leases decreased slightly by $51 thousand. Interest on notes receivable increased by $15 thousand or 31%. This increase resulted from additional financing programs available to franchisees. Administrative fees on national vendor contracts increased $73 thousand or 68% as the transaction volumes increased. Late fees decreased by $149 thousand or 85% and finance charges decreased by $10 thousand or 67% during the three months ended July 31, 1996, compared to the same period ended July 31, 1995. The drastic decline in those two revenue categories was due to the Company's increased emphasis on collecting delinquent accounts and implementation of programs to reduce future delinquencies. Revenues from the Company owned and operated centers decreased by $52 thousand or 12% because of reduced operations at one of the company's experimental centers. Cost and expenses for the three months ended July 31, 1996 increased by $1.355 million or 13% when compared to the three months ended July 31, 1995. The increase in Franchise operations expense was $962 thousand or 30% over FY 96 and resulted primarily from the increase in royalties paid to area franchisees for their share of the royalty income, which they Three months ended July 31, 1996 compared to Three months ended July 31, 1995: 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 $379 thousand or 16% over first quarter FY 96. This increase is directly related to the increase in royalty and marketing fees booked during the first quarter of FY 97. Franchise development expenses increased slightly by $48 thousand or 4%. Cost of supplies and equipment increased by $337 thousand or 17%. This increase is due to the increase in sales of supplies and equipment as discussed earlier. Marketing expenses increased by $173 thousand or 15% when compared to the first quarter ended July 31, 1995. Marketing expenses will continue to grow as the network grows. General and administrative expenses decreased by $136 thousand or 6% over the first quarter of FY 96. The Company centers' cost and expenses decreased by $29 thousand or 7%. The Company centers' combined operating margin was negative in first quarter FY 97. One of the primary objectives of the Company centers is to develop and test new products and services and, as a result, their operating expenses are higher than might be experienced by a typical owner-operated franchise. Other income (interest on investments and other) increased by $122 thousand or 91% for the quarter ended July 31, 1996, compared to the quarter ended July 31, 1995. This increase is primarily due to the increase in the short term investments. Net income increased by $448 thousand or 28% in first quarter FY 97. Earnings per share increased from $.14 to $.18 or 29% over first quarter FY 96. LIQUIDITY AND CAPITAL RESOURCES Working capital at July 31, 1996 was $36 million compared to $33 million at April 30, 1996. 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 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 operating results. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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, 1996, the court issued a preliminary ruling on a summary adjudication motion filed by MBE regarding the four test case franchisees. The court's ruling dismissed the franchisees' fraud and misrepresentation claims regarding working capital, earnings claims, and the unfair business practices claim, but left standing the franchisees' fraud and misrepresentation claims regarding "success rate." Trial on that issue, as well as franchisee contract claims regarding site location and lack of support, and the Company's claims for unpaid royalties and monies owed, is scheduled to begin in October 1996. 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 4. SHAREHOLDER VOTING On August 23, 1996, the Annual Meeting of Shareholders was held. The Shareholders elected all of the nominees for Director, approved the amendments to the Company's 1995 Stock Option Plan for Non-Employee (Outside) Directors, and rejected a shareholder proposal to amend the Company's 1995 Employee Stock Option Plan. Each of the nominees for director was elected with the following votes: VOTES VOTES NOMINEE STATUS FOR WITHHELD Michael Dooling Re-elected 10,291,751 52,096 Anthony W. DeSio Re-elected 10,290,918 52,929 Robert J. DeSio Re-elected 10,286.734 57,113 James F. Kelly Re-elected 10,268,351 75,496 Daniel L. La Marche Re-elected 10,314,249 29,598 Harry Casari Re-elected 10,314,317 29,530 Joel Rossman Re-elected 10,313,833 30,014 The proposal to amend the 1995 Stock Option Plan for Non-Employee (Outside) Directors received the following votes: For Against Abstain Broker Non-Votes 8,685,526 1,514,449 27,155 6,100 The proposal to approve the shareholder proposal received the following votes: For Against Abstain Broker Non-Votes 284,791 8,568,200 172,144 6,100 ITEM 6. REPORTS ON FORM 8-K (b) No reports on Form 8-K were filed during the quarter ended July 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: September 9, 1996 ----------------------------- ------------------ Chief Financial Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 1997 10-Q
5 1,000 APR-30-1997 MAY-01-1996 JUL-31-1996 3-MOS 3,374 23,772 28,423 3,560 768 48,588 9,727 4,372 77,416 12,378 0 0 0 15,221 48,489 77,416 3,030 14,779 2,227 11,634 0 0 0 3,401 1,331 2,070 0 0 0 2,070 .18 .18
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