-----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, IKpIV9izYsNKIkWJJHTnmt3IzGwcuouJus6VbVlOGY2Hthb7hW3Aj53wCgiY2+eb Ml4gWFqt0Iw/Aj9gk88tDw== 0000950144-96-001272.txt : 19960329 0000950144-96-001272.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950144-96-001272 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK VII INC CENTRAL INDEX KEY: 0000795425 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 431074964 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14810 FILM NUMBER: 96540126 BUSINESS ADDRESS: STREET 1: 10100 NW EXECUTIVE HILLS BLVD STREET 2: STE 200 CITY: KANSAS CITY STATE: MO ZIP: 64153 BUSINESS PHONE: 8168910500 FORMER COMPANY: FORMER CONFORMED NAME: MNX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MNX TRUCKING DATE OF NAME CHANGE: 19870512 10-K 1 MARK VII, INC. FORM 10-K 12-30-95 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to . ------------ ---------------- Commission File No. 0-14810 MARK VII, INC. (Exact name of Registrant as specified in its charter) Missouri (State or other jurisdiction 43-1074964 of incorporation or organization) (I.R.S. Employer Identification No.) 965 Ridge Lake Boulevard, Suite 103 Memphis, Tennessee 38120 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 767-4455 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value (Title of Class) 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 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 Common Stock, $.10 par value, held by non-affiliates of the Registrant on March 19, 1996, based upon the last sale price of such stock on that date was $72,404,735. At March 20, 1996, 4,588,761 shares of Common Stock, $.10 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference - --------- ------------------- Notice of 1996 Annual Meeting of Part III, Items 10, Shareholders and Proxy Statement 11, 12 and 13 to be filed within 120 days of December 30, 1995, excluding therefrom the sections titled "Board Compensation Committee Report on Executive Compensation" and "Performance Graph" 2 MARK VII, INC. AND SUBSIDIARIES 1995 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I
Page ---- Item 1. Business................................................... 2 Item 2. Properties................................................. 5 Item 3. Legal Proceedings.......................................... 5 Item 4. Submission of Matters to a Vote of Security Holders........ 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 6 Item 6. Selected Financial Data..................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 8 Item 8. Financial Statements and Supplementary Data................. 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........................ 10
PART III Caption Item 10. Directors and Executive Officers of the Registrant......... 10 Item 11. Executive Compensation..................................... 10 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 10 Item 13. Certain Relationships and Related Transactions............. 10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 11
1 3 PART I ITEM 1. BUSINESS GENERAL Mark VII, Inc. (the "Company") is a holding company, the principal assets of which are its transportation services subsidiary, Mark VII Transportation Company, Inc. ("Mark VII'') and Mark VII's subsidiaries. The Company was organized as a Missouri corporation in 1976. The Company is a service organization that acts as a provider of transportation and logistics services. As a provider of transportation services, the Company arranges for domestic and international transportation, using a number of different transportation modes, including rail, truck, ship and air. As a logistics manager, the Company provides its customers with value-added elements of the distribution chain, such as private fleet management, warehousing and regional and local distribution. The Company has established a network of transportation sales personnel and logistics managers at its operating headquarters in Memphis, Tennessee and 97 branch sales offices in 32 states. The majority of the Company's branch offices are operated by independent commission agents responsible for the client relationships, office expenses and billing. The Company supports its agency offices by providing expertise in multiple transportation modes, rate negotiation and logistics design, as well as administrative and credit services. The Company acts as a link between shippers and carriers. Shippers use transportation services companies to complement in-house transportation departments. The Company augments in-house shipping departments by providing expertise in multiple modes of transportation, providing access to additional transportation equipment, negotiating transportation rates and increasing the productivity of in-house personnel. The Company provides shippers with an opportunity to outsource all or part of the transportation function, thereby allowing them to devote assets and personnel to their primary business. The Company's services are also used by transportation carriers to supplement their in-house sales departments and to improve equipment utilization. The Company maintains close relationships with major railroads, trucklines, shipping lines and air freight carriers. SERVICES PROVIDED The Company's transportation services can be broadly classified into the following categories: Transaction-Based Services. "Transaction based services" are identified with the traditional freight brokerage business where a shipper calls a transportation services company to arrange for service on a shipment-by-shipment basis. The transportation services company then assumes responsibility for the transportation carrier to perform in accordance with the shipper's specifications. Similarly, a carrier may call the transportation services company when it needs freight to transport. The transportation services company arranges a match and adds a fee to the carrier's rate. Logistics Management Services. "Logistics management services" include both process-based and information/knowledge-based services. Process-based services involve the Company taking responsibility for all transactions of a particular type for a shipper or carrier. The Company's expertise in intermodal service and trucking has led shippers and carriers to request the Company to regularly arrange shipments for a pre-arranged fee. Both shippers and carriers avail themselves of this service, often realizing financial savings due to the Company's volume and information base and its ability to arrange shipments more efficiently. The Company can help trucklines maintain competitive positions, including allowing them to supplement their sales and marketing efforts without incremental fixed costs. Process based services generally are a result of the full or partial outsourcing of internal traffic department functions. For example, the Company currently coordinates the time-sensitive raw potato delivery for a number of processing plants of a major potato chip manufacturer. Other examples of process based services currently executed by the Company are the procurement of truck and rail services for a substantial portion of a customer's shipments from a particular location, procurement of backhaul shipments for private fleets, freight consolidation and forwarding for a customer with complex logistical needs, and utilization management of an equipment owner's fleet and operation of small dedicated fleets to serve several logistics customers. "Information/knowledge based services" involve management and consultation on any and all aspects of transportation for a shipper or carrier, including dedicated fleet, warehousing and risk management. The Company utilizes its sales network to design transportation and distribution programs for customers with complex logistical needs. For example, ERX Logistics, a joint venture between the Company and a warehousing firm, provides a major household appliance 2 4 manufacturer with warehousing and time-sensitive delivery of its appliances to its dealers and building contractor customers. As part of its private fleet management services, the Company offers risk management and single source leasing. The risk management group provides consultation services, driver recruiting, safety program design, regulatory compliance and claims handling. These services are being marketed by the Company to transportation companies and may be used separately or combined with the overall logistics management function. Under the Company's single source leasing program, the Company will arrange the lease of a fully licensed and insured tractor, trailer and driver on behalf of the fleet operator. TRANSPORTATION MODES Transportation modes used by the Company have been organized into product lines. Each product line has one or more managers to provide marketing and operational support to the Company's network of sales people and logistics professionals. Rail Services. Intermodal services involve arranging for the pick up and delivery of shipments by trucks, and the shipments' transport by railroads, in a coordinated manner. Other rail services involve rail transport by boxcar or flatcar for shippers' heavy or bulky freight. Related services may include load stabilization, load expediting and equipment selection. Truck Services. Truck services involve arranging for the pick up and delivery of shipments that will move over the road using trucks. In addition to locating appropriate equipment to meet shippers' needs, trucklines actively solicit shipments from the Company's sales offices. Although the Company owns or leases only a limited equipment base, it has access to an abundant supply of truckload units provided by trucklines meeting the Company's safety and service criteria. NVOCC Brokerage. Ocean freight brokerage involves acting as agents for shippers and importers under non-vessel operating common carrier authority (NVOCC), issued by the Federal Maritime Commission, to arrange for the services of ocean carriers. Other Services. Other services, such as air freight forwarding, local truckload and heavy equipment transport, are important to the Company's strategy because they respond to a customer's total transportation needs and provide the Company's network of sales personnel and logistics managers a complete range of services to sell. AGENCY NETWORK AND OPERATIONS Mark VII's operations are decentralized and are conducted primarily in branch offices. Of the 97 branch offices, 16 are operated by Mark VII and 81 are operated under agency agreements. Contracts with agents have a duration of ten years and are terminable by either party on each anniversary of the agreement by giving 30 days' notice. Although the Company's contracts with its agents are non-exclusive, the Company's agents generally do not provide services on behalf of other transportation services companies. Agency offices operate as independent businesses, responsible for all costs associated with sales, operations, billing and any related overhead for these items and are compensated by a percentage of fees associated with transportation arranged. Each of the agency branches is responsible for obtaining its own office facilities. Offices operated by employees, rather than agents, are structured as stand-alone business units. Most offices have one to four operations people, who are responsible for controlling all aspects of executing the shipment, including (i) taking the order from the customer, (ii) arranging for transportation services, (iii) monitoring progress of the shipment and reporting back to the customer and (iv) billing the customer on the Company's invoices. To foster the growth of its agency network, the Company provides new agents with advances to cover start-up and initial operating costs, which advances are typically repaid over 24 months. Typically, a sales person identifies a potential customer and determines its transportation requirements. The sales person then prepares a rate proposal from pricing data negotiated by the Company with representatives of the carriers and the providers of other services that may be required. Before any freight is handled for a customer, credit approval must be obtained from the Company's corporate credit department. Upon customer acceptance of a rate proposal, the operations unit in the branch office assumes responsibility for executing individual shipment orders for that customer. The Company provides administrative support, such as computer systems, sales support, credit services, collection services and accounts payable services, to its branch office operations on a centralized basis. Specialty operations such as risk management, design and management of dedicated trucking operations and truck brokerage are available to the logistics management services operations. The Company utilizes a Data General model MV9600 computer and customized software which integrates shipment tracking, customer records and billing, accounts payable and general accounting. This system can also access the computer systems of railroads to maintain up-to-date information on all shipments. The Company also utilizes 3 5 its electronic data interchange capabilities with a number of carriers and shippers so that customers may follow the movement of their shipments and receive electronic billing. Results of operations in the transportation industry generally 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. COMPETITION The transportation services industry is highly competitive. The Company competes against other integrated logistics companies, as well as transportation companies. The Company also competes against carriers' internal sales forces. This competition is based primarily on freight rates, quality of service, (such as damage free shipments, on-time delivery and consistent transit times), reliable pickup and delivery and scope of operations. Other logistics companies and transportation services companies and numerous carriers have substantially greater financial and other resources than the Company. The Company also competes with transportation services companies for the services of independent commission agents. GOVERNMENT REGULATION The Company is licensed by the United States Department of Transportation ("DOT") to engage in operations as a broker in arranging for the transportation, by motor vehicle, of general commodities between points in the United States. The DOT prescribes qualifications for acting in this capacity, including certain surety bonding requirements. The Company also acts as a common and contract motor carrier regulated by the DOT. Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Matters such as weight and dimensions of equipment are also subject to federal regulations. Before it was abolished on January 1, 1996, the Interstate Commerce Commission ("ICC") regulated the Company's transportation services operations. Congress has transferred some of the ICC's functions to the DOT. The Company does not anticipate that the abolition of the ICC will have any effect on the Company's transportation services operations. In its ocean freight forwarding business, the Company is licensed as an ocean freight forwarder and as a non-vessel operating common carrier by the Federal Maritime Commission (the "FMC"). The FMC prescribes qualifications for acting as a shipping agent, including the filing of tariffs and surety bonding requirements. The Company's air freight forwarding business is subject to regulation, as an indirect air cargo carrier, under the Federal Aviation Act by the DOT. The DOT's Economic Aviation Regulations exempt domestic air freight forwarders from most, but not all, of such act's requirements. The major provisions of the act that remain applicable to the Company forbid solicitation of certain rebates, require the carrier to provide safe service, equipment and facilities, prohibit discrimination with respect to foreign air cargo transportation, prohibit unfair or deceptive practices and authorize the DOT to inquire into the carrier's management for certain purposes. In certain foreign markets in which the Company operates, the air freight forwarding business is subject to rate schedules and other restrictions which in the first instance are agreed to by the International Air Transport Association and subsequently approved by the governments concerned. The Company also is subject to certain foreign regulations. Management does not believe that current regulations of its activities imposes significant economic restraints upon its operations or upon the entry of new competitors into the industry in general or into the markets that are served by the Company in particular. 4 6 EMPLOYEES The Company employed 354 individuals at March 8, 1996. The employees were not represented by a collective bargaining unit. Management considers relations with its employees to be good. ITEM 2. PROPERTIES All of the Company's operations at the 16 company locations are conducted in office space under leases with terms of less than four years. The Company's principal administrative offices are located in leased space in Memphis, Tennessee, Kansas City, Missouri and Indianapolis, Indiana. Each of the 81 agency branches is responsible for obtaining its own office facilities. The Company also owns, and is holding for sale or lease, office, maintenance and fuel facilities in St. Joseph, Missouri and Joplin, Missouri and a four acre tract in Los Angeles, California. The Los Angeles lot has been leased through December 2000. ITEM 3. LEGAL PROCEEDINGS The Company is engaged in an arbitration proceeding filed by Roger Crouch, the Company's former Vice Chairman of the Board, as a result of the Company's termination of his employment agreement with the Company for cause. The arbitration is being conducted by the American Arbitration Association. Under the terms of the employment agreement, if Mr. Crouch prevails in the arbitration he is entitled to payment of his annual salary of $225,000 per year for the remaining seven years of the agreement. Mr. Crouch also contends he is entitled to certain bonus payments. The Company intends to vigorously defend the arbitration. Selection of the arbitrators is in process, but no date has been set for the hearing. The Company is involved in various other legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceedings or claims, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the three months ended December 30, 1995. 5 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's common stock trades on the Nasdaq Stock Market's National Market System under the symbol: MVII. The following table sets forth the high and low sale prices per share of the common stock for the periods indicated, as reported by the Nasdaq Stock Market:
High Low -------- -------- 1994 ---- First Quarter ........................... $15 1/4 $11 5/8 Second Quarter .......................... 14 7/8 11 7/8 Third Quarter ........................... 14 9 1/8 Fourth Quarter .......................... 11 5/8 9 1/4 1995 ---- First Quarter ........................... $18 1/2 $11 1/8 Second Quarter .......................... 17 7/8 16 1/8 Third Quarter ........................... 20 1/2 16 3/8 Fourth Quarter .......................... 20 5/8 15 1/2 1996 ---- First Quarter (through March 15, 1996) .. $17 7/8 $16
On March 15, 1996, the last sale price per share of the common stock was $17 5/8. At March 15, 1996, there were 215 holders of record, representing an estimated 1,500 individual holders of the Company's common stock. DIVIDENDS The Company has never paid a cash dividend on its common stock. It is the intention of the Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay cash dividends. Future payments of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company, as well as other factors deemed relevant by the Board of Directors. The Company and its subsidiaries are currently subject to a line of credit which requires approval of the lender before paying dividends. 6 8 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data as of and for each of the years in the five-year period ended December 30, 1995 are derived from the Company's consolidated financial statements which have been audited by Arthur Andersen LLP, independent public accountants. The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, and Report of Independent Public Accountants thereon, for the most recent three years, included elsewhere in this Annual Report.
FISCAL YEAR (1) --------------------------------------------------------------- 1991 1992 1993 1994 1995 -------- -------- ------- ------- ------ (in thousands, except per share data) STATEMENTS OF INCOME INFORMATION: Operating revenues ..................... $195,246 $264,881 $341,532 $428,772 $459,160 Transportation costs ................... 171,196 230,100 296,656 370,232 391,845 -------- -------- -------- -------- -------- Net revenues ........................... 24,050 34,781 44,876 58,540 67,315 Operating income ....................... 1,257 3,645 4,457 6,847 8,489 Income from continuing operations before income taxes .................. 655 3,035 4,199 6,267 8,024 Income from continuing operations ...... 393 1,791 2,490 3,667 4,734 Income (loss) from and on discontinued operations (2) ....................... 1,268 (2,427) (13,754) (1,286) - -------- -------- -------- -------- -------- Net income (loss) ...................... $ 1,661 $ (636) $(11,264) $ 2,381 $ 4,734 ======== ======== ======== ======== ======== Earnings (loss) per share: Income from continuing operations $ .08 $ .38 $ .51 $ .75 $ .95 Income (loss) from and on discontinued operations (2) ....................... .27 (.51) (2.84) (.26) - -------- -------- -------- -------- -------- Net income (loss) ..................... $ .35 $ (.13) $ (2.33) $ .49 $ .95 ======== ======== ======== ======== ======== Average common shares and equivalents outstanding .......................... 4,722 4,743 4,841 4,901 4,995 BALANCE SHEET DATA: Total assets of continuing operations .. $ 24,775 $ 37,479 $ 53,585 $ 70,205 $ 74,144 Total debt of continuing operations .... 4,207 5,940 11,337 10,787 1,588 Shareholders' investment ............... 32,696 32,230 21,047 23,473 25,888
(1) The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years 1991, 1993, 1994 and 1995 included 52 weeks and fiscal year 1992 included 53 weeks. (2) The historical operations of the Company's former truckload business have been classified as a discontinued operation. 7 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal Years 1995 Compared to 1994 and 1994 Compared to 1993 The following table sets forth the percentage relationship of the Company's revenue and expense items to operating revenues for the periods indicated: FISCAL YEAR ---------------------- 1995 1994 1993 ------ ------ ------
Operating revenues ....................... 100.0% 100.0% 100.0% Transportation costs ..................... 85.3 86.3 86.9 ------ ------ ------ Net revenues ............................. 14.7 13.7 13.1 Operating expenses: Salaries, wages and related costs .... 3.5 3.2 3.2 Selling, general and administrative .. 7.9 7.6 7.5 Equipment rents ...................... 1.2 .9 .8 Depreciation and amortization ........ .3 .3 .3 ------ ------ ------ Total operating expense .......... 12.9 12.0 11.8 ------ ------ ------ Operating income ......................... 1.8 1.7 1.3 Interest and other expenses .............. .1 .2 .1 ------ ------ ------ Income from continuing operations before income taxes .................. 1.7% 1.5% 1.2% ====== ====== ======
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, as well as revenues from fixed fee arrangements on the Company's integrated logistics projects. 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 revenue 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 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 operations. Lease payments for tractors, trailers and domestic containers are included in equipment rents. Revenue - The Company's total number of shipments were 414,000, 368,000 and 276,000 in 1995, 1994 and 1993, respectively. Increases in shipments of 13% and 33% in 1995 and 1994, respectively, were the result of expanded services to both new and existing customers. The active sales force responsible for generating these sales increases, including agents, was 253, 226 and 171 at the end of 1995, 1994 and 1993, respectively. Although there has been a softness in the transportation market since early 1995, the Company has been able to maintain volume and margin growth. While operating revenues increased only 7% in 1995, transportation costs have decreased as a percentage of operating revenues, resulting in net revenue growth of 15% in 1995. Because of the slow economic growth in 1995, the Company has been able to purchase transportation at reduced costs, resulting in both lower operating revenues and lower transportation costs on a per shipment basis. Consequently, net revenues were not significantly impacted by the slower economy in 1995. 8 10 The Company also has continued to increase its logistics management operations through the addition of several large projects and the expansion of existing projects in both 1995 and 1994. The increase in these operations has resulted in increased net revenues as a percentage of operating revenues 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. Management expects these operations to continue to grow and, as a result, net revenue to continue to increase as a percentage of operating revenues. Revenues from the Company's temperature-controlled freight operations have continued to decline as a result of management's decision during the fourth quarter of 1994 to limit this service to a core group of customers. Revenues from these operations were $14,996,000 in 1995, $23,324,000 in 1994 and $28,847,000 in 1993. The net revenues from these operations were $2,864,000 in 1995, $6,242,000 in 1994 and $7,943,000 in 1993. Operating Expenses - As discussed above in revenues, the growth in logistics management operations has resulted in increased operating expenses as a percentage of operating revenues. In both 1994 and 1995 the Company added several logistics management projects, which in their initial stages have relatively higher fixed costs compared to operating revenues than more mature projects. Future operating expenses will continue to be affected by the level of logistics contract startup activity as these projects generally do not become profitable until twelve to eighteen months after startup. In connection with certain logistics management projects, the Company provides dedicated trucking services. The purchase and leasing of transportation equipment to support these operations resulted in increased equipment rents and depreciation and amortization in 1995 and 1994. Interest and Other Expense, Net - Interest and other expenses decreased 20% in 1995 due to increased cash flow from operations. Interest and other expenses increased 124% in 1994 from 1993 as a result of increased borrowings under the line of credit and increases in short-term borrowing rates. Provision for Income Taxes - The Company's effective tax rates were 41%, 41.5% and 40.7% in 1995, 1994 and 1993, respectively. The Company had a net deferred tax asset as of December 30, 1995 of $99,000, for which no allowance has been recorded. The Company believes it will have sufficient future taxable income to utilize its deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital needs have been met through cash flow from operations and a line of credit from a bank. 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 Company pays a fee of 1.5% on outstanding letters of credit and a commitment fee of .38% on the average daily unused portion of the line. The line is secured by accounts receivable and other assets of Mark VII and is guaranteed by the Company. At December 30, 1995, $690,000 was outstanding on the line of credit and letters of credit totaling $7,629,000 had been issued on Mark VII's behalf to secure insurance deductibles and purchases of operating services, resulting in a remaining balance available to borrow of $11,681,000. Among other restrictions, the terms of the line of credit require that the Company earn $2,000,000 in consolidated income from continuing operations annually and maintain consolidated tangible net worth of $19,000,000 in 1995, $21,000,000 in 1996 and $23,000,000 thereafter and obtain approval of the lender before paying dividends. The line of credit agreement allows for adjustments to these amounts under certain circumstances, one of which is the repurchase of the Company's stock. After adjustment for the 1995 stock repurchase of $3,436,000, the consolidated tangible net worth required to be maintained for 1995 is $15,564,000. At December 30, 1995, the Company had a ratio of current assets to current liabilities of approximately 1.30 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 the foreseeable future. OTHER INFORMATION Results of operations in the transportation industry generally 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. 9 11 A new accounting pronouncement, Statement of Financial Accounting Standard (SFAS) No. 121 "Accounting for Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of" was issued in March, 1995 and is effective for fiscal years beginning after December 15, 1995. The Company does not believe the adoption of this accounting standard will have a material adverse effect on its results of operations or consolidated financial position. SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in October, 1995 for fiscal years beginning after December 15, 1995. At this time, the Company does not plan to adopt the new method of accounting, but will instead continue to apply the accounting provisions of Accounting Principles Board Opinion, No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its employee stock options. The Company will, however, comply with the disclosure requirements of the new standard, beginning with the annual financial statements issued for the year ending December 29, 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required under this item and set forth elsewhere in this Form 10-K as indicated in the following index are incorporated herein by reference. Index to Consolidated Financial Statements
Page ---- Consolidated Balance Sheets........................................... 15 Consolidated Statements of Income..................................... 16 Consolidated Statements of Shareholders' Investment................... 17 Consolidated Statements of Cash Flows................................. 18 Notes to Consolidated Financial Statements............................ 19 Report of Independent Public Accountants.............................. 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The sections entitled "Election of Directors" and "Executive Officers and Key Employees" of the Company's Notice of 1996 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of December 30, 1995 are incorporated herein by reference. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 The information required hereunder is incorporated by reference from the section entitled "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Company's Notice of 1996 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of December 30, 1995. ITEM 11, 12, AND 13. EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under these items is incorporated by reference from the Company's Notice of 1996 Annual Meeting of Shareholders and Proxy Statement which will be filed within 120 days of December 30, 1995. 10 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements All financial statements of the Registrant as set forth under Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedules
Schedule Number Description Page of 1995 10-K ------ ----------- ----------------- II Valuation and Qualifying Accounts 27
The report of the Registrant's independent public accountants with respect to the above-listed financial statements and financial statement schedule appears on page 26 of this Annual Report on Form 10-K. All other financial schedules not listed above have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. (3) Exhibits
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ---------------------------- 3(a) Restated Articles of Incorporation Exhibit 3(a) to Registration Statement on Form S-1 (SEC File No. 33-6550) 3(b) Amendment No. 1 to the Restated Articles of Exhibit 4.2 to Registration Incorporation of the Company Statement on Form S-8 (SEC File No. 33-86174) 3(c) Amended and Restated By-Laws Exhibit 3(b) to 1993 Annual Report on Form 10-K 4(a) Specimen Common Stock Certificate Exhibit 4.4 to Registration Statement on Form S-8 (SEC File No. 33-86174) 10.1 * MNX Incorporated Amended and Restated 1986 Exhibit 10(g) to 1990 Annual Incentive Stock Option Plan Report on Form 10-K 10.2 * Amendment No. 5 to the MNX Incorporated Exhibit 10(g) to 1991 Annual Amended and Restated 1986 Incentive Stock Report on Form 10-K Option Plan 10.3 * MNX Incorporated 1992 Non-Qualified Stock Exhibit 10(s) to 1991 Annual Option Plan Report on Form 10-K 10.4 * MNX Incorporated Stock Appreciation Rights Exhibit 10(o) to 1992 Annual Program, dated April 24, 1990 Report on Form 10-K 10.5 * Employment and Noncompete Agreement between Exhibit 3 to Current Report on Form R.C. Matney and the Registrant dated as of 8-K dated May 9, 1995 April 1, 1992. Revised Addendum to Employment and Noncompete Agreement dated as of July 1, 1994
11 13
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ---------------------------- 10.6 * Employment and Noncompete Agreement between Exhibit 4 to Current Report on Form J. Michael Head and the Registrant dated as of 8-K dated May 9, 1995 August 1, 1992. Addendum to Employment and Noncompete Agreement between J. Michael Head and the Registrant dated as of February 1, 1995 10.7 * Employment and Noncompete Agreement between Exhibit 5 to Current Report on Form David H. Wedaman and the Registrant dated 8-K dated May 9, 1995 as of January 1, 1992 10.8 * Employment and Noncompete Agreement between Exhibit 6 to Current Report on Form Robert E. Liss and Jupiter Transportation, Inc., 8-K dated May 9, 1995 an indirect wholly owned subsidiary of the Registrant, dated as of July 1, 1994 10.9 * Employment and Noncompete Agreement between Exhibit 7 to Current Report on Form James T. Graves and the Registrant dated as of 8-K dated May 9, 1995 August 1, 1992 10.10 * Employment and Noncompete Agreement between Filed herewith Michael J. Musacchio and Mark VII Logistics, a Division of Mark VII Transportation Co., Inc., a wholly owned subsidiary of the Registrant dated as of June 1, 1995. Addendum to Employment and Noncompete Agreement between Michael J. Musacchio and Mark VII Logistics dated as of September 1, 1995. 10.11 Amended and Restated Loan and Security Agreement Exhibit 10.1 to Quarterly Report Schedule and Promissory Note, dated August 10, 1994, on Form 10-Q for the period ended by and among Missouri-Nebraska Express, Inc., Mark July 2, 1994 VII Transportation Company, Inc., TemStar, Inc. and Marine Midland Business Loans, Inc. 10.12 Amended and Restated Guaranty, Surety Agreement Exhibit 10.2 to Quarterly Report and Security Agreement, dated August 10, 1994 by on Form 10-Q for the period ending Mark VII, Inc. in favor of Marine Midland Business July 2, 1994 Loans, Inc. 10.13 Guaranty, Surety Agreement and Security Agreement, Exhibit 10.3 to Quarterly Report dated August 10, 1994 by MNX Carriers, Inc. in of Form 10-Q for the period ending favor of Marine Midland Business Loans, Inc. July 2, 1994 10.14 Amendment No. 1 to the Amended and Restated Exhibit 10.1 to Quarterly Report Loan and Security Agreement, Schedule and on Form 10-Q for the period ended Promissory Note, dated October 28, 1994, by and October 1, 1994 among Missouri-Nebraska Express, Inc., Mark VII Transportation Company, Inc., TemStar, Inc. and Marine Midland Business Loans, Inc. 10.15 Letter Agreement dated October 28, 1994 by and Exhibit 10.2 to Quarterly Report among Missouri-Nebraska Express, Inc., Mark VII on Form 10-Q for the period ended Transportation Company, Inc., MNX Carriers, Inc., October 1, 1994 TemStar, Inc., Mark VII, Inc. and Marine Midland Business Loans, Inc. 10.16 * Amendment Number 1 to the Mark VII, Inc. 1992 Exhibit 99.1 to Registration Non-Qualified Stock Option Plan (formerly the MNX Statement on Form S-8 (SEC File Incorporated 1992 Non-Qualified Stock Option Plan) No. 33-86174) dated September 22, 1994
12 14
Exhibit Page Number or Incorporation Number Description by Reference to - ------- ----------- ----------------------------- 10.17 Asset Purchase Agreement dated June 17, 1994 by Appendix B to Proxy Statement for and among Swift Transportation Co., Inc. (Nevada), 1994 Annual Meeting of Shareholders Swift Transportation Co., Inc. (Arizona), Mark VII, Inc., MNX Carriers, Inc., and Missouri-Nebraska Express, Inc. 10.18 Amendment No. 1 to Asset Purchase Agreement Exhibit 10.14 to 1994 Annual dated September 30, 1994 by and among Swift Report on Form 10-K Transportation Co., Inc. (Nevada), Swift Transportation Co., Inc. (Arizona), Mark VII, Inc., MNX Carriers, Inc., and Missouri-Nebraska Express, Inc. 10.19 Mark VII, Inc. 1995 Omnibus Stock Incentive Appendix A to Proxy Statement for Plan 1995 Annual Meeting of Shareholders 11 Statement re: Computation of Earnings per Share Filed herewith 21 Subsidiaries of Registrant Filed herewith 23 Consent of Independent Public Accountants Filed herewith 27 Financial Data Schedule (for SEC use only) Filed herewith - ------------
* Management contracts or compensatory plans (b) Reports on Form 8-K None 13 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ R. C. Matney ----------------------------- R. C. Matney Chairman of the Board, President and Chief Executive Officer Date: March 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ R. C. Matney Chairman of the Board, President, March 27, 1996 - -------------------------- Chief Executive Officer and Director R. C. Matney /s/ J. Michael Head Executive Vice President-Finance, Chief March 27, 1996 - -------------------------- Financial Officer and Director J. Michael Head (Principal Financial and Accounting Officer) /s/ James T. Graves Vice Chairman, Secretary, General Counsel March 27, 1996 - -------------------------- and Director James T. Graves /s/ David H. Wedaman Executive Vice President, Chief Operating March 27, 1996 - -------------------------- Officer and Director David H. Wedaman /s/ Douglass Wm. List Director March 27, 1996 - -------------------------- Douglass Wm. List /s/ William E. Greenwood Director March 27, 1996 - -------------------------- William E. Greenwood /s/ Dr. Jay U. Sterling Director March 27, 1996 - -------------------------- Dr. Jay U. Sterling /s/ Thomas J. Fitzgerald Director March 27, 1996 - -------------------------- Thomas J. Fitzgerald
14 16 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts)
DECEMBER 30, DECEMBER 31, ASSETS 1995 1994 ------------ ----------- Current Assets: Cash and cash equivalents ......................................... $ 272 $ 1,246 Accounts receivable, less allowances of $1,336 and $1,285 in 1995 and 1994, respectively ........................... 55,778 51,188 Notes and other receivables, less allowances of $2,038 and $517 in 1995 and 1994, respectively ......................... 6,789 5,740 Deferred income taxes ............................................. - 1,732 Other current assets .............................................. 1,415 551 ------- ------- Total current assets ............................................ 64,254 60,457 ------- ------- Deferred Income Taxes .............................................. 1,385 1,110 ------- ------- Property and Equipment, at cost: Transportation equipment .......................................... 5,100 5,269 Computer equipment, furniture and other ........................... 3,292 2,936 ------- ------- 8,392 8,205 Less: Accumulated depreciation ................................... 3,993 3,127 ------- ------- Net property and equipment ...................................... 4,399 5,078 ------- ------- Net Assets of Discontinued Operations .............................. 2,008 632 ------- ------- Intangible and Other Assets ........................................ 4,106 3,560 ------- ------- $76,152 $70,837 ======= ======= LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accrued transportation charges ................................... $43,246 $33,646 Deferred income taxes ............................................. 1,286 - Other current and accrued liabilities ............................. 4,330 3,256 Borrowings under line of credit ................................... 690 8,546 ------- ------- Total current liabilities ....................................... 49,552 45,448 ------- ------- Long-Term Obligations .............................................. 712 1,916 ------- ------- Contingencies and Commitments (Note 6) Shareholders' Investment: Common stock, $.10 par value, authorized 10,000,000 shares; issued 4,888,761 shares in 1995 and 4,781,234 shares in 1994 ........... 489 478 Paid-in capital ................................................... 27,875 26,769 Retained earnings (deficit) ....................................... 960 (3,774) ------- ------- 29,324 23,473 Less: Treasury stock, at cost, 200,000 shares .................... (3,436) - ------- ------- Total shareholders' investment .................................. 25,888 23,473 ------- ------- $76,152 $70,837 ======= =======
The accompanying notes are an integral part of these balance sheets. 15 17 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts)
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 30, DECEMBER 31, JANUARY 1, 1995 1994 1994 ------------ ------------ ---------- Operating Revenues ........................................... $ 459,160 $ 428,772 $ 341,532 Transportation Costs ......................................... 391,845 370,232 296,656 ---------- ------- ---------- Net Revenues ................................................. 67,315 58,540 44,876 Operating Expenses: Salaries and related costs ................................. 16,170 13,926 10,946 Selling, general and administrative ........................ 36,089 32,493 25,652 Equipment rents ............................................ 5,413 4,006 2,849 Depreciation and amortization .............................. 1,154 1,268 971 ---------- ------- ---------- Total Operating Expenses .................................. 58,826 51,693 40,418 ---------- ------- ---------- Operating Income ............................................. 8,489 6,847 4,458 Other Expense (Income): Interest expense ........................................... 494 685 473 Interest income ............................................ (193) (270) (382) Other ...................................................... 164 165 168 ---------- ------- ---------- Total Other Expense, Net .................................. 465 580 259 ---------- ------- ---------- Income From Continuing Operations Before Income Taxes ........ 8,024 6,267 4,199 Provision For Income Taxes ................................... 3,290 2,600 1,709 ---------- ------- ---------- Income From Continuing Operations ............................ 4,734 3,667 2,490 Loss From Discontinued Operations (less income tax benefit of $4,579 in 1993) ............................................ - - (10,606) Loss On Discontinued Operations (less income tax benefit of $1,160 and $1,047 in 1994 and 1993, respectively) .......... - (1,286) (3,148) ---------- ---------- ---------- Net Income (Loss) ............................................ $ 4,734 $ 2,381 $ (11,264) ========== ========== ========== Earnings (Loss) Per Share: Income from continuing operations ......................... $ .95 $ .75 $ .51 Loss from discontinued operations ......................... - - (2.19) Loss on discontinued operations ........................... - (.26) (.65) ---------- ---------- ---------- Net income (loss) ......................................... $ .95 $ .49 $ (2.33) ========== ========== ========== Average Common Shares and Equivalents Outstanding ............ 4,995,000 4,901,000 4,841,000
The accompanying notes are an integral part of these statements. 16 18 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT (In thousands) COMMON STOCK ---------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL -------- -------- -------- ---------- ------- ------- Balance, January 2, 1993 ............ 4,766 $476 $26,645 $ 5,109 $ - $32,230 Net loss ........................... - - - (11,264) - (11,264) Issuance of common stock under stock-based compensation plans ... 10 1 79 - - 80 ------ ---- ------- -------- ------- ------- Balance, January 1, 1994 ............ 4,776 477 26,724 (6,155) - 21,046 Net income ......................... - - - 2,381 - 2,381 Issuance of common stock under stock-based compensation plans ... 5 1 45 - - 46 ------ ---- ------- -------- ------- ------- Balance, December 31, 1994 .......... 4,781 478 26,769 (3,774) - 23,473 Net income ......................... - - - 4,734 - 4,734 Issuance of common stock under stock-based compensation plans ... 107 11 1,106 - - 1,117 Purchase of treasury stock (200,000 shares) .......................... - - - - (3,436) (3,436) ------ ---- ------- -------- ------- ------- Balance, December 30, 1995 .......... 4,888 $489 $27,875 $ 960 $(3,436) $25,888 ====== ==== ======= ======== ======= =======
The accompanying notes are an integral part of these statements. 17 19 MARK VII, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
FOR THE YEARS ENDED ------------------------------------------ DECEMBER 30, DECEMBER 31, JANUARY 1, 1995 1994 1994 ------------ ------------ ---------- Operating Activities: Net income (loss) ........................................... $ 4,734 $ 2,381 $(11,264) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss from and on discontinued operations .................. - 1,286 13,754 Depreciation and amortization ............................. 1,154 1,268 971 Other amortization ........................................ 330 361 358 Provision for doubtful accounts and notes receivable ...... 2,102 972 1,025 Provision for deferred income taxes ....................... 2,139 652 (984) Changes in assets and liabilities: Accounts receivable ..................................... (5,171) (12,614) (11,407) Accrued transportation charges .......................... 9,599 7,510 7,148 Accrued income taxes .................................... 604 197 1,177 Other ................................................... (2,955) (1,415) (3,240) -------- -------- -------- Net cash provided by (used for) operating activities ........ 12,536 598 (2,462) -------- -------- -------- Investing Activities: Additions to property and equipment ......................... (767) (1,852) (1,049) Retirements of property and equipment ....................... 524 532 123 -------- -------- -------- Net cash used for investing activities ...................... (243) (1,320) (926) -------- -------- -------- Financing Activities: Exercise of stock options ................................... 769 46 80 Repayments of long-term obligations ......................... (1,419) (479) (93) Net borrowings (repayments) under lines of credit ........... (7,856) (2,530) 5,136 Purchase of treasury stock .................................. (3,436) - - Other ....................................................... - (244) (183) -------- -------- -------- Net cash provided by (used for) financing activities ........ (11,942) (3,207) 4,940 -------- -------- -------- Net cash provided by (used in) continuing operations .......... 351 (3,929) 1,552 Net cash provided by (used in) discontinued operations ........ (1,325) 4,884 (1,819) --------- ------- -------- Net increase (decrease) in cash and cash equivalents .......... (974) 955 (267) Cash and cash equivalents: Beginning of year ........................................... 1,246 291 558 -------- -------- -------- End of year ................................................. $ 272 $ 1,246 $ 291 -------- -------- -------- Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest ................................................... $ 361 $ 685 $ 473 Income taxes, net of refunds received ...................... 1,180 852 267 Supplemental Schedule of Non-cash Financing Activities: Direct financings under debt and capital lease obligations .. $ 77 $ 2,459 $ 199
The accompanying notes are an integral part of these statements. 18 20 MARK VII, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include Mark VII, Inc., a Missouri corporation, and its wholly owned subsidiaries, collectively referred to herein as the "Company." The Company is a sales, marketing and service organization that acts as a provider of transportation services and a transportation logistics manager. The Company has a network of transportation sales personnel that provides services throughout the United States, as well as Mexico and Canada. 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. REVENUE Revenues earned as a third party agent include the carriers' charges for carrying the shipment plus commissions and fees, as well as revenues from fixed fee arrangements on the Company's integrated logistics projects. Revenues and related expenses are recognized on completion of the Company's service obligation. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization of property and equipment are provided using the straight-line method based on the estimated useful lives of the respective assets as follows:
Transportation equipment 3 to 7 years Computer equipment, furniture and other 3 to 5 years
INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. CASH AND CASH EQUIVALENTS The Company considers cash on hand, deposits in banks, certificates of deposit and short-term marketable securities with maturities of 90 days or less when purchased, as cash and cash equivalents. The Company utilizes a cash management system under which cash overdrafts exist in the book balances of its primary disbursing accounts. These overdrafts represent the uncleared checks in the disbursing accounts. The cash amounts presented in the consolidated financial statements represent balances on deposit at other locations, prior to their transfer to the primary disbursing accounts. Uncleared checks of $7,059,000 are included in accrued transportation charges at December 30, 1995. 19 21 INTANGIBLE ASSETS Goodwill and other intangible assets are being amortized on the straight-line basis over 10 to 20 years. Goodwill and other intangible assets consisted of the following:
1995 1994 ------- ------- (in thousands) Goodwill and other intangible assets .............. $3,321 $3,321 Less accumulated amortization ..................... 1,222 1,013 ------ ------ $2,099 $2,308 ====== ======
FISCAL YEAR The Company's fiscal year ends on the Saturday nearest December 31. Operations in 1993, 1994 and 1995 included 52 weeks. EARNINGS (LOSS) PER SHARE Earnings (loss) per share are computed by dividing income by the average common shares outstanding plus the dilutive effect of common stock equivalents outstanding, using the treasury stock method based on the average market price of the Company's common stock. Fully diluted earnings (loss) per share are not materially different from primary earnings (loss) per share. NEW ACCOUNTING PRONOUNCEMENTS A new accounting pronouncement, Statement of Financial Accounting Standard (SFAS) No. 121 "Accounting for Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of" was issued in March, 1995 and is effective for fiscal years beginning after December 15, 1995. The Company does not believe the adoption of this accounting standard will have a material adverse effect on its results of operations or consolidated financial position. SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in October, 1995 for fiscal years beginning after December 15, 1995. At this time, the Company does not plan to adopt the new method of accounting, but will instead continue to apply the accounting provisions of Accounting Principles Board Opinion, No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its employee stock options. The Company will, however, comply with the disclosure requirements of the new standard, beginning with the annual financial statements issued for the year ending December 29, 1996. RECLASSIFICATIONS Certain reclassifications have been made to the 1993 and 1994 financial statements to conform to the 1995 presentation. (2) DISCONTINUED OPERATIONS On December 1, 1993, the Board of Directors authorized management to proceed with the separation of the Company into two publicly-held corporations, one owning the transportation services operation and the other owning the truckload operation (the "Distribution"). On June 3, 1994, the Company's shareholders approved the Distribution. On June 17, 1994, the Board determined not to effect the Distribution as previously scheduled and the Company entered into an agreement (the "Agreement") for the sale of substantially all of the assets (the "Asset Sale") of its truckload subsidiaries to Swift Transportation Co., Inc. ("Swift"). On September 22, 1994, the Company's shareholders approved the Asset Sale and the transaction was completed on October 3, 1994. The planned Distribution, and subsequently the Asset Sale, have been recorded as a discontinuation of the truckload subsidiaries. 20 22 Losses on discontinued operations were recorded in 1994 and 1993 as follows:
1994 1993 ---- ---- (in millions) Costs associated with the Distribution and Asset Sale ........................ $2.0 $1.3 Carriers' loss from December 1, 1993 through the disposition date, including loss on assets not acquired by Swift and obligations not assumed by Swift .. 1.4 2.9 Gain on assets sold to Swift ................................................. (3.3) - Severance and outplacement ................................................... 2.4 - ---- ---- 2.5 4.2 Less applicable income tax benefits .......................................... 1.2 1.1 ---- ---- Loss on discontinued operations .............................................. $1.3 $3.1 ==== ====
The costs associated with the previously proposed Distribution and the Asset Sale consisted primarily of financial consulting, legal, accounting and administrative costs. H.B. Oppenheimer & Company Incorporated ("HBOC"), an investment banking firm controlled by one of the Company's former outside directors, H.B. Oppenheimer, received $282,000, $712,000 and $109,000 in 1995, 1994 and 1993, respectively, for financial consulting services provided to the Company in connection with the Distribution and Asset Sale and the related refinancing of the Company's lines of credit and equipment leases. The remaining net assets of discontinued operations include management's best estimates of the remaining liabilities of the discontinued operations and the net realizable value of property held for sale. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that the Company's estimates of these amounts could change in the near term. (3) CREDIT FACILITY Mark VII has a $20 million line of credit agreement. This line bears interest at 1/2% over the bank's prime rate and expires in July 1997. The Company pays a fee of 1.5% on outstanding letters of credit and a commitment fee of .38% on the average daily unused portion of the line. 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 December 30, 1995 was $11,681,000. Letters of credit totaling $7,629,000 have been issued on the Company's behalf to secure insurance deductibles and purchases of operating services. The following is a summary of data on the line of credit:
1995 1994 1993 -------- -------- -------- (dollars in thousands) Balance outstanding at end of period .................... $ 690 $ 8,546 $11,076 Average amount outstanding .............................. 1,596 5,465 5,413 Maximum month end balance outstanding ................... 9,310 14,853 11,294 Interest rate at year end ............................... 9.0% 9.0% 6.5% Weighted average interest rate .......................... 9.3% 8.8% 6.5%
Among other restrictions, the terms of the line of credit require that the Company earn $2,000,000 in consolidated income from continuing operations annually and maintain consolidated tangible net worth of $19,000,000 in 1995, $21,000,000 in 1996 and $23,000,000 thereafter and obtain approval of the lender before paying dividends. The agreement allows for adjustments to these amounts under certain circumstances, one of which is the repurchase of the Company's stock. After adjustment for the 1995 stock repurchase of $3,436,000, the consolidated tangible net worth required to be maintained for 1995 is $15,564,000. 21 23 (4) INCOME TAXES The Company files a consolidated income tax return with its subsidiaries and, as agreed, the consolidated income tax provision is allocated among the members of the consolidated group based on their respective contributions to consolidated income before income taxes. Components of the provision for income taxes consisted of the following:
1995 1994 1993 ------ ------ ------ (in thousands) Federal - Currently payable ............................................. $ 709 $1,002 $ 370 Deferred ...................................................... 1,910 794 (873) ------ ------ ------ Total federal .............................................. 2,619 1,796 (503) State - Currently payable ............................................. 442 415 361 Deferred ...................................................... 229 (142) (111) ------ ------ ------ Total state ................................................ 671 273 250 Taxes paid under tax sharing agreement for tax benefits generated by other members of the consolidated group .......... - 531 1,962 ------ ------ ------ $3,290 $2,600 $1,709 ====== ====== ======
A reconciliation between the provision for income taxes and the expected taxes using the federal statutory income tax rate of 34% follows:
1995 1994 1993 ------ ------ ------ (in thousands) Tax at statutory rate ........................................................... $2,729 $2,131 $1,428 Increase from- State income taxes, net........................................................ 443 267 178 Other.......................................................................... 118 202 103 ------ ------ ------ $3,290 $2,600 $1,709 Deferred tax assets (liabilities) are comprised of the following: 1995 1994 ------ ------ (in thousands) Deferred Tax Assets: Claims and other reserves ..................................................... $2,829 $2,115 Basis difference on property and equipment .................................... 1,374 927 Other ......................................................................... 12 274 ------ ------ Total deferred tax assets .................................................... 4,215 3,316 ------ ------ Deferred Tax Liabilities: Prepaid expenses .............................................................. (258) (104) Deferred revenue .............................................................. (3,858) (370) ------ ----- Total deferred tax liabilities ............................................... (4,116) (474) ------ ------ Net deferred tax assets ...................................................... $ 99 $2,842 ====== ======
22 24 (5) LONG-TERM OBLIGATIONS AND OPERATING LEASES Long-term obligations included the following:
1995 1994 ------ ------ (in thousands) Capital lease obligations for transportation equipment, 9% to 11.9%, payable through 2002 ................................................ $ 864 $2,171 Notes payable, 7.7%, payable through 1996 ......................................... 34 70 ------ ------ 898 2,241 Less - Current maturities ......................................................... 186 325 ------ ------ $ 712 $1,916 ====== ======
Property and equipment included the following amounts related to capital lease obligations:
1995 1994 ------ ------ (in thousands) Transportation equipment .......................................................... $1,010 $2,954 Less - Accumulated depreciation ................................................... 180 268 ------ ------ $ 830 $2,686 ====== ======
Scheduled annual payments on the Company's long-term obligations and commitments for operating leases are as follows:
Capital Leases -------------------------------- Future Interest Principal Other Operating Payments Portion Portion Debt Leases -------- -------- --------- ----- ---------- (in thousands) 1996 ............................ $ 225 $ 73 $152 $34 $ 518 1997 ............................ 174 60 114 - 402 1998 ............................ 164 49 115 - 201 1999 ............................ 165 39 126 - - 2000 ............................ 164 27 137 - - Thereafter ...................... 235 15 220 - - ------ ---- ---- --- ------ $1,127 $263 $864 $34 $1,121 ====== ==== ==== === ======
Excluded from the operating lease commitments above are scheduled rentals on tractors, trailers and containers with lease terms of one to seven years which have annual cancellation provisions. If these leases are not canceled, the additional future lease payments would be approximately $2,729,000, $1,905,000, $1,286,000, $1,211,000, $1,148,000 and $539,000 in 1996, 1997, 1998, 1999, 2000 and thereafter, respectively. The accompanying financial statements include rent expense of $6,220,000, $4,795,000 and $3,560,000 in 1995, 1994 and 1993, respectively. (6) CONTINGENCIES AND COMMITMENTS The Company is engaged in an arbitration proceeding filed by Roger Crouch, the Company's former Vice Chairman of the Board, as a result of the Company's termination of his employment agreement with the Company for cause. The arbitration is being conducted by the American Arbitration Association. Under the terms of the employment agreement, if Mr. Crouch prevails in the arbitration he is entitled to payment of his annual salary of $225,000 per year for the remaining seven years of the agreement. Mr. Crouch also contends he is entitled to certain bonus payments. The Company intends to vigorously defend the arbitration. Selection of the arbitrators is in process, but no date has been set for the hearing. 23 25 The Company is involved in various other legal proceedings generally incidental to its business. While the result of any litigation contains an element of uncertainty, the Company presently believes that the outcome of any known pending or threatened legal proceedings or claims, or all of them combined, will not have a material adverse effect on its results of operations or consolidated financial position. (7) STOCK INCENTIVE PLANS At December 30, 1995, the Company has three stock-based compensation plans: The 1995 Omnibus Stock Incentive Plan (the "1995 Plan"), the 1992 Non-qualified Stock Option Plan (the "1992 Plan") and the Amended and Restated 1986 Incentive Stock Option Plan (the "1986 Plan"). As a result of the adoption of the 1995 Plan on May 17, 1995, shares are no longer available for future grants under the 1992 and 1986 plans. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. The 1995 Plan provides for the granting of incentive stock options and non-qualified options to officers, key employees and non-employee directors at a price not less than 85% of the fair market value of the common stock on the date of grant. The 1995 Plan also provides for grants of restrictive stock awards and other stock awards to employees and stock awards to non-employee directors. The 1992 Plan provided for the granting of non-qualified options to officers, key employees and non-employee directors. The 1986 Plan provided for the granting of incentive stock options to key employees. At December 30, 1995, 1,179,524 shares were reserved for issuance under the three plans. Options are generally exercisable for ten years from the date of grant. The following table is a summary of data regarding stock options:
1995 1994 1993 ------- -------- ------- For the year: Shares reserved for grant 600,000 275,000 - Options granted 49,000 309,500 7,000 Options cancelled 2,699 19,800 15,750 Options exercised 106,702 5,700 10,000 Weighted average per share exercise price of options exercised $7.20 $8.00 $8.00 As of year end: Options outstanding 622,349 682,750 398,750 Options exercisable 290,799 314,160 258,961 Shares available for grant 557,175 331,441 346,141
The per share exercise prices of options outstanding as of December 30, 1995, ranged from $4.25 to $17.50 per share. The weighted average per share exercise price of options granted and cancelled during the year ended December 30, 1995 was $15.88 and $4.25, respectively. The weighted average per share exercise price of options exercisable at December 30, 1995, was $8.58. In 1990, the Company granted stock appreciation rights for 52,000 shares of the Company's common stock at a base price of $4.25 per share to key employees of the Company. Stock appreciation rights for 14,000 shares were outstanding at December 30, 1995. The rights provide for cash payments to holders of the rights for increases in the market price of the Company's common stock as of April 1 of each year until and including April 1, 2000. The base price is adjusted each April 1 if the market closing price on that date is greater than the previous base price. The adjusted base prices as of April 1, 1995, 1994 and 1993 were $17.25, $14.75 and $8.75 per share, respectively. Compensation of $47,000, $85,000 and $85,000 was expensed under this plan in 1995, 1994 and 1993, respectively. As of December 30, 1995, no additional compensation has been accrued based on the closing market price of $16.13 per share on that date. (8) JOINT VENTURE In 1991, Mark VII entered into a general partnership with a warehousing and distribution company to provide contract management services for a number of regional distribution centers for one of Mark VII's largest customers. The partnership, ERX Logistics ("ERX"), employs management, administrative personnel, drivers and warehousemen to operate the warehouses, tractors and trailers owned by the customer. Effective January 1, 1996, the partnership was dissolved and Mark VII and its former partner entered into a new operating agreement. Pursuant to this agreement, a new Michigan limited liability company was formed, ERX Logistics, L.L.C. The provisions of the operating agreement remained essentially the same as the former partnership agreement, with Mark VII maintaining a 50% interest in the venture. 24 26 The Company has guaranteed $1 million of a $5 million line of credit to provide working capital for ERX. This line is secured by accounts receivable of ERX. Borrowings under this line averaged $1,271,000 in 1995. The maximum month end borrowing was $2,411,000. The balance outstanding on this line was $1,019,000 at December 30, 1995. (9) RELATED PARTY TRANSACTIONS Mark VII 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 was $5,179,000 and $10,977,000 in 1994 and 1993, respectively. The Company's net revenue on Carriers' shipments brokered to Mark VII was $248,000 and $442,000 in 1994 and 1993, respectively. Due to the treatment of Carriers as a discontinued operation, these revenues and costs have not been eliminated in the accompanying financial statements QUARTERLY FINANCIAL DATA (in thousands, except per share data) (Unaudited): The results of operations for each of the four quarters of 1995 and 1994 are summarized below. The amounts below are unaudited, but, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such periods have been made.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 1995 - ---- Operating revenues ..................................... $105,457 $112,031 $114,852 $126,820 Operating income ....................................... 1,441 2,496 2,460 2,092 Income before income taxes ............................. 1,336 2,290 2,357 2,041 Net income ............................................. 780 1,360 1,378 1,216 Earnings per share ..................................... $ .16 $ .27 $ .27 $ .24 1994 - ---- Operating revenues ..................................... $ 93,096 $109,712 $111,386 $114,578 Operating income ....................................... 925 2,049 2,291 1,582 Income from continuing operations before income taxes .. 817 1,935 2,136 1,379 Income from continuing operations ...................... 462 1,137 1,257 811 Loss on discontinued operations ........................ - (1,286) - - Net income (loss) ...................................... 462 (149) 1,257 811 Earnings (loss) per share: Income from continuing operations ..................... $ .09 $ .23 $ .26 $ .17 Loss on discontinued operations ....................... - (.26) - - Net income (loss) ..................................... .09 (.03) .26 .17
25 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Mark VII, Inc.: We have audited the accompanying consolidated balance sheets of MARK VII, INC. (a Missouri corporation) AND SUBSIDIARIES as of December 30, 1995 and December 31, 1994, and the related consolidated statements of income, shareholders' investment and cash flows for each of the three years in the period ended December 30, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the 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 financial position of Mark VII, Inc. and Subsidiaries as of December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Kansas City, Missouri, February 13, 1996. 26 28 SCHEDULE II MARK VII, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT OF YEAR EXPENSE DEDUCTIONS OTHER END OF YEAR ---------- ---------- ---------- ----- ----------- Allowance for doubtful accounts (deducted from accounts receivable): 1993 ....................................... $ 558 $ 887 $393 $ - $1,052 1994 ....................................... 1,052 590 357 - 1,285 1995 ....................................... 1,285 581 530 - 1,336 Allowance for uncollectible notes (deducted from notes and other receivables): 1993 ....................................... $ 62 $ 138 $ 88 $ - $ 112 1994 ....................................... 112 381 65 89 517 1995 ....................................... 517 1,521 - - 2,038
27 29 EXHIBIT INDEX Exhibit Number Description - ------- -------------------------------------------------
10.10 Employment and Noncompete Agreement between Michael J. Musacchio and Mark VII Logistics, a Division of Mark VII Transportation Co., Inc., a wholly owned subsidiary of the Registrant, dated as of June 1, 1995. Addendum to Employment and Noncompete Agreement between Michael J. Musacchio and Mark VII Logistics, dated as of September 1, 1995. 11 Statement re: Computation of Earnings per Share 21 Subsidiaries of Registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule (SEC Use Only)
28 EX-10.10 2 EMPLOYMENT AND NONCOMPETE AGREEMENT 1 EXHIBIT 10.10 EMPLOYMENT AND NONCOMPETE AGREEMENT THIS AGREEMENT, dated this first day of June, 1995, is made by and among MICHAEL J. MUSACCHIO, a resident of the State of Texas ("Executive"); and MARK VII LOGISTICS, A DIVISION OF MARK VII TRANSPORTATION CO., INC., a Delaware corporation ("Employer"), a wholly owned subsidiary of MARK VII, INC., a Missouri corporation ("Mark VII"). RECITALS A. Employer, Mark VII, and it's subsidiaries, are engaged in the business of freight transportation services, both providing and arranging transportation of goods. Subsequent references to Employer herein shall be deemed to also include Mark VII and its subsidiary corporations. B. Executive desires to continue to be employed by Employer as President of its Mark VII Logistics Division and Employer desires to employ Executive in such capacity under the terms set forth herein. AGREEMENT In consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, sufficiency of which is hereby acknowledged by Executive and Employer, the parties agree as follows: 1. EMPLOYMENT AND TERM OF EMPLOYMENT. Employer hereby employs Executive and Executive hereby accepts employment with Employer until terminated as provided in Section 5. 2. DUTIES AND AUTHORITY. 2.01 DUTIES AND POSITION OF EXECUTIVE. Executive shall undertake and assume the responsibility for those duties that Employer's Board of Directors shall, from time to time, assign to Executive. Executive's principal duties as of the date of this Agreement shall be and are those typically performed by a President of an operating division. 1 2 Executive shall, at all times, faithfully and to the best of his ability, experience and talents, perform the duties set forth herein or to which Executive may, in the future, be assigned, always acting solely in the best interests of the Employer. 2.02 BUSINESS UNITS/PROFIT CENTERS ASSIGNED TO EXECUTIVE. (a) Executive shall have specific profit/loss management responsibility for profit centers or business units which are, from time to time, assigned to him by the Chairman or the Board of Directors of Mark VII subject to Executive's consent. Once so assigned and accepted, a profit center may not be reassigned or withdrawn from the scope of Executive's management responsibility without his consent. (b) All business opportunities arising out of or related to logistics and/or transportation services which are encountered or developed by Executive belong to Mark VII. In each instance, the Board or senior management or Mark VII shall determine whether or not the business opportunity or venture shall be pursued, and if so, under what terms and conditions and whether or not it is to be assigned to the management supervision of Executive pursuant to this agreement. (c) Each business opportunity, profit center or business unit will be conducted pursuant to an annual business plan approved by the Board or senior management of Mark VII. Following any month when plan results are not being attained, Mark VII has the unilateral right to discontinue the business unit, profit center or venture with no further claim of interest on the part of Executive. 2.03 OTHER EMPLOYEES OR AGENTS OF MARK VII. Executive has no authority to engage or employ other agents or employees of Employer, Mark VII or any of its subsidiaries without the advance express consent of the Board of Employer. Executive may not elect, without advance approval of senior management of Mark VII, to share his bonus with any other employee or agent of Mark VII. No other agent or employee of Mark VII shall be permitted to utilize the business units or profit centers assigned to the management of Executive to provide transportation services or logistics support to customers assigned, for commission purposes, to that employee or agent, without advance approval of senior management of Mark VII. 2.04 TIME DEVOTED TO EMPLOYMENT. Executive shall devote full time and attention to performance of assigned employment duties. Executive will not be involved in any transportation ventures other than those of the Employer without the advance written authorization of the Employer's Board of Directors. 2 3 It is also understood that Executive is not hereby precluded from engaging in limited appropriate civic, charitable or religious activities or from devoting limited time to private investments that do not compete with the business of Employer. 3. COMPENSATION. During the term of this Agreement, Employer shall pay to Executive the following compensation: 3.01 BASE SALARY. Executive shall be paid an initial base salary of One Hundred Twenty Five Thousand Dollars and No/100 ($125,000) per year ("Base Salary"), in equal weekly installments. The Employer's Board of Directors may increase the salary of Executive at any time; provided, however, that the Board may not reduce the Base Salary specified herein. 3.02 BONUS. In addition to the Base Salary, in each fiscal year (commencing with the fiscal year ending December 31, 1995), Employer will provide a bonus to Executive payable within 90 days following the close of Employer's fiscal year. The annual bonus shall be an amount equal to 25% of the pretax profit (computed on the basis of generally accepted accounting principles consistently applied) earned by the business units and profit centers assigned to the management responsibility of Executive. With respect to certain business units or profit centers assigned to the management responsibility of Executive as to which Employer pays a sales commission to another agent or employee, including Alcoa, ACX Logistics, Coors, Golden Aluminum and Golden Technologies, the bonus provided to Executive will be limited to 15%. The calculation of pre-tax profit shall incorporate the following factors: (a) In the case of each new business unit or profit center assigned to the management responsibility of Executive, senior management of Mark VII shall determine, on a case by case basis, whether or not the start up losses, or what portion thereof, shall be charged against pre-tax profits earned in other business units assigned to the management supervision of Executive. (b) In no event shall pre-tax profit include rail volume incentive credits or credit for unbilled freight. (c) Each unit will be charged a $7.50 administrative fee for each invoice. 3 4 (d) Each unit will be charged interest expense on receivables at a rate equal to the current cost of funds borrowed by Mark VII. (e) All customer credit extended must have the prior written approval of the Mark VII accounting office in Indianapolis. Any bad debt resulting from unapproved credit shall be charged in full against the bonus accrual of Executive. (f) As to any transportation service requiring utilization of Mark VII operated equipment (including power units or refrigerated trailers but excluding dry vans), for each quarter in which weekly net operating profit from the utilization of Mark VII equipment is less than $300 per unit a week the 25% bonus will be reduced to 15%. (g) All accounting issues or questions shall be barred on the anniversary date of any transaction in question, subject to no further examination or question thereafter. Any dispute as to any matter related to this contract or the business to which it is related, between Executive and Mark VII, shall be resolved by arbitration rather than judicial proceedings. In each year pretax profit shall be reduced by the amount of the following items: (h) All charges of Employer to any affiliated company for services rendered, said services to be charged at cost; (i) Any gain on the sale, casualty or other disposition of any capital asset of the Employer; (j) Any other income which was not the result of ordinary operations of the profit center or business unit. The Board of Directors of Employer shall make the sole and final determination of what constitutes "pre-tax profit" as defined above. 3.03 CAR ALLOWANCE. Executive shall receive $500 a month as a car allowance, which shall constitute full reimbursement for all related costs he incurs in operating his private automobile including insurance, fuel, oil, filters, hoses, belts, license tags, tires and sales tax upon acquisition. 3.04 FRINGE BENEFITS/VACATION. Executive shall receive standard Mark VII fringe benefits, including three (3) weeks of vacation with pay each year. 3.05 REIMBURSEMENT OF EXPENSES. Employer shall reimburse Executive for ordinary, necessary and reasonable business expenses incurred to conduct or promote Employer's business, including travel and entertainment, provided Executive submits an itemization of such expenses and supporting documentation therefor, all according to Employer's generally applicable procedures. 4 5 4. NONDISCLOSURE AND NONCOMPETITION. Executive hereby covenants and agrees as follows: 4.01 CONFIDENTIALITY. Executive acknowledges that as a result of his employment by Employer, he has, in the past, used and acquired and, in the future, will use and acquire knowledge and information used by Employer in its business and which is not generally available to the public or to persons in the transportation industry, including, without limitation, its future products, services, patents and trademarks; designs; plans; specifications; models; computer software programs; test results; data; manuals; methods of accounting; financial information; devices; systems; procedures; manuals; internal reports; lists of shippers and carriers; methods used for and preferred by its customers; and the pricing structure of its existing and contemplated products and service, except such information known by Executive prior to his employment by Employer ("Confidential Information"). As a material inducement to Employer to enter into this Agreement, and to pay to Executive the compensation set forth herein, Executive agrees that, during the term of this Agreement and subject to the provisions of section 6.05 below, Executive shall not, directly or indirectly, divulge or disclose to any person, for any purpose, for a period of three (3) years after the termination of this Agreement, any Confidential Information, except to those persons authorized by Employer to receive Confidential Information and then only if use by such person is for Employer's benefit. 4.02 COVENANT AGAINST COMPETITION. During the term of this Agreement and subject to the provisions of section 6.05 below, for a period of three years after the termination of this Agreement, Executive shall not have any interest, or be engaged by, directly or indirectly, any business or enterprise that is in the business of providing motor freight transportation services or arranging for the transportation of goods, including any business that acts as a licensed property broker or shipper's agent, which is directly competitive with any aspect of the business Employer now conducts or which Employer is conducting or is in the process of developing at the time of any competitive actions by Executive ("Prohibited Activity") except to the extent provided in section 2. For purposes of this Section 4.02, Executive shall be deemed to have an "interest in or be engaged by a business or enterprise" if Executive acts (a) individually, (b) as a partner, officer, director, shareholder, employee, associate, agent or owner of any entity or (c) as an advisor, consultant, lender or other person related, directly or indirectly, to any business or entity that is engaging in, or is planning to engage in, any Prohibited Activity. Ownership of less than five percent (5%) of the outstanding capital stock of a publicly traded entity that engages in any Prohibited Activity shall not be a violation of this Section 4.02. 4.03 EMPLOYMENT OF OTHER EMPLOYEES BY EXECUTIVE. During the term of this Agreement and, subject to the provisions of section 6.05 below, for a period of three (3) years after the termination of this Agreement, Executive shall not directly or indirectly solicit 5 6 for employment, or employ, except on behalf of Employer, any person who was an employee of Employer at any time during the six (6) months preceding such solicitation or employment. 4.04 JUDICIAL AMENDMENT. If a court of competent jurisdiction determines any of the limitations contained in this Agreement are unreasonable and may not be enforced as herein agreed, the parties hereto expressly agree this Agreement shall be amended to delete all limitations judicially determined to be unreasonable and to substitute for those limitations found to be unreasonable the maximum limitations such court finds to be reasonable under the circumstances. 4.05 IRREPARABLE INJURY. Executive acknowledges that his abilities and the services he will provide to Employer are unique and that his failure to perform his obligations under this Section 4 would cause Employer irreparable harm and injury. Executive further acknowledges that the only adequate remedy is one that would prevent him from breaching the terms of Section 4. As a result, Executive and Employer agree that Employer's remedies may include preliminary injunction, temporary restraining order or other injunctive relief against any threatened or continuing breach of this Section 4 by Executive. Nothing contained in this Section 4.05 shall prohibit Employer from seeking and obtaining any other remedy, including monetary damages, to which it may be entitled. 5. TERMINATION. 5.01 EVENTS CAUSING TERMINATION. This Agreement shall terminate upon the first of the following events to occur: a) Subject to the provisions of Paragraphs 5.02(c) and 6.02, the term of employment hereunder shall lapse at such time as either the Employer or Executive provides the other with 30 days notice of termination; b) On the date of Executive's death; c) At Employer's option, upon Executive's disability as defined in section 5.02 (a) below, effective on the day Executive receives notice from Employer that it is exercising its option granted by this Section to terminate this Agreement; d) On the day Executive receives written notice from Employer that Executive's employment is being terminated for cause, as defined in section 5.02 (b) below; e) Fifteen (15) days after receipt by Executive of notice from Employer specifying any act of insubordination or failure to comply with any instructions of Employer's Board of Directors or any act or omission that Employer's Board of Directors believes, in good faith, materially does, or may, adversely affect Employer's business or operations provided Executive fails to remedy or cease said acts within said fifteen (15) day period; 6 7 f) On the date Executive resigns or, at the Employer's option, the date Executive commits any act that is a material breach of this Agreement; g) At Executive's option, on the date Employer commits any act that is a material breach of this Agreement; or h) At Employer's option, upon fulfilling the "executive buyout" provisions of Section 5.02(c) below. 5.02 DEFINITIONS. For purposes of Section 5.01 the following definitions shall apply: a) "Disability" means Executive's inability, because of sickness or other incapacity, whether physical or mental, to perform his duties under this Agreement for a period in excess of ninety (90) substantially consecutive days, as professionally determined by two medical doctors licensed to practice medicine, one of which is selected by the Employer and one of which is selected by Executive. In the event the doctors should disagree as to whether Executive is disabled, they shall select a third licensed medical doctor to make such termination which shall be binding on the parties hereto. b) "Cause" means (i) a willful failure by Executive to substantially perform his duties hereunder, other than a failure resulting from Executive's incapacity to do so because of physical or mental illness, (ii) a willful act by Executive that constitutes gross misconduct and which is materially injurious to Employer, including malicious or disparaging remarks about other Directors, Officers of Mark VII or its subsidiaries, (iii) Executive's commitment of any act of dishonesty toward Employer, theft of corporate property or unethical business conduct or (iv) Executive's conviction of any felony involving dishonest, or immoral conduct. c) "Executive Buyout" includes: 1. The right of Employer to terminate this agreement with no further payment of compensation to Executive in the event the profit centers assigned to the management responsibility of Executive fail, collectively, to earn pre-tax profit (as defined in Paragraph 3.02 above) of $250,000 in 1995 or any calendar year thereafter. 2. Following any calendar year in which the profit centers assigned to Executive collectively earn pretax profit of $250,000 or more, Employer may terminate this Agreement by paying Executive an amount equal to three times his previous year's W-2 reported income from Employer, but in no event less than One Million Four Hundred Thousand Dollars ($1,400,000). Such payment shall constitute liquidated damages which Executive hereby agrees to accept as his exclusive remedy for any breach of the obligations of the Employer hereunder hereby waiving any right to punitive or exemplary damages. 3. In the event of termination by Employer subsequent to any year in which profit centers assigned to Executive were, collectively profitable but in which pretax profit of 7 8 at least $250,000 was not attained, Employer may elect to extend provisions of Section 4 hereof pursuant to Paragraph 6.05(b) below only by making advance annual payments to Executive in the amount of Two Hundred Fifty Thousand Dollars ($250,000) for the first year, Two Hundred Thousand Dollars ($200,000) for the second year and at Two Hundred Thousand Dollars ($200,000) for the third year. 4. Employer retains the unilateral right to sell or terminate any business unit assigned to the management of Executive with no further approval or subsequent right of Executive to pretax profit bonus beyond the date of sale or termination. Provided, however, that termination of the unit devoted to providing service to Frito-Lay, its subsidiaries, and any other PepsiCo affiliates assigned to Executive by Employer, will require Employer to provide Executive with the benefit of the buyout provisions of this Subparagraph C. In the event the business unit or profit center devoted to providing service to Frito-Lay, its subsidiaries, or other affiliates of PepsiCo assigned to Executive, is sold by Employer to a financially reliable purchaser, purchaser's assumption of the buyout obligations of Employer to Executive under this Subparagraph C will constitute full and complete satisfaction of the Employer's obligations to Executive hereunder. 6. PAYMENTS UPON TERMINATION. 6.01 PAYMENTS UPON EXECUTIVE'S DEATH, OR DISABILITY. Upon the termination of this Agreement pursuant to Section 5.01 (b) (death), or Section 5.01 (c) (disability), Employer shall pay, or cause to be paid, to Executive, his designated beneficiary or his legal representative, a) the Base Salary and fringe benefits through the period ending twelve (12) months after occurrence of the event causing termination; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination of this Agreement. Employer shall not be obligated to make any other payments to Executive. 6.02 PAYMENTS UPON TERMINATION FOR CAUSE, INSUBORDINATION, RESIGNATION OR BREACH BY EXECUTIVE. Upon termination of this Agreement pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination), or Section 5.01 (f) (resignation or breach by Executive), Employer shall pay, or cause to be paid, to Executive, 8 9 a) the Base Salary and fringe benefits for the period ending on the date this Agreement is terminated pursuant to the appropriate subsection of Section 5.01; and b) all necessary, ordinary, and reasonable business expenses incurred by Executive prior to termination hereof. Employer shall not be obligated to make any other payments to Executive. 6.03 PAYMENTS UPON TERMINATION FOR BREACH BY EMPLOYER. Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer's breach), Employer shall pay to Executive all of the compensation set forth in Section 3, including bonus pursuant to Section 3.02, for twelve months subsequent to the breach. All post-employment compensation paid by Employer under the terms of this Section 6 shall be calculated in the manner set forth in Section 3 hereof and shall constitute liquidated damages which Executive hereby agrees to accept as his exclusive remedy for any breach of the obligations of the Employer hereunder hereby waiving any right to punitive or exemplary damages. 6.04 PAYMENT OF AMOUNTS DUE UPON TERMINATION AND MITIGATION. If Executive is entitled to payment of Base Salary, bonus, fringe benefits or business expenses upon termination of this Agreement, Employer shall make said payments within the ordinary course of its business and pursuant to the terms hereof. All such payments shall be reduced by the amount of compensation earned by Executive from any other employment. 6.05 EFFECT OF TERMINATION ON NONDISCLOSURE, NONCOMPETE AND NONSOLICITATION PROVISIONS. a) All of the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) of this Agreement shall survive termination hereof pursuant to Section 5.01 (d) (cause), Section 5.01 (e) (insubordination) or Section 5.01 (f) (resignation) even though the remaining terms and provisions of this Agreement shall be void, including the terms of Section 3 (compensation). b) Subject to Section 5.02(c)(3), upon termination of this Agreement pursuant to Section 5.01 (a) (termination), Employer may elect to continue the obligations of Executive set forth in Section 4 (confidentiality, noncompete and nonemployment of other employees) for so long as the Employer continues to provide the current base salary set forth in Section 3.01 and termination payments of Section 5.02 (c), but not to exceed three years subsequent to termination. c) Upon termination pursuant to Section 5.01 (c) (disability) the provisions of Section 4 9 10 (confidentiality, noncompete and nonemployment of other employees shall survive for one year thereafter. d) Upon termination of this Agreement pursuant to Section 5.01 (g) (Employer breach), all of the provisions of Section 4 (confidentiality, noncompete and nonemployment of other employees) shall be void. 6.06 PROVISIONS VOID UPON TERMINATION. Except as specifically provided herein to the contrary, all terms and provisions of this Agreement shall be void upon any termination hereof. 7. CONFLICT OF INTEREST. During the term of this Agreement, Executive shall not, directly or indirectly, have any interest in any business which is a supplier of Employer without the express written consent of Employer's Board of Directors. Such interest shall include, without limitation, an interest as a partner, officer, director, stockholder, advisor or employee of or lender to such a supplier. An ownership interest of less than five percent (5%) in a supplier whose stock is publicly held or regularly traded shall not be a violation of this Section 7. Executive herewith agrees to answer and execute an annual disclosure form "Questionnaire for Directors and Executive Officers of Mark VII, Inc." providing the same information that is required of all other Directors and executive officers of Mark VII directed to the purpose of enabling Employer to assess and provide disclosure of matters required of publicly held companies. 8. INDEMNIFICATION OF EXECUTIVE. The Employer will indemnify Executive and hold him harmless (including reasonable attorney fees and expenses) to the fullest extent now or hereafter permitted by law in connection with any actual or threatened civil, criminal, administrative or investigative action, suit or proceeding in which Executive is a party or witness as a result of his employment with the Employer. This indemnification shall survive the termination of this Agreement. 9. GENERAL PROVISIONS. 9.01 LOCATION OF EMPLOYMENT. Executive's principal office shall be located at Dallas, Texas, or at such other location where Employer and Executive shall mutually agree. 10 11 9.02 ASSIGNMENT. Neither party may assign any of the rights or obligations under this Agreement without the express written consent of the other party. For purposes of the foregoing sentence, the term "assign" shall not include an assignment of this Agreement by written agreement or by operation of law to any of Employer's wholly owned subsidiaries. 9.03 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties' heirs, successors and assigns, to the extent allowed herein. 9.04 SEVERABILITY. The provisions of this Agreement are severable. The invalidity or unenforceability of any one or more of the provisions hereof shall not affect the validity or enforceability of any other part of this Agreement. 9.05 WAIVER. Waiver of any provision of this Agreement or any breach thereof by either party shall not be construed to be a waiver of any other provision or any subsequent breach of this Agreement. 9.06 NOTICES. Any notice or other communication required or permitted herein shall be sufficiently given if delivered in person or sent by certified mail, return receipt requested, postage prepaid, addressed to: Employer: Mark VII Logistics, a Division of Mark VII Transportation Co., Inc. 201 South Emerson Avenue Suite 130 Greenwood, Indiana 46143 cc: James T. Graves, Vice Chairman and General Counsel Mark VII, Inc. 5310 St. Joseph Avenue St. Joseph, Missouri 64502 Executive: Michael J. Musacchio 1405 Auburn Place Plano, TX 75093 or such other address as shall be furnished in writing by any such party. Any notice sent by the above-described method shall be deemed to have been received on the date personally delivered or so mailed. Notices sent by any other method shall be deemed to have been received when actually received by the addressee or its or his authorized agent. 11 12 9.07 APPLICABLE LAW. Except to the extent preempted by federal law, this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Tennessee, without considering its laws or rules related to choice of law. 9.08 JURISDICTION AND VENUE. Subject to the arbitration provision in Section 9.11 below, the parties hereby consent, and waive any objection, to the jurisdiction of either the State or Federal Courts of Tennessee over the person of either party for purposes of any action brought under or as the result of a breach of this Agreement. The parties agree that their execution of this Agreement constitutes doing or conducting business within the State of Tennessee. The parties further consent that venue of any action brought under or as the result of a breach of this Agreement shall be proper in either of the above named courts and they each waive any objection thereto. 9.09 OWNERSHIP AND RETURN OF DOCUMENTS AND OBJECTS. Every plan, drawing, blueprint, flowchart, listing of source or object code, notation, record, diary, memorandum, worksheet, manual or other document, magnetic media and every physical object created or acquired by Executive as part of his employment by Employer, or which relates to any aspect of Employer's business, is and shall be the sole and exclusive property of Employer. Executive shall, immediately upon Employer's request or upon termination of this Agreement for any reason, deliver to Employer each and every original, copy, complete or partial reproduction, abstract or summary, however reproduced, of all documents and all original and complete or partial reproductions of all magnetic media or physical objects owned by Employer then in Executive's possession. 9.10 ATTORNEY'S FEES. Subject to the arbitration provision in Section 9.11 below, if either party brings an action to enforce the terms hereof, the prevailing party in such action, on trial or appeal, shall be entitled to recover its reasonable attorney's fees, costs and expenses to be paid by the losing party as fixed by the court. 9.11 ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. 12 13 MARK VII TRANSPORTATION CO., INC. By: /s/ R.C. Matney ---------------------- R.C. Matney, Chairman EXECUTIVE /s/ Michael J. Musacchio - -------------------------- Michael J. Musacchio in his individual capacity 13 14 ADDENDUM TO EMPLOYMENT AND NONCOMPETE AGREEMENT MICHAEL J. MUSACCHIO THIS AGREEMENT, dated this first day of September, 1995, is made by and among Michael J. Musacchio, a resident of the State of Texas ("Executive"); Mark VII Logistics, a division of Mark VII Transportation Co., Inc., a Delaware corporation ("Employer"), a wholly-owned subsidiary of Mark VII, Inc., a Missouri corporation ("Mark VII"). RECITALS A. Executive, Employer and Mark VII, and its subsidiaries previously entered into "Employment and Noncompete Agreement" as of June 1, 1995, of which a true and correct copy is attached ("Agreement"). The parties hereto hereby undertake and agree to modify said Agreement to the extent expressly stated herein. In all other respects, said Agreement shall remain as originally stated. B. Changes expressed in this Addendum are occasioned by the assignment, unto Executive, of management responsibility with respect to Honda De Mexico ("Honda") a logistics management project pertaining to the Guadalajara, Mexico plant of the American Honda Motor Co., Inc. AGREEMENT In consideration of the mutual promises, covenants and agreements contained herein and in the underlying Agreement, the parties do hereby further agree as follows: 1. HONDA DE MEXICO. Executive does hereby undertake and agree to execute profit and loss management responsibility with respect to logistics management services to be provided by Mark VII unto the American Honda Motor Co., Inc. with respect to its Guadalajara, Mexico automobile production plant under the terms and conditions set forth herein. 2. DURATION OF ASSIGNMENT. Employer commits to Executive that his tenure of management responsibility with respect to the Guadalajara Honda plant shall continue for three consecutive years until August 1, 1998. Thereafter, Employer shall be at liberty to reassign management responsibility for the Guadalajara, Mexico Honda plant to a different manager other than Executive with no further financial obligation to the Executive. 15 3. BONUS PAYABLE TO EXECUTIVE FOR MANAGEMENT OF LOGISTICS SERVICES PROVIDED TO THE HONDA GUADALAJARA PLANT. Executive acknowledges that Mark VII attained the business opportunity to provide logistics management services to the Guadalajara, Mexico Honda plant as a result of sales efforts of others than Executive. Consequently, it is expressly understood and agreed by and between the Executive and Employer that the annual bonus to be received by Executive pursuant to Paragraph 3.02 of "Agreement" shall be limited to 15% of the pretax profit earned by Employer as a result of providing logistics management services to the Guadalajara plant. IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the day and year first above written.. MARK VII TRANSPORTATION CO., INC. By: /s/ R.C. Matney ---------------------- R.C. Matney, Chairman EXECUTIVE /s/ Michael J. Musacchio -------------------------- Michael J. Musacchio in his individual capacity EX-11 3 STATEMENT RE: EARNINGS PER SHARE 1 EXHIBIT 11 STATEMENT RE: EARNINGS PER SHARE (In thousands, except per share amounts)
1995 1994 1994 ------ ------- -------- Average common shares outstanding ............................... 4,837 4,779 4,767 Net effect of incentive and non-qualified stock options based on the treasury stock method using the average market price ...... 158 122 74 ------ ------- -------- Average commons shares and equivalents outstanding ............ 4,995 4,901 4,841 ====== ======= ======== Income from continuing operations ............................... $4,734 $ 3,667 $ 2,490 Loss from discontinued operations ............................... - - (10,606) Loss on discontinued operations ................................. - (1,286) (3,148) ------ ------- -------- Net income (loss) ............................................. $4,734 $ 2,381 $(11,264) ====== ======= ======== Earnings (loss) per share: Income from continuing operations ............................. $ .95 $ .75 $ .51 Loss from discontinued operations ............................. - - (2.19) Loss on discontinued operations ............................... - (.26) (.65) ------ ------- -------- Net income (loss) ............................................ $ .95 $ .49 $ (2.33) ====== ======= ========
EX-21 4 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Jurisdiction of Name Incorporation - ------ --------------- Mark VII Transportation Company, Inc.: Subsidiariaries of Mark VII Transportation Company, Inc.: Mark VII Trucking, Inc. Delaware Apollo Express, Inc. Kansas Neptune Trucking, Inc. Kansas Jupiter Transportation, Inc. Kansas Taurus Trucking, Inc. Kansas Orion Express, Inc. Kansas Capricorn Transportation, Inc. Kansas Mark VII Risk Management, Inc. Delaware Mark VII Transportation Solutions, Inc. Missouri Mark VII Logistics, S.A. de C.V. Mexico MNX Carriers, Inc.: Delaware Subsidiaries of MNX Carriers, Inc.: Missouri-Nebraska Express, Inc. Iowa MNX Transport, Inc. Missouri Subsidiary of MNX Transport, Inc. MNX Trucking, Inc. Missouri EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements File Nos. 33-47188, 33-55618, 33-86174 and 33-60595. /s/ Arthur Andersen LLP Kansas City, Missouri, March 25, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARK VII, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 30, 1995 AND CONSOLIDATED BALANCE SHEET AS OF DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-30-1995 JAN-01-1995 DEC-30-1995 272 0 57,114 1,336 0 64,254 8,392 3,993 76,152 49,552 712 0 0 489 25,399 76,152 0 459,160 0 391,845 58,797 0 494 8,024 3,290 4,734 0 0 0 4,734 .95 .95
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