-----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, Ep+kelpRzboVjYDzKSpxmw87Obwhup7ejzSWX1IChxOrx4Xmy9K85d8LvgdCb1fy Gn6nWh46k52z+CkMWRweyQ== 0000908834-99-000153.txt : 19990517 0000908834-99-000153.hdr.sgml : 19990517 ACCESSION NUMBER: 0000908834-99-000153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN GROUP INC CENTRAL INDEX KEY: 0000906609 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 222902315 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13586 FILM NUMBER: 99621348 BUSINESS ADDRESS: STREET 1: 2746 OLD U S 20 W STREET 2: PO BOX 1168 CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192952200 10-Q 1 FORM 10-Q FOR THE MORGAN GROUP, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 31, 1999 THE MORGAN GROUP, INC. 2746 Old U. S. 20 West Elkhart, Indiana 46515-1168 (219) 295-2200 Delaware 1-13586 22-2902315 (State of (Commission File Number) (IRS Employer Incorporation) Identification Number) The Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. The number of shares outstanding of each of the Company's classes of common stock at April 30, 1999 was: Class A - 1,247,207 shares Class B - 1,200,000 shares The Morgan Group, Inc. INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the Three Month Periods Ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 1999 and 1998 5 Notes to Consolidated Interim Financial Statements as of March 31, 1999 6 - 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13 PART II OTHER INFORMATION 14 Item 6 Exhibits and Reports on Form 8-K 14 Signatures 15 PART I FINANCIAL INFORMATION Item 1 - Financial Statements The Morgan Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share amounts)
March 31, December 31, 1999 1998 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 49 $ 1,490 Trade accounts receivable, less allowance for doubtful accounts of $218 in 1999 and $208 in 1998 14,021 12,188 Accounts receivable, other 473 1,214 Prepaid expenses and other current assets 2,242 2,467 Deferred income taxes 1,230 1,230 -------- -------- Total current assets 18,015 18,589 -------- -------- Property and equipment, net 4,366 4,117 Intangible assets, net 7,874 8,030 Deferred income taxes 1,997 1,997 Other assets 771 654 -------- -------- Total assets $ 33,023 $ 33,387 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank $ 400 $ -- Trade accounts payable 4,350 4,304 Accrued liabilities 4,708 3,566 Income taxes payable 10 878 Accrued claims payable 3,614 3,553 Refundable deposits 1,503 1,830 Current portion of long-term debt 647 652 -------- -------- Total current liabilities 15,232 14,783 -------- -------- Long-term debt, less current portion 710 828 Long-term accrued claims payable 4,776 4,555 Commitments and contingencies -- -- Shareholders' equity: Common stock, $.015 par value Class A: Authorized shares - 7,500,000 Issued shares - 1,605,553 23 23 Class B: Authorized shares - 2,500,000 Issued and outstanding shares - 1,200,000 18 18 Additional paid-in capital 12,459 12,459 Retained earnings 2,979 2,898 -------- -------- Total capital and retained earnings 15,479 15,398 Less - treasury stock at cost (356,346 and 253,218 Class A shares) (3,174) (2,177) -------- -------- Total shareholders' equity 12,305 13,221 -------- -------- Total liabilities and shareholders' equity $ 33,023 $ 33,387 ======== ========
The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in thousands, except share amounts) (Unaudited)
Three Months Ended March 31, 1999 1998 ----------- ----------- Operating revenues $ 35,325 $ 33,971 Costs and expenses: Operating costs 32,003 31,655 Selling, general and administration 2,688 2,368 Depreciation and amortization 309 295 ----------- ----------- 35,000 34,318 Operating income (loss) 325 (347) Interest expense, net 88 144 ----------- ----------- Income (loss) before income taxes 237 (491) Income tax expense (benefit) 119 (260) ----------- ----------- Net income (loss) $ 118 $ (231) =========== =========== Net income (loss) per basic and diluted share: $ 0.05 $ (0.09) =========== =========== Weighted average shares outstanding 2,538,611 2,636,214 =========== ===========
The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Three Months Ended March 31, 1999 1998 ------- ------- Operating activities: Net income (loss) $ 118 $ (231) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 341 295 Loss (gain) on disposal of property and equipment 1 (13) Changes in operating assets and liabilities: Trade accounts receivable (1,833) (1,502) Other accounts receivable 741 (119) Refundable taxes -- (196) Prepaid expenses and other current assets 193 (33) Other assets (117) 415 Trade accounts payable 46 (266) Accrued liabilities 1,142 1,754 Income taxes payable (868) (389) Accrued claims payable 282 (154) Refundable deposits (327) (291) ------- ------- Net cash used in operating activities (281) (730) Investing activities: Purchases of property and equipment (388) (247) Proceeds from sale of property and equipment -- 20 Business acquisitions (15) -- ------- ------- Net cash used in investing activities (403) (227) Financing activities: Net proceeds from note payable to bank 400 1,265 Principal payments on long-term debt (123) (477) Treasury stock purchases (997) (32) Common stock dividends paid (37) (42) ------- ------- Net cash (used in) provided by financing activities (757) 714 ------- ------- Net decrease in cash and equivalents (1,441) (243) Cash and cash equivalents at beginning of period 1,490 380 ------- ------- Cash and cash equivalents at end of period $ 49 $ 137 ======= =======
The Morgan Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements (Unaudited) March 31, 1999 Note 1. Basis of Presentation The accompanying consolidated interim financial statements have been prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The consolidated interim financial statements should be read in conjunction with the financial statements, notes thereto and other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Net income (loss) per common share ("EPS") is computed using the weighted average number of common shares outstanding during the period. Since each share of Class B common stock is freely convertible into one share of Class A common stock, the total of the weighted average number of common shares for both classes of common stock is considered in the computation of EPS. The effect of dilutive stock options is immaterial to the calculation of diluted EPS for the periods presented. The accompanying unaudited consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. The consolidated financial statements include the accounts of the Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc., Interstate Indemnity Company, and Morgan Finance, Inc., all of which are wholly owned. Significant inter-company accounts and transactions have been eliminated in consolidation. Note 2. Segment Reporting The Company has adopted FASB Statement No. 131 "Disclosure about Segments of a Business Enterprise and Related Information". Description of Services The Morgan Group, Inc. is the nation's largest service company managing the delivery of manufactured homes, trucks, specialized vehicles, and trailers in the United States. Morgan provides outsourcing transportation services principally through a national network of independent owner operators. The Company dispatches its drivers from approximately 105 offices in 32 states. The Company operates in three business segments: Manufactured Housing, Specialized Outsourcing Services, and Insurance and Finance. The Manufactured Housing segment provides outsourced transportation and logistical services to manufacturers of manufactured housing through a network of terminals located in thirty one states. The Specialized Outsourcing Services segment provides outsourced transportation services primarily to manufacturers of recreational vehicles, commercial trucks and trailers through a network of service centers in eight states. The third segment, Insurance and Finance, provides insurance and financing to the Company's drivers and independent owner-operators. This segment also acts as a cost center whereby all property damage and bodily injury and cargo costs are captured. The Company's segments are strategic business units that offer different services and are managed separately based on the differences in these services. Measurement of Segment Profit (Loss) and Segment Assets The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is business segment operating income, defined as earnings before interest, taxes, depreciation and amortization (EBITDA). Segment assets have not changed significantly since December 31, 1998. The accounting policies of the segments are the same as those described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. There are no significant intersegment revenues. The following table presents the financial information for the Company's reportable segments for the three month periods ended March 31, (in thousands): 1999 1998 -------- -------- Operating revenues Manufactured Housing $ 23,868 $ 23,950 Specialized Outsourcing Services 11,032 9,642 Insurance and Finance 1,028 1,020 All Other 52 -- -------- -------- 35,980 34,612 Total intersegment insurance revenues (655) (641) -------- -------- Total operating revenues $ 35,325 $ 33,971 ======== ======== Segment profit (loss) - EBITDA Manufactured Housing $ 2,649 $ 2,231 Specialized Outsourcing Services 204 172 Insurance and Finance (2,030) (2,293) All Other (189) (162) -------- -------- 634 (52) Depreciation and amortization (309) (295) Interest expense (88) (144) -------- -------- Income (loss) before taxes $ 237 $ (491) ======== ======== Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Consolidated Results Operating revenues were a first-quarter record, increasing 3.8 percent to $35.3 million from 1998's $34.0 million. While traditionally the first quarter is seasonally the Company's slowest, operating revenues for Specialized Outsourcing Services rose 14.4 percent to $11.0 million compared with last year's first quarter, contributing to the overall increase in revenues. Operating earnings before interest, taxes, depreciation and amortization ("EBITDA") were $634,000 for the quarter, compared with a loss of $52,000 for the corresponding period last year. Profitability improvements are the result of better service pricing, claims cost reductions and a reduction in the Company's operating cost structure. Because of the existence of significant non-cash expenses, such as depreciation of fixed assets and amortization of intangible assets, the Company believes that EBITDA contributes to a better understanding of the Company's ability to satisfy its obligations and to utilize cash for other purposes. EBITDA should not be considered in isolation from or as a substitute for operating income, cash flow from operating activities, and other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles. Partially offsetting the reduction in operating costs was an increase in selling, general and administrative expense of $320,000 primarily increased communication, salaries, related employee benefit costs, and increased health care costs. Net interest expense decreased $56,000 or 39.9% in the first quarter of 1999 compared to the same period of the prior year as a result of improved cash flow that allowed the Company to reduce the amount of debt outstanding under its credit facility. Net income improved to $118,000 or $0.05 per share, versus a loss of $231,000, or $0.09 per share, for the same period of the prior year. Segment Results The following discussion sets forth certain information about the segment results for the quarters ended March 31, 1999 and 1998. Manufactured Housing Manufactured Housing operating revenues are generated from providing transportation and logistical services to manufacturers of manufactured homes. Manufactured Housing operating revenues were $82,000 less in the first quarter of 1999 compared to the first quarter of a year ago. Lower quarter to quarter volume was offset by better service pricing. Manufactured Housing EBITDA increased $418,000, primarily due to a reduction in overhead costs resulting from force reductions and field office consolidations or eliminations. Specialized Outsourcing Services Specialized Outsourcing Services operating revenues increased in the first quarter of 1999 to $11.0 million. This increase was primarily in driver outsourcing services and large trailer delivery services. Specialized Outsourcing Services EBITDA increased to $204,000 primarily due to the increased business volume. Insurance/Finance The Company's Insurance/Finance segment provides insurance and financing services to the Company's drivers and independent owner-operators. This segment also acts as a cost center whereby all bodily injury, property damage and cargo loss costs are captured. Insurance/Finance operating revenues quarter to quarter were unchanged at $1.0 million. Insurance/Finance EBITDA improved $263,000, primarily due to lower claims cost for the first Quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's businesses are seasonal, particularly the shipment of manufactured homes which decline in the winter months in areas where poor weather conditions inhibit transport. Operating activities used $281,000 of cash in the first quarter of 1999 primarily to finance trade accounts receivable growth associated with the March increase in operating revenues. Operations in the first quarter of 1998 used $730,000 of cash. In 1999, cash was also required to pay federal and state prior year and estimated tax liabilities. These uses of cash were partially offset by collection of amounts due from the primary insurance provider. Trade accounts receivable days sales outstanding (DSO) decreased from 28 days at December 31, 1998 to 23 days at March 31, 1999. The Company commenced a tender offer on February 22, 1999, at which time it announced its intention to purchase shares of its Class A common stock at a price range not greater than $10.00 nor less than $8.50 per share. The Company concluded the tender offer on March 19, 1999, whereby it acquired 102,528 shares for its treasury at $9.00 per share. The Company, given its businesses, assets and prospects, believes that purchasing its Class A stock is an attractive investment that will benefit the Company and its remaining shareholders and is consistent with its long-term goals of maximizing shareholder return and with its recent purchases of outstanding shares. On January 28, 1999, the Company entered into a new $20.0 million revolving credit facility ("New Credit Facility") with the Transportation Division of BankBoston. This New Credit Facility is for two years, subject to renewal, and better sized to the Company's requirements. The Company had borrowings of $400,000 at March 31, 1999 and borrowing availability of $3,331,000. The Company had minimal exposure to interest rates as of March 31, 1999 as substantially all of its outstanding long-term debt bears fixed rates. The New Credit Facility will bear variable interest rates based on either a Federal Funds rate or the Eurodollar rate. Accordingly, future borrowings under the New Credit Facility will have exposure to changes in interest rates. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. Also, the Company currently is not using any fuel hedging instruments. It is the management's opinion that the Company's foreseeable cash requirement will be met through a combination of internally generated funds and the credit available from the New Credit Facility. YEAR 2000 COMPLIANCE The Company recognizes the need to ensure its operations will not be adversely affected by Year 2000 software failures and has established a project team to address the Year 2000 issue. The Company has a program in place designed to bring the systems into Year 2000 compliance in time to minimize any significant detrimental effects on operations. The Company's goal is to have its remediated and replaced systems operational by July, 1999 to allow time for testing and verification. In addition, executive management regularly monitors the status of the Company's Year 2000 remediation plans. The Company completed an assessment of Year 2000 issues in 1998. The first two phases of the compliance plan have been completed with installation and conversion to a mainframe computer that provides adequate computing power to complete application software conversion and remediation and conversion of financial applications by the end of the first quarter of 1999. The third phase of the Year 2000 compliance program involves the remediation and replacement of operating systems. Rather than remediate, a significant portion of the operating software is being replaced by compliant purchased software. Implementation is scheduled to be completed by July, 1999. The Company is using both internal and external resources to complete this phase. Systems ranked highest in priority are scheduled first for remediation or replacement, with final testing and certification for Year 2000 readiness completed by September, 1999. The Company also faces risk to the extent that services and systems purchased by the Company and others with whom the Company transacts business do not comply with Year 2000 requirements. As part of the Year 2000 compliance program, significant service providers, vendors, customers and governmental entities that are believed to be critical to business operations after January 1, 2000 have been identified and steps are being undertaken in an attempt to reasonably determine their stage of Year 2000 readiness. External and internal costs specifically associated with modifying internal use software for Year 2000 compliance are expensed as incurred. The total amount expended on the project through March 31, 1999 was $130,000. Costs to be incurred in the remainder of 1999 to fix Year 2000 problems are estimated at approximately $305,000. These estimated costs do not include normal ongoing costs for computer hardware and software that would be replaced even without the presence of the Year 2000 issue. The Company does not expect the costs relating to Year 2000 remediation to have a material effect on its results of operations or financial condition. Based on the progress the Company has made in addressing its Year 2000 issues and the Company's plan and timeline to complete its compliance program, the Company does not foresee significant risks associated with its Year 2000 compliance at this time. As the Company's plan is to address its significant Year 2000 issues prior to being affected by them, it has not developed a comprehensive contingency plan. However, if the Company identifies significant risks related to its Year 2000 compliance or its progress deviates from the anticipated timeline, the Company will develop contingency plans as deemed necessary at that time. The Company believes today that the most likely worst case scenario will involve temporary disruptions in payments from customers and temporary disruptions in the delivery of services and products to the Company. The Company would expect that if these events were to occur, increased expense would result and adversely affect the Company's cash flow. The estimates and conclusions herein contain forward-looking statements and are based on management's best estimates of future events. However, there can be no assurance that the Company will timely identify and remediate all significant Year 2000 problems, that remedial efforts will not involve significant time and expense, or that such problems will not have a material adverse effect on the Company's business, results of operations or financial position. Impact of Seasonality Shipments of manufactured homes tend to decline in the winter months in areas where poor weather conditions inhibit transport. This usually reduces operating revenues in the first and fourth quarters of the year. The Company's operating revenues, therefore, tend to be stronger in the second and third quarters. FORWARD LOOKING DISCUSSION This report contains a number of forward-looking statements. From time to time, the Company may make other oral or written forward-looking statements regarding its anticipated operating revenues, costs and expenses, earnings and other matters affecting its operations and condition. Such forward-looking statements are subject to a number of material factors which could cause the statements or projections contained therein to be materially inaccurate. Such factors include, without limitation, the risk of declining production in the manufactured housing industry; the risk of losses or insurance premium increases from traffic accidents; the risk of loss of major customers; risks of competition in the recruitment and retention of qualified drivers in the transportation industry generally; risks of acquisitions or expansion into new business lines that may not be profitable; risks of changes in regulation and seasonality of the Company's business. Such factors are discussed in greater detail in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 under Part I, Item 1, Business 7. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: Exhibit 27.1 - Financial Data Schedule for Three Month Period Ended March 31, 1999 Exhibit 27.2 - Restated Financial Data Schedule for Three Month Period Ended March 31, 1998 (b) Report on Form 8-K: Report filed on February 12, 1999 announcing the closing of a new $20 million Revolving Credit and Term Loan Agreement with BankBoston, N.A. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MORGAN GROUP, INC. BY:/s/ Dennis R. Duerksen ------------------------------ Dennis R. Duerksen Chief Financial Officer Date: May 13, 1999 EX-27.1 2 FDS FOR THE MORGAN GROUP, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. The Morgan Group, Inc. 0000906609 1,000 U.S. Dollars 3-MOS Dec-31-1999 Jan-1-1999 Mar-31-1999 1.000 49 0 14,021 218 0 18,015 7,125 2,759 33,023 15,232 0 41 0 0 12,264 33,023 35,325 35,325 0 35,000 0 41 88 237 119 118 0 0 0 118 .05 .05
EX-27.2 3 RESTATED FDS FOR THE MORGAN GROUP, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000906609 The Morgan Group, Inc. 1,000 U.S. Dollars 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 1.000 137 0 15,066 202 0 19,240 6,509 2,401 34,076 15,431 0 41 0 0 12,378 34,076 33,971 33,971 0 34,318 0 69 144 (491) (260) (231) 0 0 0 (231) (0.08) (0.08)
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