-----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, PH8ullJ/B5zhH4UJd6VtojxAvwLjFfBY3B/6z3ytqXG52w04aCr43CIkmdaNtmrz jskavioV5nXBfK6JsXwkGA== /in/edgar/work/0000908834-00-000196/0000908834-00-000196.txt : 20001115 0000908834-00-000196.hdr.sgml : 20001115 ACCESSION NUMBER: 0000908834-00-000196 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN GROUP INC CENTRAL INDEX KEY: 0000906609 STANDARD INDUSTRIAL CLASSIFICATION: [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: 763965 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 0001.txt 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 September 30, 2000 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 November 10, 2000 was: Class A - 1,248,157 shares Class B - 1,200,000 shares The Morgan Group, Inc. INDEX PAGE UMBER PART I FINANCIAL INFORMATION Item 1 Financial Statements (unaudited) Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Three and Nine Month Periods Ended September 30, 2000 and 1999 5 Notes to Consolidated Interim Financial Statements as of September 30, 2000 6-8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 14 Signatures 14
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements The Morgan Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share amounts) September 30, December 31, 2000 1999 ---- ---- ASSETS (Unaudited) (Note 1) Cash and cash equivalents $ 1,638 $ 3,847 Trade accounts receivable, less allowance for doubtful accounts of $176 in 2000 and $313 in 1999 10,782 10,130 Accounts receivable, other 326 313 Refundable taxes 287 -- Prepaid expenses and other current assets 1,531 1,960 Deferred income taxes 1,474 1,475 ------- ------- Total current assets 16,038 17,725 ------- ------- Property and equipment, net 4,044 4,309 Intangible assets, net 6,866 7,361 Deferred income taxes 2,172 2,172 Other assets 468 697 ------- ------- Total assets $29,588 $32,264 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 3,622 $ 3,907 Accrued liabilities 4,371 4,852 Income taxes payable -- 278 Accrued claims payable 3,506 3,071 Refundable deposits 1,557 1,752 Current portion of long-term debt and capital lease obligations 248 676 ------- ------- Total current liabilities 13,304 14,536 ------- ------- Long-term debt and capital lease obligations, less current portion 109 289 Long-term accrued claims payable 4,699 5,347 Commitments and contingencies -- -- Shareholders' equity: Common stock, $.015 par value Class A: Authorized shares - 7,500,000 Issued shares - 1,607,303 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 2,159 2,775 ------- ------- Total capital and retained earnings 14,659 15,275 Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183) ------- ------- Total shareholders' equity 11,476 12,092 ------- ------- Total liabilities and shareholders' equity $29,588 $32,264 ======= =======
See Notes to Consolidated Financial Statements The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in thousands, except share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ---- ---- ---- ---- Operating revenues $28,164 $37,312 $85,992 $112,907 Costs and expenses: Operating costs 25,590 34,326 78,990 103,205 Selling, general and administration 2,160 2,477 6,792 7,815 Depreciation and amortization 236 301 817 918 --------- -------- --------- -------- 27,986 37,104 86,599 111,938 Operating income (loss) 178 208 (607) 969 Interest expense, net 77 75 210 282 --------- --------- --------- --------- Income (loss) before income taxes 101 133 (817) 687 Income tax expense (benefit) 26 99 (293) 366 --------- --------- --------- --------- Net income (loss) $ 75 $ 34 $ (524) $ 321 ========= ========= ========= ========== Net income (loss) per common share: Basic $0.03 $0.01 ( $0.21) $0.13 ========= ===== ======= ===== Diluted $0.03 $0.01 ( $0.21) $0.13 ========= ===== ======= ===== Weighted average shares outstanding Basic 2,448,157 2,446,907 2,448,157 2,477,348 ========= ========= ========= ========= Diluted 2,450,535 2,454,888 2,452,063 2,481,648 ========= ========= ========= ========= Cash dividends declared per common share Class A: $0.010 $0.020 $0.050 $0.060 ====== ====== ====== ====== Class B: $0.005 $0.010 $0.025 $0.030 ====== ====== ====== ======
See Notes to Consolidated Financial Statements The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Nine Months Ended September 30, 2000 1999 ------------- ------------- Operating activities: Net (loss) income $ (524) $ 321 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 817 918 Other 60 58 Changes in operating assets and liabilities: Trade accounts receivable (652) (775) Other accounts receivable (13) 1,035 Prepaid expenses and other current assets 429 115 Other assets 229 (138) Trade accounts payable (285) 433 Accrued liabilities (481) 1,030 Income taxes payable (565) 618 Accrued claims payable (213) (838) Refundable deposits (195) 82 ----------- ---------- Net cash (used in) provided by operating activities (1,393) 2,859 Investing activities: Purchases of property and equipment (118) (538) Other investing activities 2 (32) ----------- ---------- Net cash used in investing activities (116) (570) Financing activities: Principal payments on long-term debt (608) (584) Treasury stock purchases -- (1,006) Common stock dividends paid (92) (106) ----------- ---------- Net cash used in financing activities (700) (1,696) ----------- ---------- Net (decrease) increase in cash and equivalents (2,209) 593 Cash and cash equivalents at beginning of period 3,847 1,490 ---------- --------- Cash and cash equivalents at end of period $ 1,638 $ 2,083 ========== ========= See Notes to Condensed Financial Statements
The Morgan Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements (Unaudited) September 30, 2000 Note 1. Basis of Presentation The accompanying consolidated interim financial statements have been prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"), in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included for complete financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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, 1999. Net income 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 shares for both classes of common stock is considered in the computation of EPS. 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 intercompany accounts and transactions have been eliminated in consolidation. Note 2. Indebtedness The Company has a $20,000,000 Revolving Credit Facility ("Credit Facility") which was amended on March 30, 2000 and expires on January 28, 2001. The Company primarily utilizes the Credit Facility to obtain stand-by letters of credit and occasionally for working capital borrowing. The letters of credit are primarily required for self-insurance retention reserves. Total borrowings and stand-by letters of credit are limited to qualified trade accounts receivable, qualified owner-operator loans and cash investments (the "Borrowing Base"). The Borrowing Base as of September 30, 2000 was $10,376,000 against which the Company had $8,600,000 of letters of credit outstanding and no working capital loans outstanding. The Company experienced a shortfall in the level of cash flow required under its Credit Facility and at September 30, 2000 is projecting that it will continue to be in violation of the cash flow and of other covenants in the fourth quarter. The Company has received a waiver on November 10, 2000 of its shortfall through October from its lender. The Company recently reduced its letters of credit requirement to $6,600,000. Although the waiver reduced the credit facility to $7,600,000, the Company believes that the reduced capacity is sufficiently sized relative to its current requirements. Additionally, the waiver prohibits a cash dividend in the fourth quarter. The Company and its lender are in discussions and the Company believes it will be able to restructure or replace the facility before its January 28, 2001 maturity. Note 3. Credit Risk With the severe downturn in the Manufactured Housing industry, management is continually reviewing credit worthiness of its customers and taking appropriate steps to ensure the quality of the receivables. As of September 30, 2000, 33 percent of the open trade accounts receivable was with two manufactured housing customers of which 97 percent was within 45 days of invoice. In total, 90 percent of the open trade receivables are also within 45 days of invoice. If either of the two major customers would significantly delay their payments from current practice, it will have a negative impact on the Company's cash flow. Note 4. Long-Lived Assets The Company periodically assesses the net realizable value of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. As a result of the severe downturn in the manufactured housing industry, the Company continues to assess the recoverability of the goodwill associated with its last acquisition. The total amount under review is $3.3 million. The Company does not believe there is an impairment of such assets. Note 5. Income Taxes The Company has recorded a benefit of 36 percent for the nine months ended September 30, 2000, which is the estimated annualized effective tax rate. As a result of the year-to-date net loss, the Company will review the necessity for a valuation allowance relating to the deferred tax asset of approximately $3.6 million. Note 6. Segment Reporting Description of Services by Segment The Company operates in four business segments: manufactured housing, driver outsourcing, specialized outsourcing services, and insurance and finance. The manufactured housing segment primarily provides specialized transportation to companies which produce new manufactured homes and modular homes through a network of terminals located in twenty-eight states. The driver outsourcing segment provides outsourcing transportation primarily to manufacturers of recreational vehicles, commercial trucks, and other specialized vehicles through a network of service centers in seven states. The specialized outsourcing services segment consists of large trailer, travel and small trailer delivery. The fourth 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. The driver outsourcing segment and the specialized outsourcing services were reported as one segment titled "Specialized Outsourcing Services" in the prior year. The prior year periods have been restated. Measurement of Segment (Loss) 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). 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, 1999. Except for insurance premiums, there are no significant intersegment revenues. The following table presents the financial information for the Company's reportable segments for the three and nine-month periods ended September 30, (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------ -------------- Operating revenues Manufactured Housing $18,730 $25,768 $ 56,931 $ 77,284 Driver Outsourcing 5,152 5,867 16,584 17,907 Specialized Outsourcing Services 4,023 5,329 11,662 16,535 Insurance and Finance 724 974 2,273 3,034 All Other - (14) (3) 58 ------- ------- -------- -------- 28,629 37,924 87,447 114,818 Total inter-segment insurance revenues (465) (612) (1,455) (1,911) ------- ------- -------- -------- Total operating revenues $28,164 $37,312 $ 85,992 $112,907 ======= ======= ========= ======== Segment profit (loss) - EBITDA Manufactured Housing $ 1,716 $ 3,147 $ 5,354 $ 8,904 Driver Outsourcing 194 150 1,100 258 Specialized Outsourcing Services 82 188 (37) 494 Insurance and Finance (1,471) (2,732) (5,435) (7,138) All Other (107) (244) (772) (631) ------- ------- -------- --------- 414 509 210 1,887 Depreciation and amortization (236) (301) (817) (918) Interest expense (77) (75) (210) (282) ------- ------- -------- -------- Income (loss) before taxes $ 101 $ 133 $ (817) $ 687 ======= ======= ======== ========
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS For the Quarter Ended September 30, 2000 Consolidated Results During the third quarter of 2000, the Company continued to experience a decline in shipments in all business segments compared to the year ago quarter and profit declines in its manufactured housing and specialized outsourcing business segments while the segment profit/loss of driver outsourcing and insurance and finance improved. In the third quarter, consolidated operating revenues decreased 25 percent to $28,164,000 from 1999's third quarter of $37,312,000. This decrease is primarily the result of a sharp industry-wide decline in shipments of manufactured homes. Additionally, operating revenues decreased significantly in the specialized outsourcing and driver outsourcing business segments. The manufactured housing industry continues to be hampered by tighter credit standards and higher interest rates at the retail level, and a resultant excessive inventory of new and repossessed homes, which directly impacts production and sales volume of the Company's customers. The largest portion of the Company's operating revenues is derived from the transportation of manufactured homes. The Company believes that the recessive conditions in the manufactured housing industry will continue through this year, possibly moderating in the second half of the following year. Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $414,000 for the quarter, compared to $509,000 for the corresponding period last year. 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 data prepared in accordance with generally accepted accounting principles. Net income for the third quarter of 2000 was $75,000 or $0.03 per share, compared to net income of $34,000 or $0.01 per share, for the same period of the prior year. The Company periodically assesses the net realizable value of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. As a result of the severe downturn in the manufactured housing industry, the Company continues to assess the recoverability of the goodwill associated with its last acquisition. The total amount under review is $3.3 million. The Company does not believe there is an impairment of such assets. Segment Results The Company conducts its operations in four principal segments as discussed below. The following discussion sets forth certain information about the segment results. Manufactured Housing Manufactured Housing operating revenues are generated from providing transportation and logistical services to manufacturers of manufactured homes. Manufactured Housing operating revenues were $7,038,000 or 27 percent less in the third quarter of 2000 compared to the third quarter of a year ago, reflecting the recessive condition in the manufactured housing industry. Manufactured Housing EBITDA in the third quarter as in the previous quarters was primarily due to the lower shipment volume. EBITDA decreased in the third quarter $1,431,000 to $1,716,000. Driver Outsourcing Driver outsourcing provides outsourcing transportation services primarily to manufacturers of recreational vehicles, commercial trucks and other specialized vehicles. Operating revenues of $5,152,000 decreased $715,000 in the third quarter of 2000 compared to the third quarter of 1999. However, EBITDA increased by $44,000 to $194,000 in the third quarter of 2000 primarily due to reductions in transportation and overhead costs. Specialized Outsourcing Services Specialized Outsourcing Services consists of delivering large trailers, travel and other small trailers. The Company essentially ceased delivery of the Decking units in the second quarter 2000. Operating revenues decreased by $1,306,000 in the third quarter of 2000 to $4,023,000. This decrease was primarily in the delivery of large trailers but also from the Decking operations. Decking operating revenues were $385,000 in the third quarter of 1999. EBITDA decreased $106,000 compared to the year ago quarter to $82,000 in the third quarter 2000. This decrease is primarily due to the decrease of shipments in large trailers and exiting the Decking market. 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 decreased $250,000 in the third quarter of 2000 to $724,000 primarily reflecting a decrease in owner-operator insurance premiums caused by the lower shipments in Manufactured Housing. The loss at the EBITDA level in the third quarter of 2000 compared to the third quarter of the prior year decreased by $1,261,000 to $1,471,000 primarily due to lower bodily injury and property damage losses but also due to decreases in cargo related claims. RESULTS OF OPERATIONS For the First Nine Months Ended September 30, 2000 For the first nine months of 2000, operating revenues decreased to $85,992,000 from $112,907,000 for the same period last year. Operating revenues decreased primarily in Manufactured Housing but also decreased in the other business segments. EBITDA decreased $1,677,000 to $210,000 for the nine-month period of 2000 compared to the year ago period. This decrease was primarily in Manufactured Housing and Specialized Outsourcing Services partially offset by improvement in Driver Outsourcing and Insurance and Finance. Net interest expense decreased $72,000 compared to the year ago period as a result of continued improved cash management. The change in the effective tax rate is primarily due to the permanent differences between financial and tax reporting, which is consistent with prior years. These permanent items combined with the operating losses experienced through September 2000 have reduced the effective tax rate over this same period of the prior year. The Company has recorded a benefit of 36 percent for the nine months ended September 30, 2000, which is the estimated annualized effective tax rate. As a result of the year-to-date net loss, the Company will review the necessity for a valuation allowance relating to the deferred tax asset of approximately $3.6 million. Accordingly, the net loss for the nine months ended September 30, 2000 was $524,000 or $0.21 per share, compared to net income of $321,000 or $0.13 per share, for the same period of the prior year. The Company has instituted staff reductions other cost savings initiatives, and continues to review incremental marketing initiatives. It is currently estimated that the staff reduction cost savings of these initiatives will approximate $2,400,000 annually. The impact of the cost savings for 2000 is expected to approximate $1,800,000, net of severance costs. Traditionally, the fourth quarter, ending December 31, is seasonally slower than the third quarter. Additionally, the fourth quarter will be adversely affected by continued recessive conditions in the manufactured housing market and a sharp decline in recreation vehicle shipments. Segment Results The following discussion sets forth certain information about the segment results for the nine months ended September 30, 2000 and 1999. Manufactured Housing Manufactured Housing operating revenues were $20,353,000 less in the first nine months of 2000 compared to the prior year period. As previously discussed, the decreases in operating revenues are primarily due to the recessive conditions in the Manufactured Housing industry. Manufactured Housing EBITDA decreased $3,550,000, primarily due to the reduction in volume partially offset by decreased overhead costs. Driver Outsourcing Operating revenues decreased by $1,323,000 in the first nine months of 2000 compared to the first nine months of 1999. However, EBITDA increased $842,000 to $1,100,000 primarily due to improved pricing, and reductions in transportation and overhead costs. Specialized Outsourcing Services Operating revenues decreased by $4,873,000 in the first nine months of 2000 compared to the first nine months of 1999. This decrease was primarily in the delivery of large trailers. Operating revenues for Decking decreased $1,025,000. EBITDA decreased primarily because of lower shipments. Insurance/Finance Insurance/Finance operating revenues decreased $761,000 in the first nine months of 2000 compared to the first nine months of the prior year to $2,273,000 reflecting a decrease in owner-operator insurance premiums. The Company also experienced decreases in bodily injury, property damage and cargo related claims in the first nine months of 2000. As a result of the above factors the loss at the EBITDA level decreased in the first nine months of 2000 compared to the prior year period by $1,703,000 to $5,435,000. LIQUIDITY AND CAPITAL RESOURCES Operating activities used $1,393,000 of cash in the first nine months of 2000 to fund the net loss, the seasonal increase in trade accounts receivable, pay prior year federal and state tax liabilities and fund a reduction in trade accounts payable and accrued liabilities. With the severe downturn in the Manufactured Housing industry, management is continually reviewing credit worthiness of its customers and taking appropriate steps to ensure the quality of the receivables. As of September 30, 2000, 33 percent of the open trade accounts receivable was with two manufactured housing customers of which 97 percent was within 45 days of invoice. In total, 90 percent of the open trade receivables are also within 45 days of invoice. If either of the two major customers would significantly delay their payments from current practice, it will have a negative impact on the Company's cash flow. The Company has a $20,000,000 Revolving Credit Facility ("Credit Facility") which was amended on March 30, 2000 and expires on January 28, 2001. The Company primarily utilizes the Credit Facility to obtain stand-by letters of credit and occasionally for working capital borrowing. The letters of credit are primarily required for self-insurance retention reserves. Total borrowings and stand-by letters of credit are limited to qualified trade accounts receivable, qualified owner-operator loans and cash investments (the "Borrowing Base"). The Borrowing Base as of September 30, 2000 was $10,376,000 against which the Company had $8,600,000 letters of credit outstanding and no working capital loans outstanding. The Company experienced at September 30, 2000 a shortfall in the level of cash flow required under its Credit Facility and is projecting that it will continue to be in violation of the cash flow and of other covenants in the fourth quarter. The Company has received a waiver on November 10, 2000 of its shortfall through October from its lender. The Company recently reduced its letters of credit requirement to $6,600,000. Although the waiver reduced the credit facility to $7,600,000, the Company believes that the reduced capacity is sufficiently sized relative to its current requirements. Additionally, the waiver prohibits a cash dividend in the fourth quarter. The Company and its lender are in discussions and the Company believes it will be able to restructure the facility in the fourth quarter of the year 2000. There is no assurance that such negotiations will be successful. In that event, the Company would seek alternative financing. There can be no assurance that such alternative financing can be obtained. If such situation is not resolved favorably to the Company, it could have a material adverse effect on the Company and its financial condition. The Company had minimal exposure to interest rates as of September 30, 2000, as substantially all of its outstanding long-term debt bears fixed rates. The Credit Facility mentioned above bears variable interest rates based on either a Federal Funds rate or the Eurodollar rate. Accordingly, borrowings under the Credit Facility 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. Inflation Most of the Company's expenses are affected by inflation, which generally results in increased costs. The transportation industry is dependent upon the availability and cost of fuel. Although fuel costs are paid by the Company's owner-operators, increases in fuel prices have had and may continue to have adverse effects on the Company's operations. Since fuel costs vary between regions, drivers have become more selective as to which regions they will transport goods resulting in diminished driver availability. Also, the Company has experienced adverse effects during the time period from when fuel costs begin to increase until the time when scheduled rate increases to customers is enacted. Increases in fuel prices has also affected the sale of recreational vehicles by making the purchase less attractive to consumers. A decrease in the sale of recreational vehicles has been accompanied by a decrease in recreational vehicle shipments. 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; failure to restructure or secure alternative financing; the risk of losses or insurance premium increases from traffic accidents; the risk of loss of major customers; or a significant delay in their current payment practice; 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, 1999. Item 6 Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: Exhibit 27.1 - Financial Data Schedule for Nine Month Period Ended September 30, 2000 (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. 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: November 13, 2000 EX-27 2 0002.txt FDS FOR THE MORGAN GROUP, INC.
5 This schedule contains unaudited summary financial information extracted from the Registrant's consolidated financial statements for the 9 months ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. 0000906609 The Morgan Group, Inc. 1,000 U.S. Dollars 9-MOS DEC-31-2000 JAN-1-2000 SEP-30-2000 1.000 1,638 0 10,782 176 0 16,038 6,614 2,570 29,588 13,304 0 0 0 41 11,435 29,588 85,992 85,992 0 86,599 0 (259) 210 (817) (293) (524) 0 0 0 (524) (.21) (.21)
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