-----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, STA8xenOGRzFarAaBSTNNzjS3ueSuTepa/BfAKbuza9/K4kuBGBENV/B0+R7gYZQ XuK4Ee4HE4LV0vIJQO8H/g== 0000908834-96-000262.txt : 19961118 0000908834-96-000262.hdr.sgml : 19961118 ACCESSION NUMBER: 0000908834-96-000262 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX 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: 1934 Act SEC FILE NUMBER: 001-13586 FILM NUMBER: 96664954 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 THE MORGAN GROUP'S FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------ FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the period ended September 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-13586 THE MORGAN GROUP, INC. Delaware 22-2902315 - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer identification no.) of incorporation or organization) 28651 U.S. 20 West Elkhart, Indiana 46514 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (219) 295-2200 - ------------------------------------------------------------------------------- (Registrant's telephone number, include area code) Not applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. X Yes No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $0.15 Par Value: Class A - 1,489,010 shares as of September 30, 1996 Class B - 1,200,000 shares as of September 30, 1996 The Morgan Group, Inc. INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 2 - 3 Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flow for the Nine Month Periods Ended September 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements as of September 30, 1996 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 PART II OTHER INFORMATION Signatures 11 Exhibit 11 - Statement Re: Computation of Per Share Earnings 12 Exhibit 27 - Financial Data Schedule 13 Signatures 14 PART I FINANCIAL INFORMATION Item 1 Financial Statements The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets Sept. 30, Dec. 31, 1996 1995 (Unaudited) (Note) ----------- ------ (In thousands) Assets Current Assets: Cash and cash equivalents $3,126 $2,851 Trade accounts receivable, less allowance 13,109 11,285 for doubtful accounts of $44,000 in 1996 and $102,000 in 1995 Accounts receivable, other 388 514 Prepaid expenses and other current assets 2,860 2,875 Deferred income taxes 586 586 ------ ------ Total current assets 20,069 18,111 Property and equipment, net 6,575 6,902 Intangible assets, net 5,001 5,285 Other assets 607 497 ------ ----- Total assets $32,252 $30,795 ======== ======= The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (continued) Sept. 30, Dec. 31, 1996 1995 (Unaudited) (Note) (In thousands) Liabilities and Stockholders' Equity Current Liabilities: Note payable to bank $2,500 $- - - Trade accounts payable 2,622 3,845 Accrued liabilities 1,691 2,039 Accrued driver pay 228 206 Accrued claims payable 4,169 3,623 Refundable deposits 1,768 1,607 Current portion of long-term debt 784 784 ------ ----- Total current liabilities $13,762 12,104 Long-term debt, less current portion 1,703 2,491 Deferred income taxes 622 622 Commitments and contingencies - - - - - - Shareholders' equity Preferred Stock without par value, authorized shares - 50,000 No shares issued and outstanding Common stock, $.015 par value Class A: Authorized shares - 7,500,000 Issued and outstanding shares - 1,489,010 and 1,449,554 23 23 Class B: Authorized shares - 2,500,000 Issued and outstanding shares - 1,200,000 18 18 Additional paid-in capital 12,441 12,441 Retained earnings 5,160 4,370 ------ ----- 17,642 16,852 Less - - treasury stock, 116,543 shares, at cost (973) (1,274) - loan to officer for purchase of stock (504) - - - ------ ------- Total shareholder's equity $16,165 $15,578 ------- ------- Total liabilities and shareholder's equity $32,252 $30,795 ======= ======= Note:The balance sheet at December 31, 1995 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 or complete financial statements. See notes to condensed consolidated financial statements. The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, --------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (In thousands except per share data) Operating Revenues: Manufactured housing outsourcing $19,959 $17,046 $55,525 $46,704 Specialized transport 6,910 7,715 20,991 23,109 Driver outsourcing 5,849 5,689 17,978 14,794 Other service revenues 2,587 2,801 8,015 7,001 ------ ----- ------ ----- Total operating revenues 35,305 33,251 102,509 91,608 Costs and Expenses: Operating costs 32,063 29,899 93,826 81,945 Depreciation and amortization 353 346 1,095 920 Selling, general and administrative 2,101 1,903 6,170 5,661 ------ ------ ------ ------ Operating income 788 1,103 1,418 3,082 Net interest income (expense) (108) (50) (280) (31) ------ ------ ------ ------ Income before income taxes 680 1,053 1,138 3,051 Income taxes 185 239 217 1,010 ------ ------ ------ ------ Net income 495 814 921 2,041 Less preferred stock dividends - - - 61 - - - 183 ------- ------ ------ ------ Net income applicable to common stock $495 $753 $921 $1,858 ======= ======= ======= ======= Net income per share: Primary $ 0.18 $ 0.29 $ 0.34 $ 0 .71 Fully diluted $ 0.18 $ 0.29 $ 0.34 $ 0.71 Average number of common shares and common stock equivalents 2,692,489 2,575,771 2,682,837 2,620,819 ========= ========= ========= =========
See notes to condensed financial statements. The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flow (Unaudited)
Nine Months Ended Sept. 30 1996 1995 ---------- -------- (In Thousands) Operating activities Net income $921 $2,041 Adjustment to reconcile net income to net cash provided by (used in) operating activities Depreciation 1,095 920 Debt amortization 24 20 ------ ----- 2,040 2,981 Changes in operating assets and liabilities: Accounts receivable (1,824) (2,515) Accounts receivable, other 126 9 Prepaid expenses and other current expenses (9) (647) Accounts payable (1,223) 1,069 Accrued liabilities (348) 266 Accrued drivers pay 22 (329) Accrued insurance claims 546 293 Refundable deposits 161 237 ------- ------ Net cash provided by (used in) operating activities (509) 1,364 Investing activities Purchases of property and equipment (466) (1,578) Purchase of intangible assets (18) (2,396) Increase in other assets (110) (354) ----- ------ Net cash used in investing activities (594) (4,328) Financing activities Net proceeds from (payment on) bank and seller financed notes and credit line 1,712 1,798 Dividends on common and preferred stock (131) (355) Treasury stock purchase, net of officer loan (203) (482) Conversion of warrants - - - 107 --------- ----- Net cash provided by financing activities 1,378 1,068 ----- ------ Net increase (decrease) in cash and cash equivalents 275 (1,896) Cash and cash equivalents at beginning of period 2,851 6,694 ------ ----- Cash and cash equivalents at end of period $3,126 $4,798 ====== ====== See notes to condensed consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 1996 Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of The Morgan Group, Inc. and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, for the year ended December 31, 1995. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, Morgan Drive Away, Inc. ("Morgan"), TDI, Inc. ("TDI"), Interstate Indemnity Company ("Interstate") and Morgan Finance, Inc. ("Finance") all of which are wholly owned. Significant intercompany accounts and transactions have been eliminated in consolidation. Note 2. Indebtedness The Company has extended, through April 30, 1997, various credit facilities with banks at terms similar to those terms disclosed in the December 31, 1995 financial statements. The Company expects to renew or extend these agreements in the normal course of business. Note 3. Employee Stock Purchase Plan In February of 1996, Morgan Drive Away adopted a Special Employee Stock Purchase Plan ("Plan") under which Morgan Drive Away's President and Chief Executive Officer purchased 70,000 shares of Class A Common Stock from treasury stock at the then current market value price of $560,000. Under the terms of the Plan, $56,000 was delivered to the Company and a promissory note was executed in the amount of $504,000 bearing an interest rate of five (5%) percent per annum due in 2003. The Plan allows for repayment of the note using shares at $9.00 per share, 56,000 shares during the first year of the agreement and 28,000 during the second year. PART I - FINANCIAL INFORMATION Item 2 - Management Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth the percentage relationships of operations data to revenue for the periods indicated.
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, ---------------------- ---------------------- 1996 1995 1996 1995 -------- -------- -------- ----- (Unaudited) (Unaudited) Statement of Operations Data: Operating revenue 100.0% 100.0% 100.0% 100.0% Operating costs 90.8 89.9 91.5 89.5 Depreciation and amortization 1.0 1.1 1.1 1.0 Selling, general and administrative 6.0 5.7 6.0 6.2 ----- ----- ------ ----- Operating income 2.2 3.3 1.4 3.3 Net interest expense (.3) (.2) (.3) - - - ----- ----- ------ ----- Income before income taxes 1.9 3.1 1.1 3.3 Income taxes (.5) (.7) (.2) (1.1) ----- ----- ------ ----- Net income 1.4% 2.4% .9% 2.2% ===== ===== ====== =====
Operating Revenues Operating revenues for the third quarter of 1996 totaled $35.3 million, representing an increase of 6% when compared to operating revenues of $33.3 million in the third quarter of 1995. Year to date operating revenues reached $102.5 million, 12% above last year's nine month operating revenues of $91.6 million. Prior to giving effect to the TDI acquisition, which occurred in May of 1995, the revenue gain for the first nine months was 10%. For the quarter and year to date, revenue growth is principally related to the strength of the manufactured housing industry. Unit shipments by the manufactured housing industry (considering double-wide units as two shipments) in the United States increased by approximately 12% through August of 1996 compared to a similar period in 1995, according to the Manufactured Housing Institute. The increase in industry production, along with longer miles per move, resulted in a 17% increase in manufactured housing revenues for the quarter and 19% growth year to date. Driver outsourcing revenues which consist of transportation of commercial vehicles, consumer rental trucks, and motor homes, increased a modest 3% for the quarter and has increased 22% year to date principally due to the TDI acquisition in May of 1995. Commercial truck vehicle revenues increased 35% on a quarter to quarter comparison. This growth in commercial truck vehicle revenues supports the Company's direction of adding additional commercial customers which will moderate the segment's heavy concentration on consumer rental truck repositioning and motor homes. Specialized transport revenues, which consist of the transportation of van conversions, automobiles, semi-trailers, military vehicles, and other commodities by utilizing specialized equipment, decreased 10% during the quarter and is down 9% year to date. Reduced production of new van trailers and tent campers, coupled with reduced demand for the Company's services by those producers of travel trailers and van conversions have led to the decline in specialized transport revenues. Operating Costs Operating costs as a percent of revenue increased from 89.9% in the third quarter of 1995 to 90.8% in the third quarter of 1996. Year to date operating costs are 91.5% versus 89.5% for the first nine months of 1996. Drivers pay as a percentage of revenue did not increase on a quarter to quarter comparison due to the rate increases implemented in the period. The increase in operating cost during the quarter was attributed to higher claims costs and higher dispatching costs partially offset by insurance premium savings realized during the third quarter. Operating costs as a percentage of revenue, year to date, have been affected by the increased drivers pay addressed above, higher claim reserves, higher road taxes and higher investment in safety and dispatch personnel without corresponding increases in revenue levels. These increases have been partially offset by full year experience with TDI, where operating costs as a percentage of revenue are lower than other business units of the Company. Depreciation and Amortization Depreciation and amortization decreased on a percentage of revenue from 1.1% in the third quarter of 1995 to 1% in the third quarter in 1996. Year to date depreciation and amortization expense has increased from 1% in 1995 to 1.1% in 1996. The increase on a year to date basis in depreciation and amortization relates to higher capital expenditure levels at the end of 1995 and full year amortization of the TDI acquisition in 1996. Selling, General and Administrative Expenses Selling, general and administrative expenses for the third quarter increased as a percentage of revenue from 5.7% in the third quarter of 1995 to 6% in the third quarter of 1996. Year to date, selling, general and administrative expenses have decreased from 6.2% of revenue in 1995 to 6% of revenue in 1996. The increase for the quarter was principally related to expanding system capabilities and higher professional fees due to general corporate matters. Operating Income Operating income decreased from $1,103,000 in the third quarter of 1995 to $788,000 in the third quarter of 1996. Year to date operating income has declined from $3,082,000 in the first nine months of 1995 to $1,418,000 in 1996. Interest Expense, Net Interest expense during the third quarter was $108,000 compared to interest expense during the third quarter of 1995 of $50,000. Year to date interest expense is $280,000 compared to interest expense of $31,000 for the first nine months of 1995. Interest expense in 1996 is primarily related to (i) interest expense associated with debt incurred to fund the TDI acquisition, (ii) treasury share repurchase and early redemption of preferred stock which has reduced the Company's cash levels, and (iii) higher working capital levels in 1996 giving rise to additional interest costs. Pretax Income (Loss) Pretax income decreased from 3.1% of revenue in 1995 to 1.9% of revenue in the third quarter of 1996. Year to date pretax income decreased 3.3% of revenue in 1995 to 1.1% in 1996. Income Taxes The provision for Federal and State income taxes was 27% of pretax income for the third quarter of 1996 compared to a provision of 23% in the third quarter of 1995. The year to date provision for federal and state income taxes is 19% compared to 33% in 1995. The lower effective tax rate in the third quarter of 1995 was attributed to a reduction in the Company's Federal Tax liability reserve related to Federal tax audits cleared during the quarter. The lower provision year to date is associated with low income being generated from The Morgan Group, Inc.'s subsidiaries excluding the earnings from Interstate Indemnity, which receives favorable tax treatment. Net Income Net income was $495,000 or $.18 primary earnings per share in the third quarter of 1995, compared to net income of $814,000, or $.29 primary earnings per share in the third quarter of 1995. Year to date net income of $921,000 or $.34 primary earnings per common share, compared to $2,041,000 of net income, or $.71 primary earnings per common share for the first nine months of 1995. Seasonality Shipments of manufactured homes tend to decline in the winter months in areas where poor weather conditions inhibit transport. In addition, in the winter months, relocation of consumer rental trucks decline, these two factors may reduce revenues in the first and fourth quarters of the year. RV movements are generally stronger in the spring when dealers build stock in anticipation of summer vacation season and in the late summer and early fall when new vehicle models are introduced. The Company's revenues, therefore, are stronger in the second and third quarters of the year. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $275,000 in 1996 while borrowing to fund working capital needs increased $2.5 million. The seasonal increase in accounts receivable reached $1,824,000 for the first nine months of 1996, compared to $2,515,000 in the first nine months of 1995. Prepaid expenses increased $647,000 in 1995 which is attributed primarily to increased insurance and permit prepayments. Accounts payable and accrued liabilities declined $1,571,000 in 1996 compared to an increase in accounts payable and accrued liabilities in 1995 of $1,335,000. The increase in 1995 is related to cash overdrafts, accrued wages and accrued income taxes. The decrease in accounts payable and accrued liabilities in 1996 is related to (i) payments made on the Workers' Compensation liability claims of $450,000, and (ii) cash overdrafts. Cash expended on investing activities was $594,000 during the first nine months of 1996 compared to $4,328,000 for the first nine months of 1995. The expenditures in 1995 related to the purchase of intangibles of TDI, purchases of property and equipment comprised principally of operating assets, and an increase in the number of driver loans made by Morgan Finance, Inc. During 1996, the Company has reduced its expenditures on operating equipment and reduced the level of financing new driver loans through Morgan Finance, Inc. Financing activities in 1996 are represented by borrowings under its working capital line of credit of $2.5 million less $788,000 of payments on outstanding bank and seller financed notes. In addition, the Company has paid out $334,000 in cash dividends and treasury stock repurchases. Financing activities in the first nine months of 1995 generated $1,068,000 of cash which consisted of (i) seller and bank financing for the TDI acquisition of $1,855,000, (ii) $300,000 of short-term borrowings under the working capital facility, and (iii) $107,000 of paid-in capital increases related to the tax effect of the conversion of the warrants. These cash and financing activities were partially offset by shareholder dividends, treasury stock repurchase of $837,000, and debt principal payments of $357,000. The Company's Board of Directors have authorized the repurchase of 150,000 shares of the Company's Class A Common Stock. Since the repurchase program began in March, 1995, the Company has now repurchased over 116,000 shares. The Company expects current cash flow from existing and proposed operations for the foreseeable future. FORWARD LOOKING DISCUSSION The Company began to show slight operating margin improvements during the third quarter of 1996 as the operating income ratio increased from 1.8% in the second quarter of 1996 to 2.2% in the third quarter of 1996. While the fourth quarter is less seasonally important and therefore less predictable, management believes that the Company is situated to begin to show improved comparative results during 1997. The Company continues to work on increasing operating margins. These decisions, coupled with the modest price increases taken late in the second quarter, and the insurance savings based upon favorable insurance renegotiations completed in June should continue to add to the Company's profits. These profit enhancing measures will be partially mitigated by continued softness in the specialized transport and consumer rental truck relocations as well as the macro-economic factors impacting the market. The matters discussed in this paragraph and the foregoing paragraph discussing the adequacy of available capital resources are forward-looking statements that involve risk and uncertainties. Potential risk and uncertainties include, without limitation, continued competitive pressures in the market place, the effect competitive factors and the Company's reaction to them may have, consumer and business buying decisions with respect to the Company's services, the cost of accident claims on the Company's results, and the ability to continue to recruit qualified drivers to service the business. These factors may cause actual results to differ materially from what the Company has projected. PART II - OTHER INFORMATION Exhibits and Reports on Form 8-K Item 6. (a) The following Exhibits are filed as a part of this report: Exhibit 11 Statement re: Computation of Per Share Earnings Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K; No reports on Form 8-K were filed during the quarter for which the 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/ Richard B. DeBoer Richard B. DeBoer Vice President and Chief Financial Officer Date: November 14, 1996 EX-11 2 COMPUTATION OF PER SHARE EARNINGS The Morgan Group, Inc. and Subsidiaries Exhibit 11 - Statement re: Computation of Per Share Earnings (Unaudited)
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, ---------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Unaudited) (Unaudited) Primary Average shares outstanding 2,566,665 2,566,665 2,566,665 2,566,665 Exercise of warrants 88,888 - - - 88,888 - - - Redemption of shares of series A preferred stock 150,000 - - - 150,000 - - - Treasury stock repurchased; includes affect of dilutive warrants using the Treasury Stock Method (113,064) 9,106 (122,716) 54,154 --------- ----- --------- ------ Total 2,692,489 2,575,771 2,682,837 2,620,819 Fully Diluted Net effect of dilutive warrants based upon the treasury stock method using the average stock prices - - - - - - - - - - - - --------- ----- --------- ------ Total 2,692,489 2,575,771 2,682,837 2,620,819 Net Income $495 $814 $921 $2,041 Series A Redeemable Preferred stock dividends - - - 61 - - - 183 ------- --- ------ --- Net Income $495 $753 $921 $1,858 ===== ===== ===== ====== Primary earnings per share $.18 $.29 $.34 $.71 Fully diluted earnings per share $.18 $.29 $.34 $.71
EX-27 3 FDS FOR THE MORGAN GROUP, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000906609 THE MORGAN GROUP 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JUN-30-1996 SEP-30-1996 1.000 2,217 909 13,541 44 0 20,069 11,720 5,145 32,252 13,762 0 41 0 0 16,124 32,252 35,305 35,305 32,063 34,517 0 0 108 680 185 495 0 0 0 495 $.18 $.18
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