-----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, L/WgjfjKlF3wNG+eDooFnz+x35BirmJe4jffsCmIR3Cc1B1e16S+saYm64pbLXaw hXLNLho0XyYiYNfhea5y1Q== 0000908834-97-000129.txt : 19970520 0000908834-97-000129.hdr.sgml : 19970520 ACCESSION NUMBER: 0000908834-97-000129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97608947 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. 10-Q Form 10-Q for The Morgan Group, Inc. 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 March 31, 1997 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.) incorporation or organization) 2746 Old U.S. 20 West, Elkhart, Indiana 46514-1168 (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 60 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 - 1,480,610 shares as of March 31, 1997 Class B - 1,200,000 shares as of March 31, 1997 -1- The Morgan Group, Inc. INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of 3 March 31, 1997 and December 31, 1996 Condensed Consolidated Statements of 5 Operations for the Three Month Periods Ended March 31, 1997 and 1996 Condensed Consolidated Statements of 6 Cash Flows for the Three Month Periods Ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial 7 Statements as of March 31, 1997 Item 2 Management's Discussion and Analysis of Financial 8 Condition and Results of Operations PART II OTHER INFORMATION 11 Item 6 Exhibits and Reports on Form 8-K 11 Signatures 12 -2- PART I FINANCIAL INFORMATION Item 1 Financial Statements The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets Mar. 31 Dec. 31 1997 1996 ------- ------- (Unaudited) (Note) (Dollars in thousands) Assets Current assets: Cash and cash equivalents $ 1,132 $ 1,308 Trade accounts receivable, less allowance for doubtful accounts of $48,000 in 1997 and $59,000 in 1996 14,795 11,312 Accounts receivable, other 488 274 Refundable taxes 563 584 Prepaid expenses and other current assets 2,718 3,445 ------- ------- Total current assets $19,696 $16,923 Property and equipment, net 2,775 2,763 Assets held for sale 2,375 2,375 Intangible assets, net 8,804 8,911 Deferred income taxes 1,683 1,683 Other assets 528 411 ------- ------- Total assets $35,861 $33,066 ======= ======= -3- The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (continued)
Mar. 31 Dec. 31 1997 1996 ----------- ----------- (Unaudited) (Note) (Dollars in thousands) Liabilities and Shareholders' Equity Current liabilities: Note payable to bank $ 4,350 $ 1,250 Trade accounts payable 4,214 3,226 Accrued liabilities 4,371 4,808 Accrued claims payable 1,896 1,744 Refundable deposits 1,355 1,908 Current portion of long-term debt 1,196 1,892 ----------- ----------- Total current liabilities 17,382 14,828 Long-term debt, less current portion 2,079 2,314 Long-term accrued claims payable 3,110 2,820 Commitments and contingencies - - - - - - Shareholders' equity Common stock, $.015 par value Class A: Authorized shares - 7,500,000 23 23 Issued and outstanding shares - 1,480,610 and 1,485,520 Class B: Authorized shares - 2,500,000 18 18 Issued and outstanding shares - 1,200,000 Additional paid-in capital 12,441 12,441 Retained earnings 2,350 2,126 ----------- ----------- Total capital and retained earnings 14,832 14,608 Less - treasury stock, 124,943 and 120,043 shares at cost (1,038) (1,000) - loan to officer for stock purchase (504) (504) ----------- ----------- Total shareholders' equity 13,290 13,104 ----------- ----------- Total liabilities and shareholders' equity $ 35,861 $ 33,066 =========== ===========
Note: The balance sheet at December 31, 1996 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. -4- The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) March 31 March 31 1997 1996 ----------- ----------- (Dollars in thousands except per share data) Operating revenues: Manufactured housing outsourcing $ 19,669 $ 15,553 Specialized transport 6,137 7,148 Driver outsourcing 4,889 5,259 Other service revenues 2,938 2,546 ----------- ----------- Total operating revenues 33,633 30,506 Costs and expenses: Operating costs 30,675 28,199 Depreciation and amortization 294 362 Selling, general and administration 2,233 1,993 ----------- ----------- Operating income (loss) 431 (48) Interest expense, net (131) (63) ----------- ----------- Income (loss) before taxes 300 (111) Income taxes (benefit) 34 (120) ----------- ----------- Net income $ 266 $ 9 =========== =========== Net income per share: Primary $ 0.10 $ 0.00 =========== =========== Fully diluted $ 0.10 $ 0.00 =========== =========== Average number of common shares and common stock equivalents 2,682,578 2,686,610 =========== =========== See notes to condensed consolidated financial statements. -5- The Morgan Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flow (Unaudited) Three Months Ended March 31, 1997 1996 ------- ------- (Dollars in thousands) Operating activities Net income $ 266 $ 9 Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 294 362 Debt amortization 9 10 ------- ------- 569 381 Changes in operating assets and liabilities: Accounts receivable (3,483) (1,850) Accounts receivable, other (214) (287) Prepaid expenses and other current expenses 737 74 Other assets (117) (63) Accounts payable 992 (680) Accrued liabilities (437) 830 Accrued insurance claims 442 160 Refundable deposits (553) (286) ------- ------- Net cash (used in) operating activities (2,064) (1,721) Investing activities Purchases of property and equipment, net of disposals (162) (79) Acquisition related costs (37) - - - ------- ------- Net cash used in investing activities (199) (79) Financing activities Net proceeds from (payment on) bank and seller financed notes and credit line 2,169 1,694 Dividends on common and preferred stock (44) (44) Treasury stock purchase, net of officer loan (38) (38) ------- ------- Net cash provided by (used in) financing activities 2,087 1,612 ------- ------- Net decrease in cash and equivalents (176) (188) Cash and cash equivalents at beginning of period 1,308 2,851 ------- ------- Cash and cash equivalents at end of period $ 1,132 $ 2,663 ======= ======= See notes to condensed consolidated financial statements. -6- The Morgan Group, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 1997 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 ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, for the year ended December 31, 1996. 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. Earnings Per Share In February, 1997, the Financial Accounting Standards Board issued Statement No. 128 Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact on first quarter ended March 31, 1997 and March 31, 1996 earnings per share is not expected to be material due to the stock options issued being anti-dilutive during these periods. The impact of Statement 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. -7- 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 March 31, 1997 1996 ------ ------ (Unaudited) Statement of Operations Data: Operating revenue 100.0% 100.0% Operating costs 91.2 92.4 Depreciation and amortization .9 1.2 Selling, general and administrative 6.6 6.5 ------ ------ Operating income 1.3 (.1) Net interest expense (.4) (.2) ------ ------ Income before income taxes .9 (.3) Income taxes (.1) .3 ------ ------ Net income .8% 0% ====== ====== Operating Revenues: Operating revenues for the first quarter of 1997 increased from $30.5 million in 1996, to $33.6 million in 1997, an increase of 10%. Prior to giving effect to the acquisition of Transit Homes which closed on December 30, 1996, comparable revenues decreased 5%. The manufactured housing outsourcing revenues, which includes revenues generated from arranging delivery services for new manufactured homes, modular homes, and office trailers, increased 26% from $15.6 million in the first quarter of 1996, to $19.7 million in the first quarter of 1997. The revenue growth is substantially related to the acquisition of Transit Homes. Prior to giving effect to the Transit acquisition, Morgan's manufactured housing revenues increased approximately 2% while industry production remained relatively flat with the first quarter of 1996. Specialized transport revenues, which consist of arranging delivery services for van conversions, automobiles, semi-trailers, military vehicles, and other commodities by utilizing specialized equipment, decreased from $7.1 million in the first quarter of 1996 to $6.1 million in the first quarter of 1997. The lower revenue levels related to a reduction in drivers' servicing the truckaway operation, which transports automotive products on company-owned trailers for van conversions, tent campers, and automotive customers. At the end of the first quarter, the Company announced the plan to close this operation. Driver outsourcing revenues in the first quarter of 1997 of $4.9 million were 7% lower than first quarter of 1996 revenues of $5.3 million. Competitive pressures, specifically on the relocation of rental trucks, have resulted in a decline in driver outsourcing revenues. Other services revenues, which include revenues from Interstate Indemnity, Morgan Finance, permit ordering services, and labor services increased 15% to $2.9 million in the first quarter of 1997 over the same period from the prior year. Operating Costs: Operating costs as a percent of revenue decreased from 92.4% in the first quarter of 1996 to 91.2% in the first quarter of 1997. First quarter of 1997 losses in the truckaway operation were recorded as part of the "Special Charge" in the fourth quarter of 1996. In the first quarter of 1996 the truckaway operating costs were 103% of revenue. In addition to the benefits derived from closing the truckaway operation, the company's claims and insurance cost decreased over .5% compared to 1996. These operating cost savings were partially offset by lower lower profit margins in the relocation of rental trucks. -8- Depreciation and Amortization: Depreciation and amortization decreased from $362,000, or 1.2% of revenue, in the first quarter of 1996 to $294,000, or .9% of revenue, in 1997. The decrease in depreciation and amortization relates to the discontinuance of depreciation on equipment and properties which are currently held for sale offset partially by higher amortization related to the Transit acquisition. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased from $1,993,000, or 6.5% of revenue, in the first quarter of 1996 to $2,233,000, or 6.6% of revenue, in 1997. The growth in selling, general and administrative expenses for the quarter was attributed to added general and administrative costs related to (i) duplicative overhead created by the Transit acquisition, (ii) incentive compensation expense to the former owner of Transit Homes, and (iii) management bonuses being recorded in 1997 related to increased profitability. Duplicative general and administrative expenses related to the Transit acquisition should decline during the year as administrative positions are consolidated. Operating Income: Operating income was $431,000 for the first quarter of 1997 compared to an operating loss of $48,000 in the first quarter of 1996. The increase in operating income during the first quarter of 1996 was principally related to the fourth quarter of 1996 decision to close the company's truckaway operation which lost approximately $325,000 in the first quarter of 1996 and $1.8 million during the year. Interest Expense, Net: During the first quarter of 1997, the company had net interest expense of $131,000 compared to net interest expense of $63,000 in the first quarter of 1996. The increase in interest cost is attributed to higher loan balances related to the Transit acquisition and funding of working capital during the first quarter of 1997. Pretax Income: During the first quarter of 1997, the company had pretax income of $300,000, or .9% of revenue, versus a pretax loss of $111,000, or (3%) of revenue, in the first quarter of 1996. Income Taxes: The benefit recorded for the federal and state income taxes in the first quarter of 1996 of $120,000 relates to tax benefits associated with the losses from The Morgan Group, Inc.'s subsidiaries excluding the earnings of Interstate Indemnity. This compares to 11% in 1997, which was affected by the recognition of a lower tax rate for Interstate Indemnity's earnings due to a federal tax election available to captive insurance companies. Net Income: Net income was $266,000 in the first quarter of 1997, or $.10 primary earnings per common share, compared to net income of $9,000 in the first quarter of 1996. Seasonality: Shipments of manufactured housing tend to decline in the winter months in areas where poor weather conditions inhibit transport. This 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 the summer vacation season and late summer and early fall when new vehicle models are introduced. The company's revenues, therefore, are generally stronger in the second and third quarters of the year. -9- LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased from $1,308,000 as of December 31, 1996 to $1,132,000 as of March 31, 1997, and in the same time period, debt increased from $5,456,000 at the end of the year to $7,625,000 as of March 31, 1997. The increase in debt is principally related to an increase in accounts receivable of $3,483,000, reduced accrued liabilities of $437,000, and a reduction in refundable deposits of $553,000. The seasonal increase in revenues in March of 1997 gave rise to higher receivable levels in comparison to December 31, 1996 receivables. The decline in accrued liabilities during the first quarter of 1997 is attributed to losses in truckaway operations which was reserved for as of December 31, 1996. In addition, driver refundable deposits were reduced by $553,000 as cash was expended during the quarter for 1997 license plates. These working capital charges which negatively impacted cash were partially offset by reduced prepaid expenses of $727,000, an increase in insurance claims reserves of $442,000 and increase in accounts payables of $988,000. The decline in prepaid expenses relates to reduced insurance premiums pre-payments and reduction in pre-payments for drivers services. As of March 31, 1997, the company has $1,132,000 in cash, marketable securities and short-term investments. Additionally, the company has $641,000 of unused credit facilities. The company expects the current cash flow from existing operations, existing cash and the line of credit will be adequate to fund the company's existing operations for the foreseeable future. FORWARD LOOKING DISCUSSION The Company's improvement in operating margin during the first quarter of 1997 increased to 1.3% from an operating margin loss of .1 in the first quarter of 1996. The improved performance can be specifically traced to the closing of the truckaway operation and improved claim experience. The acquisition of Transit Homes of America, Inc. which generated over $4.8 million of additional revenues in the first quarter, should more than offset the lost operating revenues from the sale of the truckaway operation for the remainder of 1997. Operating margins should continue to increase in comparison to 1996 operating margins as the Company should continue to receive the benefit of closing the truckaway operation and should have increased manufactured housing margins due to the Transit Homes acquisition. The matters discussed in this paragraph and the foregoing paragraphs discussing prospective reductions in operating costs and administrative expenses and the adequacy of available capital resources are forward-looking statements that are subject to important factors that involve risk and uncertainties. Potential risks and uncertainties include, without limitation, continued competitive pressures in the market place, the effect competitive forces 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. -10- PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: Exhibit 11 Statement re: Computation of Earnings Per Share Exhibit 27 Financial Data Schedule (b) A Form 8-K was filed on January 14, 1997 and amended on February 18, 1997 reporting the acquisition of Transit Homes of America, Inc. -11- 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: May 15, 1997 -12- EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT - 11 Computation of Per share Earnings Exhibit 11 The Morgan Group, Inc. and Subsidiaries Exhibit 11 - Statement re: Computation of Per Share Earnings (Unaudited)
Three Months Ended March 31, 1997 1996 ------------- ------------ Primary Average shares outstanding 2,566,665 2,566,665 Exercise of warrants 88,888 88,888 Net effect of warrants which become exercisable beginning on August 3, 1993; price based upon the treasury stock method using the average stock prices - - - - - - - - Redemption of shares of series A preferred stock 150,000 150,000 Treasury stock repurchased (122,975) (118,943) ------------- ------------ Total 2,682,578 2,686,610 Fully Diluted Neteffect of dilutive warrants, which will become exercisable on August 4, 1995, based upon the treasury stock method using the average stock prices - - - - - - - - ------------- ------------ Total 2,682,578 2,686,610 Net income 266 $9 Series A Redeemable Preferred Stock dividends - - - - - - - - ------------- ----------- Net income $266 $9 ======== ====== Primary earnings per share $.10 $- - - - ======== ====== Fully diluted earnings per share $.10 $- - - - ======== ======
EX-27 3 FINANCIAL DATA SCHEDULE FOR THE MORGAN GROUP, INC. WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. The Morgan Group, Inc. 1,000 U.S. Dollars 3-MOS Dec-31-1997 Jan-1-1997 Mar-31-1997 1.000 166 966 14,795 48 0 19,696 5,778 3,003 35,861 17,382 0 0 0 41 13,290 35,861 33,633 33,633 30,675 33,202 0 0 131 306 34 266 0 0 0 266 .10 .10
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