-----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, V5WtBMWaXghO/HywcA5gXg0jt52KlBEjZBoMnqh2y9v7CtB5kfBkvU01rR/1nkiF 8aQQ6p48dHlhLL90RaA5uQ== 0000908834-98-000305.txt : 19981116 0000908834-98-000305.hdr.sgml : 19981116 ACCESSION NUMBER: 0000908834-98-000305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98748801 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, D.C. 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, 1998 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) (I.R.S. 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 October 30, 1998 was: Class A - 1,354,435 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 September 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations for the Three and Nine Month Periods Ended September 30, 1998 and 1997 4 Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1998 and 1997 5 Notes to Consolidated Interim Financial Statements as of September 30, 1998 6 - 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 11 PART II OTHER INFORMATION 12 Item 6 Exhibits and Reports on Form 8-K 12 Signatures 13 PART I FINANCIAL INFORMATION The Morgan Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share amounts)
September 30, December 31, 1998 1997 ASSETS (unaudited) -------- -------- Current assets: Cash and cash equivalents $ 126 $ 380 Trade accounts receivable, less allowance for doubtful accounts of $268 in 1998 and $183 in 1997 15,732 13,362 Accounts receivable, other 363 126 Refundable taxes -- 263 Prepaid expenses and other current assets 1,959 2,523 Deferred income taxes 1,122 1,095 -------- -------- Total current assets 19,302 17,749 -------- -------- Property and equipment, net 4,661 4,315 Intangible assets, net 8,168 8,451 Deferred income taxes 1,094 767 Other assets 865 1,464 -------- -------- Total assets $ 34,090 $ 32,746 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank $ -- $ 2,250 Trade accounts payable 5,281 3,410 Accrued liabilities 6,457 4,966 Income taxes payable 47 -- Accrued claims payable 2,166 2,175 Refundable deposits 1,882 1,666 Current portion of long-term debt 694 1,153 -------- -------- Total current liabilities 16,527 15,620 -------- -------- Long-term debt, less current portion 859 1,360 Long-term accrued claims payable 3,617 3,042 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 12,453 Retained earnings 2,745 2,160 -------- -------- Total capital and retained earnings 15,245 14,654 Less - treasury stock at cost (250,518 and 167,643 Class A shares) (2,158) (1,426) Loan to officer for stock purchase -- (504) -------- -------- Total shareholders' equity 13,087 12,724 -------- -------- Total liabilities and shareholders' equity $ 34,090 $ 32,746 ======== ========
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, 1998 1997 1998 1997 -------- -------- -------- -------- Operating revenues: Manufactured housing $ 24,775 $ 25,447 $ 72,072 $ 70,721 Driver outsourcing 5,571 5,116 17,049 15,177 Specialized transport 5,621 4,048 15,643 14,904 Other service revenues 3,168 3,679 9,865 10,335 -------- -------- -------- -------- Total operating revenues 39,135 38,290 114,629 111,137 Costs and expenses: Operating costs 35,560 34,490 104,338 100,768 Selling, general and administration 2,580 2,240 7,821 6,493 Depreciation and amortization 296 309 879 906 -------- -------- -------- -------- 38,436 37,039 113,038 108,167 Operating income 699 1,251 1,591 2,970 Interest expense, net 127 149 460 448 -------- -------- -------- -------- Income before income taxes 572 1,102 1,131 2,522 Income tax expense 251 397 424 850 -------- -------- -------- -------- Net income $ 321 $ 705 $ 707 $ 1,672 ======== ======== ======== ======== Net income per common share: Basic: Class A common stock $ 0.13 $ 0.27 $ 0.28 $ 0.64 ======== ======== ======== ======== Class B common stock $ 0.12 $ 0.26 $ 0.25 $ 0.61 ======== ======== ======== ======== Diluted: Class A common stock $ 0.13 $ 0.27 $ 0.28 $ 0.64 ======== ======== ======== ======== Class B common stock $ 0.12 $ 0.26 $ 0.25 $ 0.61 ======== ======== ======== ========
The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Nine Months Ended September 30, 1998 1997 ------- ------- Operating activities: Net income $ 707 $ 1,672 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 879 906 Debt amortization 7 27 Loss (gain) on disposal of property and equipment 1 (67) Deferred income taxes (354) -- Changes in operating assets and liabilities: Trade accounts receivable (2,370) (4,973) Other accounts receivable (237) (252) Refundable taxes 263 530 Prepaid expenses and other current assets 557 243 Other assets 599 (243) Trade accounts payable 1,871 1,874 Accrued liabilities 1,538 (968) Accrued claims payable 228 524 Refundable deposits 216 (408) ------- ------- Net cash provided by (used in) operating activities 3,905 (1,135) Investing activities: Purchases of property and equipment (534) (562) Proceeds from sale of property and equipment 190 1,141 Business acquisitions (160) (409) ------- ------- Net cash provided by (used in) investing activities (504) 170 Financing activities: Net proceeds from (repayment of) note payable to bank (2,250) 2,550 Principle payments on long-term debt (1,061) (1,344) Proceeds from exercise of options 68 -- Treasury stock purchases, net of officer loan (290) (408) Common stock dividends paid (122) (121) ------- ------- Net cash provided by (used in) financing activities (3,655) 677 ------- ------- Net increase (decrease) in cash and equivalents (254) (288) Cash and cash equivalents at beginning of period 380 1,308 ------- ------- Cash and cash equivalents at end of period $ 126 $ 1,020 ======= =======
The Morgan Group, Inc. and Subsidiaries Notes to Consolidated Interim Financial Statements (Unaudited) September 30, 1998 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, 1997. 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, MDA Corporation, and Morgan Finance, Inc., all of which are wholly owned. Significant inter-company accounts and transactions have been eliminated in consolidation. Note 2. Special Employee Stock Purchase Plan In February of 1996, the Company 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. This officer terminated his employment and the Plan on July 17, 1998. The Company purchased his 70,000 shares of Class A Common stock for $637,000. Note 3. Net Income Per Common Share Net income available to each class of common stock is determined by adding together the amount of applicable dividends declared and the amount of undistributed earnings allocated. Undistributed earnings are allocated to each class of common stock equally per share. Net income applicable to common stocks is the same for the basic and diluted EPS computations for all periods presented. The following table reconciles basic and diluted earnings per share (dollars in thousands, except share amounts):
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Allocation of net income to common stocks: Class A stock: Dividends $ 28 $ 29 $ 86 $ 85 Allocation of undistributed earnings 151 363 317 854 ---------- ---------- ---------- ---------- Net income applicable to Class A stock - basic and diluted $ 179 $ 392 $ 403 $ 939 ---------- ---------- ---------- ---------- Class B stock: Dividends 12 12 36 36 Allocation of undistributed earnings 130 301 268 697 ---------- ---------- ---------- ---------- Net income applicable to Class B stock - basic and diluted $ 142 $ 313 $ 304 $ 733 ---------- ---------- ---------- ---------- Net income $ 321 $ 705 $ 707 $ 1,672 ========== ========== ========== ========== Weighted average shares outstanding: Class A stock: Basic 1,398,548 1,443,315 1,423,923 1,468,715 Dilutive effect of stock options 3,967 11,938 11,221 5,178 ---------- ---------- ---------- ---------- Diluted 1,402,515 1,455,253 1,435,144 1,473,893 ========== ========== ========== ========== Class B stock-basic and diluted 1,200,000 1,200,000 1,200,000 1,200,000 ========== ========== ========== ========== Class A basic EPS $ 0.13 $ 0.27 $ 0.28 $ 0.64 ========== ========== ========== ========== Class B basic EPS $ 0.12 $ 0.26 $ 0.25 $ 0.61 ========== ========== ========== ========== Class A diluted EPS $ 0.13 $ 0.27 $ 0.28 $ 0.64 ========== ========== ========== ========== Class B diluted EPS $ 0.12 $ 0.26 $ 0.25 $ 0.61 ========== ========== ========== ==========
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 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 106 offices in 32 states. The Company's services also include providing certain insurance and financing services to its owner operators. The Manufactured housing group provides specialized transportation to companies which produce new manufactured homes, modular homes, and office trailers. In addition, the Manufactured housing group transports used manufactured homes and offices. The Driver outsourcing group provides drivers to customers to deliver commercial trucks and recreational vehicles. The Specialized transport group moves a variety of specialized vehicles, including semi-trailers, military vehicles, travel trailers and other commodities by utilizing specialized equipment. 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 September 30, September 30, (Unaudited) (Unaudited) 1998 1997 1998 1997 ------ ------ ------ ------ Statement of operations data: Operating revenues 100.0% 100.0% 100.0% 100.0% Operating costs 90.9 90.1 91.0 90.7 Selling, general and administration 6.6 5.8 6.8 5.8 Depreciation and amortization .7 .8 .8 .8 ------ ------ ------ ------ Operating income 1.8 3.3 1.4 2.7 Interest expense, net .4 .4 .4 .4 ------ ------ ------ ------ Income before income taxes 1.4 2.9 1.0 2.3 Income tax expense .6 1.1 .4 .8 ------ ------ ------ ------ Net income .8% 1.8% .6% 1.5% ====== ====== ====== ======
Operating revenues for the third quarter increased from $38.3 million in 1997 to $39.1 million in 1998. This increase was in the Specialized transport and Driver outsourcing operating revenues which increased 38.9% and 8.9%, respectively. Manufactured housing operating revenues decreased 2.6%. The increase in Specialized transport is primarily due to the reconstruction of this business segment, an increase in the driver force, improved driver utilization, and some price increases. The increase in Driver outsourcing is principally due to the growth in delivery of Class Eight vehicles. The decrease in Manufactured housing operating revenues was the net result of the loss of accounts principally in the south and southwest which, in the quarter, was greater than the growth of contract business. Operating costs as a percent of operating revenues increased from 90.1% in the third quarter of 1997 to 90.9% in the third quarter of 1998. This was principally due to higher bodily injury and cargo claims expense in 1998, compared to 1997. The Company in 1998 is benefiting from lower Manufactured housing fixed costs which have been partially offset by increased dispatch and regional costs in Specialized transport and Driver outsourcing. Selling, general and administration expenses increased from 5.8% of operating revenues in the third quarter of 1997 to 6.6% in the third quarter of 1998, primarily due to increased salaries and health care expenses. Operating income was 1.8% of operating revenues in the third quarter of 1998 compared to 3.3% in 1997. Net income was 0.8% of operating revenues in the third quarter of 1998 compared to 1.8% in 1997. Operating revenues for the nine months ended September 30, increased from $111.1 million in 1997 to $114.6 million in 1998. The first nine months of 1997 included $3.3 million of revenues from the discontinued truckaway operation. The increases were 1.9% in Manufactured housing, 12.3% in Driver outsourcing, and 34.8% in Specialized transport after giving effect to the discontinuance of the truckaway operation. The increases in Driver outsourcing and Specialized transport primarily are due to the reasons stated in the third quarter analysis. Operating costs for the first nine months as a percent of operating revenue increased from 90.7% in 1997 to 91.0% of operating revenues. The adverse bodily injury and cargo claim expense in the first and third quarters of 1998 offset the benefits previously discussed, and lower fixed costs due to the discontinuance of the truckaway operation. Selling, general and administration expenses for the first nine months increased from 5.8% of operating revenue in 1997 to 6.8% in 1998, primarily due to increased salaries, health care expense, information systems costs, and bad debt expense. Operating income was 1.4% of operating revenues for the first nine months of 1998 compared to operating income of 2.7% in 1997. Net income was 0.6% of operating revenues in 1998 compared to 1.5% in 1997. 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. Recreational vehicles and travel trailer 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 operating revenues, therefore, tend to be stronger in the second and third quarters. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased from $380,000 as of December 31, 1997 to $126,000 as of September 30, 1998, while debt levels decreased $3,210,000. The Company has generated net cash of $3,903,000 from operations in the first nine months of 1998, compared to $1,135,000 net cash used in the first nine months of 1997. This improvement in cash management has been due to accelerated trade accounts receivable collections and more stringent treasury management. Trade accounts payable and accrued liabilities increased $3.4 million during the first nine months of 1998. Cash was used during the first nine months of 1998 to finance trade accounts receivable growth of $2.4 million associated with record operating revenues. Trade accounts receivable days sales outstanding decreased from 37 days at December 31, 1997 to 32 days at September 30, 1998. 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. Our goal is to have our 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 has completed the assessment of Year 2000 issues. The first phase of the compliance plan has been completed with installation and conversion to a mainframe computer. This computer provides adequate computing power to complete application software conversion and remediation. Financial applications should be Year 2000 compliant by the first quarter of 1999. The third phase of the Year 2000 compliance program involves the actual 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 200 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 September 30, 1998 was $63,000. Costs to be incurred in the remainder of 1998 and 1999 to fix Year 2000 problems are estimated at approximately $330,000. 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 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. 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 1997 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 Nine Month Period Ended September 30, 1998 Exhibit 27(2) - Restated Financial Data Schedule for Nine Month Period Ended September 30, 1997 (b) Reports on Form 8-K: Report filed on July 29, 1998 announcing the appointment of Edward Charleston as President and Chief Executive Officer of Morgan Drive Away, Inc. 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, 1998 EX-27.1 2 FDS FOR THE MORGAN GROUP, INC.
5 0000906609 The Morgan Group, Inc. 1,000 U.S. Dollars
9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1.000 126 0 16,000 268 0 19,302 7,332 2,671 34,090 16,527 0 41 0 0 13,046 34,090 114,629 114,629 0 113,038 0 421 460 1,131 424 707 0 0 0 707 0.28 0.28
EX-27.2 3 FDS RESTATED FOR THE NINE MONTHS ENDED 9/30/97
5 0000906609 The Morgan Group, Inc. 1,000 U.S. Dollars
9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1.000 1,019 1 16,917 106 0 21,060 6,081 3,280 36,437 17,514 0 41 0 0 14,206 36,437 111,137 111,137 0 108,167 0 0 448 2,522 850 1,672 0 0 0 1,672 0.64 0.64
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