<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1994
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8664
the Harper Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-1740320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
260 Townsend Street,
San Francisco, California 94107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 978-0600
Inapplicable
(Former name, former address and former fiscal year if changed from 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. Yes X No __
At August 9, 1994, the number of shares outstanding of the registrant's
common stock was 16,379,553.
<PAGE> 2
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Income Statements
for the three and six months ended
June 30, 1994 and 1993 3
Condensed Consolidated Balance Sheets,
June 30, 1994 and December 31, 1993 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 4.
Submission of Matters to a Vote of
Security Holders 11
Item 6.
Exhibits and Reports on Form 8-K 11
<PAGE> 3
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue $ 115,940 $ 109,569 $ 219,166 $ 204,793
Freight
consolidation
costs 68,883 64,235 127,010 115,786
------- ------- ------- -------
Net revenue 47,057 45,334 92,156 89,007
------- ------- ------- -------
Other costs and expenses:
Salaries and
related costs 25,346 24,284 50,202 49,527
Operating,
selling, and
administrative
costs 15,569 16,349 31,981 31,930
------- ------- ------- -------
Total 40,915 40,633 82,183 81,457
------- ------- ------- -------
Income from
operations 6,142 4,701 9,973 7,550
Other
income - net 655 1,553 1,471 3,140
------- ------- ------- -------
Income before
taxes on income 6,797 6,254 11,444 10,690
Taxes on income 2,508 2,149 4,135 3,588
------- ------- ------- -------
Net income $ 4,289 $ 4,105 $ 7,309 $ 7,102
======= ======= ======= =======
Earnings
per share $ .26 $ .25 $ .44 $ .43
======= ======= ======= =======
Dividends declared
per share $ .10 $ .10 $ .10 $ .10
======= ======= ======= =======
Weighted average
shares
outstanding 16,556 16,647 16,586 16,648
======= ======= ======= =======
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
<TABLE>
<CAPTION>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
June 30 December 31
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 17,476 $ 11,302
Short-term marketable
securities - at cost,
approximates market 3,187 2,026
Accounts receivable (net of
allowance for doubtful accounts
of $6,820 in 1994 and
$5,982 in 1993) 144,744 140,574
Other current assets 5,980 6,673
------- -------
Total current assets 171,387 160,575
======= =======
Property 137,469 126,881
Less accumulated depreciation (54,548) (48,376)
------- -------
Property-net 82,921 78,505
Long-term marketable securities 48,231 47,869
Other assets 16,163 15,971
------- -------
Total $ 318,702 $ 302,920
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 14,558 $ 11,633
Accounts payable 93,878 91,514
Accrued liabilities 25,810 25,187
------- -------
Total current liabilities 134,246 128,334
Deferred taxes on income 6,755 6,850
Long-term notes payable 29,455 22,561
Stockholders' equity:
Preferred stock, $1 par: shares
authorized, 1,000 - -
Common stock, $1 par: shares
authorized, 40,000;
issued and outstanding:
June 30, 1994, 16,380
December 31, 1993, 16,626 22,022 25,686
Retained earnings 132,440 126,770
Unrealized change in value
of long-term marketable
securities (Note 2) (1,168) -
Cumulative translation
adjustments (5,048) (7,281)
Total stockholders' equity 148,246 145,175
------- -------
Total $ 318,702 $ 302,920
======= =======
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
<TABLE>
<CAPTION>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
June 30
1994 1993
<S> <C> <C>
Operating activities:
Net income $ 7,309 $ 7,102
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 5,524 4,562
Net effect of
changes in working capital (817) (3,519)
Other 281 (1,078)
------ ------
Net cash provided by operating activities 12,297 7,067
------ ------
Investing activities:
Capital expenditures (7,032) (9,273)
Proceeds from sales of
marketable securities 19,020 32,801
Purchases of marketable securities (23,264) (31,487)
Other 838 598
------ ------
Net cash used in investing activities (10,438) (7,361)
------ ------
Financing activities:
Issuance of long-term
notes payable - net 6,894 4,312
Increase (decrease) in notes payable 2,949 (973)
Payments of dividends (1,663) (1,660)
Stock repurchases (3,712) -
Other 48 26
------ ------
Net cash provided by financing activities 4,516 1,705
------ ------
Effect of exchange rate changes on cash (201) (688)
Increase in cash and equivalents $ 6,174 $ 723
====== ======
Cash and equivalents at
beginning of year $ 11,302 $ 6,214
Increase in cash and equivalents 6,174 723
------ ------
Cash and equivalents at end of period $ 17,476 $ 6,937
====== ======
Cash paid for interest expense $ 1,091 $ 1,019
====== ======
Cash paid for income taxes $ 2,310 $ 3,982
====== ======
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - General
In the opinion of management, the accompanying unaudited condensed
consolidated
financial statements include all adjustments (which include normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1994 and the results of operations and cash flows for the periods presented
in conformity with generally accepted accounting principles. It is suggested
that these unaudited condensed consolidated financial statements be read in
conjunction with the audited consolidated finan cial statements and notes
thereto included in the Harper Group, Inc. (the Company) 1993 Annual Report
to Stockholders incorporated by reference in the Company's 1993 Form 10-K,
and Management's Discussion and Analysis of Financial Condition and Results
of Operations included elsewhere in this Form 10-Q.
Note 2 - Long-Term Marketable Securities
Effective January 1, 1994 the Company adopted FAS 115 (Accounting for Certain
Investments in Debt and Equity Securities). The statement requires that debt
securities, other than those that the Company has the ability and intent to
hold to maturity, and equity securities management has designated as
available for sale be carried at fair value. Changes in the fair value of
long-term marketable securities are presented in the stockholder's equity
section of the balance sheet under the caption "Unrealized change in value of
long-term marketable securities", net of deferred taxes.
During the six months ended June 30,1994 the unrealized loss in long-term
marketable securities increased by $2,061,000. Management has designated
long-term marketable securities as available for sale.
At June 30, and January 1 1994 the aggregate fair value, gross unrealized
(gains) losses, and amortized cost of long-term marketable securities were
as follows (in thousands):
<TABLE>
<CAPTION>
June 30, January 1,
1994 1994
<S> <C> <C>
Debt Securities
Fair Value $ 34,404 $ 34,163
Amortized Cost 35,912 34,129
Unrealized (Gain) Loss 1,508 (34)
Equity Securities
Fair Value 13,827 13,696
Cost 14,390 13,740
Unrealized Loss $ 563 $ 44
Contractual maturities of the fair value of debt securities as of June 30,
1994
Within five years $ 14,587
From six to nine years $ 19,817
</TABLE>
<PAGE> 7
Note 3 - Federal Tax Litigation
The Internal Revenue Service has issued a notice of deficiency with respect
to the Company's income tax liabilities for the years 1986 and 1987. The
notice asserts liabilities in the aggregate amount of approximately $7.9
million. The Company has filed a petition in the U.S. Tax Court contesting
all of the asserted deficiency, and has been engaged in settlement
negotiations with the Appeals Office of the Internal Revenue Service.
The Company is engaged in discussions with the Internal Revenue Service with
respect to federal income tax refunds relating to 1992 write-offs involving
approximately $9 million of taxes. It is not possible to predict at this
time the extent to which the Internal Revenue Service will agree with the
Company's proposed income tax refunds, or the effect upon the settlement of
the issues in the Company's tax years 1986 and 1987. If the issues for 1986
and 1987 are not finally settled, or the refund proposals arising out of the
1992 write-offs are not accepted by the Internal Revenue Service, the Company
intends to contest resolution of the issues before the U.S. Tax Court for tax
years 1986 and 1987, and pursue the Company's refund claims. In that event,
resolution of these matters may require a number of years and it is not
possible at this time to predict the outcome.
On June 1, 1994, the Internal Revenue Service issued notices of proposed
adjustment with respect to the Company's federal income tax liability for the
years 1988 and 1989. The proposed adjustments, relating principally to the
Company's foreign subsidiaries, aggregate approximately $9.9 million in taxes
and penalties. In addition, the Company would be subject to interest with
respect to such amounts. The Company intends to contest the proposed
adjustments vigorously.
Management believes the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position.
<PAGE> 8
Note 4 - Business Segment Information
The Company operates in the international freight forwarding industry, which
encompasses air freight forwarding, customs brokerage and ocean freight
forwarding. Certain information regarding the Company's operations by region
is summarized below.
<TABLE>
<CAPTION>
North Far Latin Other Corp Elimi- Consol-
America Europe East America Areas Overhead nations idated
(in thousands)
Three months
ended
June 30, 1994:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
customers 59,956 24,953 20,467 5,033 5,531 0 0 115,940
Revenue from
affiliates 4,339 179 833 120 11 0 (5,482) 0
------- ------- ------- ------- ------- ------- ------- --------
Total
revenue 64,295 25,132 21,300 5,153 5,542 0 (5,482) 115,940
======= ======= ======= ======= ======= ======= ======= ========
Net revenue 23,984 11,935 5,301 2,020 3,817 0 0 47,057
======= ======= ======= ======= ======= ======= ======= ========
Income (loss)
from
operations 4,991 2,232 880 495 690 (3,146) 0 6,142
======= ======= ======= ======= ======= ======= ======= ========
Three months
ended
June 30 1993:
Revenue from
customers 54,205 20,807 23,367 7,167 4,023 0 0 109,569
Revenue from
affiliates 228 434 372 (5) 736 0 (1,765) 0
------- ------- ------- ------- ------- ------- ------- --------
Total
revenue 54,433 21,241 23,739 7,162 4,759 0 (1,765) 109,569
======= ======= ======= ======= ======= ======= ======= ========
Net revenue 23,514 11,449 5,020 1,708 3,643 0 0 45,334
======= ======= ======= ======= ======= ======= ======= ========
Income (loss)
from
operations 5,858 365 375 510 582 (2,989) 0 4,701
======= ======= ======= ======= ======= ======= ======= ========
Six months
ended
June 30, 1994:
Revenue from
customers 114,112 42,216 42,102 10,401 10,335 0 0 219,166
Revenue from
affiliates 6,257 358 1,193 120 35 0 (7,963) 0
------- ------- ------- ------- ------- ------- ------- --------
Total
revenue 120,369 42,574 43,295 10,521 10,370 0 (7,963) 219,166
======= ======= ======= ======= ======= ======= ======= ========
Net revenue 47,585 22,756 10,479 3,898 7,438 0 0 92,156
======= ======= ======= ======= ======= ======= ======= ========
Income (loss)
from
operations 9,107 3,754 1,845 949 1,356 (7,038) 0 9,973
======= ======= ======= ======= ======= ======= ======= ========
Six months
ended
June 30 1993:
Revenue from
customers 104,651 39,564 43,682 8,921 7,975 0 0 204,793
Revenue from
affiliates 699 1,052 910 3 1,573 0 (4,237) 0
------- ------- ------- ------- ------- ------- ------- --------
Total
revenue 105,350 40,616 44,592 8,924 9,548 0 (4,237) 204,793
======= ======= ======= ======= ======= ======= ======= ========
Net revenue 46,113 22,855 10,059 2,910 7,070 0 0 89,007
======= ======= ======= ======= ======= ======= ======= ========
Income (loss)
from
operations 9,420 847 1,137 728 1,246 (5,828) 0 7,550
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
Revenue from affiliates represents approximate amounts that would be charged
if the services were provided by an unaffiliated company. Total regional
revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue. Regional income (loss) from operations excludes
corporate overhead charges. Prior period amounts have been reclassified to
conform to the 1994 presentation.
Note 5 - Stock Repurchase
During the second quarter the Company's Board of Directors authorized a stock
repurchase program whereby up to 500,000 shares of its common stock can be
purchased on the open market. During the second quarter the Company
purchased and retired 250,000 shares ranging in price from $14.375 to
$15.250 for a total cost of $3,712,000.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's principal services are international air freight forwarding,
customs brokerage and ocean freight forwarding. The following table shows
the revenue and net revenue, in dollars and percentages, attributable to the
Company's principal services during the periods indicated. Revenue for air
freight and ocean freight consolidations (indirect revenue) includes the cost
of such freight. Revenue for air freight and ocean freight agency or direct
shipments, customs brokerage and import services, includes fees or
commissions for these services. A comparison of net revenue best
measures the relative importance of the Company's principal services.
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(in thousands)
Revenue
Air freight
forwarding $ 79,620 69% $ 71,999 66% $148,833 68% $131,450 64%
Customs
brokerage 17,874 15% 15,443 14% 33,886 15% 31,241 15%
Ocean freight
forwarding 18,446 16% 22,127 20% 36,447 17% 42,102 21%
------- --- ------- --- ------- --- ------- ---
$115,940 100% $109,569 100% $219,166 100% $204,793 100%
======= === ======= === ======= === ======= ===
Net Revenue
Air freight
forwarding $ 22,588 48% $ 20,939 46% $ 43,394 47% $ 40,595 46%
Customs
brokerage 17,874 38% 15,443 34% 33,886 37% 31,241 35%
Ocean freight
forwarding 6,595 14% 8,952 20% 14,876 16% 17,171 19%
------- --- ------- --- ------- --- ------- ---
$ 47,057 100% $ 45,334 100% $ 92,156 100% $ 89,007 100%
======= === ======= === ======= === ======= ===
Results of Operations
Three Months ended June 30, 1994 and 1993:
Total revenues in the second quarter continued to show growth over the prior
year. Air freight revenue increased as a result of increases in shipments
and price as well as improved trade lane mix. Customs brokerage revenue
increased as a result of an increase in customs entries and increases in
other service revenue. Ocean freight forwarding revenue decreased resulting
from a decrease in shipping volume.
Net revenue increased, worldwide at a lower rate than gross revenue,
reflecting extreme price competition.
Salaries and related costs increased primarily as a result of a lower than
normal incentive accrual in 1993's second quarter. Additionally, the Company
had more employees in 1994 than 1993.
Operating, selling, and administrative costs decreased primarily as the 1993
second quarter included a charge relating to the bankruptcy of a large
customer. The current quarter's costs also reflect the Company's commitment
to the development of information technology which will
<PAGE> 10
result in future cost savings through improved efficiencies, and better
communication with both customers and operating offices, worldwide.
Other income-net is less than prior year due primarily to a reduction in
interest income.
Six Months ended June 30, 1994 and 1993:
Air freight revenue increased 13% over the prior year as a result of an
increase in shipments and prices and geographic mix. Customs brokerage
revenue increased as a result of an increase in customs entries, and ocean
freight forwarding revenue decreased 13% on a 16% decrease in ocean
shipments.
The increase in net revenue results from increases in total shipping volume
worldwide offset by competitive pricing pressures and increases in
consolidation costs per shipment in air and ocean forwarding.
Salaries and related costs increased primarily as a result of a lower than
normal incentive accrual in 1993's second quarter. Additionally, the Company
had more employees in 1994 than 1993.
During 1993, the Company took advantage of significant appreciation in both
interest rate sensitive and equity securities and realized through sales,
gains on its marketable securities portfolio normally held for dividend and
interest income. The Company does not expect similar gains to recur in 1994.
Liquidity and Capital Resources Capital expenditures for the Company for the
three months and six months ended June 30, 1994 were $3.2 million and $7.0
million respectively. Anticipated total capital expenditures for the year
are approximately $15 million.
During the second quarter the Company's Board of Directors approved the
purchase of up to 500,000 shares of its common stock in open market
transactions. As of the end of the second quarter the Company purchased and
retired 250,000 shares of its common stock for a cost of $3.7 million.
The Company will continue to make investments in new facilities intended to
support total logistics services and in information and communication
technologies over the next several years.
Management believes that operating cash flow, the Company's current financial
structure and borrowing capacity will be adequate to fund its operations,
finance capital expenditures, and pay dividends to stockholders.
<PAGE> 11
II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 10, 1994. Ray C.
Robinson, Jr., and John M. Kaiser were elected as directors.
Shareholders voted to approve a proposal to adopt the 1994 Omnibus Equity
Incentive Plan. Set forth below is a tabulation with respect to the matters
voted on at the meeting.
<TABLE>
<CAPTION>
Against or
For Withheld Abstentions
Election of Directors
<S> <C> <C> <C>
Ray C. Robinson, Jr. 15,273,029 60,743 -
John M. Kaiser 15,273,449 60,323 -
Proposal to approve
1994 Omnibus Equity
Incentive Plan 9,689,024 4,868,196 776,552
</TABLE>
Peter Gibert, John H. Robinson, Wesley J. Fastiff, and Frank J. Wezniak will
continue as directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No exhibits were filed during the period being reported.
(b) Form 8-K:
No reports on Form 8-K were filed during the period being reported.
<PAGE> 12
S I G N A T U R E S
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 HARPER GROUP, INC.
Registrant
Dated: August 11, 1994
/S/ Peter Gibert
Peter Gibert, President and
Chief Executive Officer
/S/ Michael E. Cromar
Michael E. Cromar, Vice President
and Chief Financial Officer
/S/ Michael L. French
Michael L. French, Vice President
and Corporate Controller
