<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 September 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 Sec 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 November 10, 1994 the number of shares outstanding of the registrant's
common stock was 16,170,678.
<PAGE> 2
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Income Statements for the
three and nine months ended September 30, 1994 and 1993 3
Condensed Consolidated Balance Sheets,
September 30, 1994 and December 31, 1993 4
Condensed Consolidated Statements of
Cash Flows for the nine months
ended September 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 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
SUBSIDIARIESCONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue $ 122,898 $ 108,985 $ 342,064 $ 313,778
Freight consolidation costs 72,483 62,705 199,493 178,491
-------- -------- -------- --------
Net revenue 50,415 46,280 142,571 135,287
-------- -------- -------- --------
Other costs and expenses:
Salaries and related costs 27,035 25,003 77,237 74,530
Administrative and selling
costs 17,100 16,398 49,081 48,328
-------- -------- ------- -------
Total 44,135 41,401 126,318 122,858
-------- -------- ------- -------
Income from operations 6,280 4,879 16,253 12,429
Other income - net 1,327 6,620 2,798 9,760
-------- -------- ------- -------
Income before taxes on income 7,607 11,499 19,051 22,189
Taxes on income 2,723 4,001 6,858 7,589
-------- -------- -------- --------
Net income $ 4,884 $ 7,498 $ 12,193 $ 14,600
======== ======== ======== ========
Earnings per share $ .30 $ .45 $ .74 $ .88
======== ======== ======== ========
Dividends declared
per share $ - $ - $ .10 $ .10
======== ======== ======== ========
Weighted average
shares outstanding 16,342 16,642 16,509 16,637
======== ======== ======== ========
</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)
September 30 December 31
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 13,014 $ 11,302
Short-term marketable securities -
at cost, approximates market 2,457 2,026
Accounts receivable (net of
allowance for doubtful accounts of
$6,202 in 1994 and $5,982 in 1993) 142,164 140,574
Other current assets 5,930 6,673
--------- ---------
Total current assets 163,565 160,575
========= =========
Property 142,646 126,881
Less accumulated depreciation (56,362) (48,376)
--------- ---------
Property-net 86,284 78,505
Long-term marketable securities 45,720 47,869
Other assets 13,843 15,971
--------- ---------
Total $ 309,412 $ 302,920
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 7,536 $ 11,633
Accounts payable 90,040 91,514
Accrued liabilities 24,161 25,187
--------- ---------
Total current liabilities 121,737 128,334
Deferred taxes on income 6,242 6,850
Long-term notes payable 29,278 22,561
Stockholders' equity:
Preferred stock, $1 par: shares
authorized, 1,000 - -
Common stock, $1 par: shares
authorized, 40,000; issued and
outstanding: September 30, 1994,
16,306 December 31, 1993, 16,626 21,004 25,686
Retained earnings 137,325 126,770
Unrealized change in value of
long-term marketable securities
(Note 2) (1,650) -
Cumulative translation adjustments (4,524) (7,281)
Total stockholders' equity 152,155 145,175
--------- ---------
Total $ 309,412 $ 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)
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
Operating activities:
Net income $ 12,193 $ 14,600
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,956 7,145
Gains on sales of assets - net (596) (5,908)
Net effect of changes in working capital (1,895) (2,182)
Other 26 (2,446)
-------- --------
Net cash provided by operating activities 17,684 11,209
-------- --------
Investing activities:
Capital expenditures (12,167) (13,049)
Proceeds from sales of
marketable securities 23,099 58,336
Purchases of marketable securities (23,450) (67,262)
Proceeds from sales of fixed assets 372 14,421
Proceeds from sale of investments 804 8,610
Other 1,134 815
Net cash (used) provided by -------- --------
investing activities (10,208) 1,871
-------- --------
Financing activities:
Issuance of long-term notes payable - net 6,717 4,061
Increase (decrease) in notes payable (4,097) (4,202)
Payments of dividends (3,301) (3,321)
Stock repurchases (4,744) -
Other 62 187
-------- --------
Net cash used by financing activities (5,363) (3,275)
-------- --------
Effect of exchange rate changes on cash (401) (946)
Increase in cash and equivalents $ 1,712 $ 8,859
========= ========
Cash and equivalents at beginning of year $ 11,302 $ 6,214
Increase in cash and equivalents 1,712 8,859
-------- --------
Cash and equivalents at end of period $ 13,014 $ 15,073
======== ========
Cash paid for interest expense $ 2,130 $ 1,945
======== ========
Cash paid for income taxes $ 6,085 $ 6,937
======== ========
</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 September 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 financial 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
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 stockholders'
equity section of the balance sheet under the caption "Unrealized change
in value of long-term marketable securities", net of deferred taxes.
During the nine months ended September 30, 1994 the unrealized loss in
long-term marketable securities increased by $2,568,000. Management has
designated long-term marketable securities as available for sale.
At September 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>
September 30, January 1,
1994 1994
<S> <C> <C>
Debt Securities
Fair Value $ 35,176 $ 34,163
Amortized Cost 37,004 34,129
Unrealized (Gain) Loss 1,828 (34)
Equity Securities
Fair Value 10,544 13,696
Cost 11,294 13,740
Unrealized Loss $ 750 $ 44
</TABLE>
Contractual maturities of the fair value of debt securities as of
September 30, 1994
Within five years $ 21,941
From six to nine years $ 13,235
<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.
Note 4 - Stock Repurchase
During the second quarter of 1994 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 and
third quarters of 1994 the Company purchased and retired 325,000 shares
ranging in price from $13.25 to $15.25 for a total cost of
$4,744,000.
Note 5 - Dividend of
Preferred Share Purchase Rights
During the fourth quarter, the Company's Board of Directors approved a
Shareholder Rights Plan and declared a dividend of one preferred share
purchase right for each outstanding share of the Company's common stock.
Each right will entitle stockholders to buy one one-hundredth of a share
of a new series of junior participating preferred stock at an exercise
price of $53.00. In general, the rights become exercisable if, without
approval of the Board of Directors, a person or group acquires 20% or more
(or a lesser percentage, if so determined by the Board) of the Company's
common stock or announces a tender offer, the consummation of which would
result in ownership of 20% or more of the common stock. In such event,
each holder of the right, other than the acquiring person, will have the
right to receive, upon exercise of the right, at its then current
exercise price, that number of common shares having a market value of
two times the exercise price of the right. The dividend was made on
November 7, 1994. The rights will expire on October 24, 2004. A full
description of the rights is set forth in a Rights Agreement between the
Company and Chemical Trust Company of California, dated as of
October 24, 1994.
<PAGE> 8
Note 6 - 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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Three months ended
September 30, 1994:
Revenue from
customers 67,953 22,297 23,309 3,518 5,821 0 0 122,898
Revenue from
affiliates 713 343 507 506 677 0 (2,746) 0
Total revenue 68,666 22,640 23,816 4,024 6,498 0 (2,746) 122,898
Net revenue 25,777 12,609 5,655 2,101 4,273 0 0 50,415
Income (loss)
from opera-
tions 5,362 2,318 771 541 907 (3,619) 0 6,280
Three months ended
September 30, 1993:
Revenue from
customers 55,188 20,607 25,313 4,444 3,433 0 0 108,985
Revenue from
affiliates 509 767 664 257 892 0 (3,089) 0
Total revenue 55,697 21,374 25,977 4,701 4,325 0 (3,089) 108,985
Net revenue 24,289 11,427 5,190 1,527 3,847 0 0 46,280
Income (loss)
from opera-
tions 5,500 634 760 269 890 (3,174) 0 4,879
Nine months ended
September 30, 1994:
Revenue from
customers 186,512 64,235 62,695 13,021 15,601 0 0 342,064
Revenue from
affiliates 1,809 979 2,002 1,524 1,267 0 (7,581) 0
Total
revenue 188,321 65,214 64,697 14,545 16,868 0 (7,581) 342,064
Net revenue 73,362 35,365 16,134 5,999 11,711 0 0 142,571
Income (loss)
from opera-
tions 14,469 6,072 2,616 1,490 2,263 (10,657) 0 16,253
Nine months ended
September 30, 1993:
Revenue from
customers 159,839 60,171 68,995 12,911 11,862 0 0 313,778
Revenue from
affiliates 1,208 1,819 1,574 714 2,011 0 (7,326) 0
Total
revenue 161,047 61,990 70,569 13,625 13,873 0 (7,326) 313,778
Net revenue 70,402 34,282 15,249 4,437 10,917 0 0 135,287
Income (loss)
from opera-
tions 14,920 1,481 1,897 997 2,136 (9,002) 0 12,429
</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.
<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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(in thousands)
1994 1993 1994 1993
<S> <C> <C> <C> <C>
(in thousands)
Revenue
Air freight
forwarding $ 79,770 65% $ 70,984 65% $ 228,603 67% $ 202,434 64%
Customs
brokerage 21,694 18% 14,660 14% 55,580 16% 45,901 15%
Ocean freight
forwarding 21,434 17% 23,341 21% 57,881 17% 65,443 21%
$ 122,898 100% $ 108,985 100% $ 342,064 100% $ 313,778 100%
Net Revenue
Air freight
forwarding $ 21,535 43% $ 23,189 50% $ 64,929 46% $ 63,784 47%
Customs
brokerage 21,694 43% 14,660 32% 55,580 39% 45,901 34%
Ocean freight
forwarding 7,186 14% 8,431 18% 22,062 15% 25,602 19%
$ 50,415 100% $ 46,280 100% $ 142,571 100% $ 135,287 100%
</TABLE>
Results of Operations
Three Months ended September 30, 1994 vs 1993:
Revenues in the third
quarter continued to show growth over the prior year. Air freight revenues
improved as a result of an increase in the number of shipments and an
increase in the average weight per shipment. Customs brokerage
revenue, which includes other logistic service revenues, improved as a
result of increases in the number and price of custom brokerage air freight
entries, as well as warehousing revenues. Ocean freight forwarding revenue
declined as a result of a decrease in prices.
Net revenue continued to increase, but at a lower rate than gross revenue,
reflecting price competition in all global markets. Air freight yields
decreased substantially as a result of competitive price pressure. Customs
brokerage revenue continues to show substantial growth. Ocean freight net
revenue decreased as a result of price decreases.
Salaries and related costs increased primarily as a result of additional
employees in 1994.
The increase in administrative and selling costs reflect an increase in
transaction volume, and non-recurring costs related to the outsourcing of
portions of the Company's information processing costs.
<PAGE> 10
Other income-net in the prior year includes gains of $1.8 million on the sale
of a warehouse and office facility in Hong Kong and $4.0 million related to
the sale of a portion of the Company's minority investment in another company,
Intercargo Corporation (Intercargo). The sale of the remaining interest in
Intercargo occurred in the fourth quarter of 1993.
Nine Months ended September 30, 1994 vs 1993:
Air freight revenue increased
13% over the prior year due to an increase in the number of shipments and
average weight per shipment. Customs brokerage revenues increased as a result
of an increase in the number of customs entries and increases in import
services. Ocean freight revenue decreased as result of a decrease in
prices.
Air freight net revenue increased over the prior year due to
increases in shipping volume worldwide offset by competitive price pressures.
Customs brokerage revenues increased as a result of both higher customs
entry volumes and increases in import services. Ocean freight revenue
decreased as a result of price decreases.
Salaries and related costs increased primarily as a result of additional
employees in 1994.
Other income-net in the prior year includes gains of $1.8
million on the sale of a warehouse and office facility in Hong Kong and $4.0
million related to the sale of a portion of the Company's minority investment
in another company, Intercargo Corporation (Intercargo). The sale of the
remaining interest in Intercargo occurred in the fourth quarter of 1993.
Liquidity and Capital Resources
Capital expenditures for the Company for the
three and nine months ended September 30, 1994 were $5.2 and $12.2 million
respectively. Anticipated total capital expenditures for the year are
approximately $15 million. The expenditures are primarily for investment
in new facilities, as well as communication and information technologies
which will benefit the company by improving the ability to serve
customers and lower operating costs. The Company will continue to make
capital expenditures that will support a complete line of logistics
services over the next several years.
During the second quarter, the Company's Board of Directors approved the
purchase of up to 500,000 shares of its common stock in the open market. As
of the end of the third quarter the Company purchased and retired 325,000
shares of its common stock at a total cost of $4,744,000. Since the quarter
ended the Company repurchased 135,000 additional shares, at a total cost of
$1,832,500.
During the fourth quarter, the Company's Board of Directors
approved a Shareholder Rights Plan and declared a dividend of one
preferred share purchase right for each outstanding share of the Company's
common stock. Each right will entitle stockholders to buy one one-
hundredth of a share of a new series of junior participating preferred
stock at an exercise price of $53.00. In general, the rights become
exercisable if, without approval of the Board of Directors, a person
or group acquires 20% or more (or a lesser percentage, if so determined
by the Board) of the Company's common stock or announces a tender offer,
the consummation of which would result in ownership of 20% or more of the
common stock. In such event, each holder of the right, other than the
acquiring person, will have the right to receive, upon exercise of the
right, at its then current exercise price, that number of common shares
having a market value of two times the exercise price of the right. The
dividend was made on November 7, 1994. The rights will expire October 24,
2004. A full description of the rights is set forth in a Rights Agreement
between the Company and Chemical Trust Company of California, dated
as of October 24, 1994.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.1, Financial Data Schedule, Page 13, EDGAR filing only.
Exhibit 10.2, Form 8-A, regarding the Preferred Stock Dividend,
and a Shareholder Rights Plan were filed on
October 24, 1994 (incorporated by reference).
(b) Form 8-K:
Exhibit 10.3, Form 8-K, regarding the Preferred Stock Dividend,
and a Shareholder Rights Plan was filed on
November 1, 1994 (incorporated by reference).
<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: November 11, 1994
/S/ Peter Gibert
Peter Gibert, President and
Chief Executive Officer
/S/ M. R. Collins
M. R. Collins, Vice President and
Acting Chief Financial Officer
/S/ Michael L. French
Michael L. French, Vice President
and Corporate Controller
<PAGE> 13
Harper Group Inc, and Subsidiaries - Financial Data Schedule
(in thousands except per share amounts)
This schedule contains summary financial information extracted from
the condensed consolidated financial statements from the Company's form
10-Q for the quarterly period ending September 30, 1994, and is qualified
in its entirety by reference to such financial statements.
<TABLE>
<CAPTION>
September 30
Item Number Item Description 1994
<S> <C> <C>
5-02(1) Cash and cash items $13,014
5-02(2) Marketable securities 48,177
5-02(3)(a)(1) Notes and accounts receivable - trade 148,366
5-02(4) Allowances for doubtful accounts 6,202
5-02(6) Inventory
5-02(9) Total Current Assets 163,565
5-02(13) Property, plant and equipment 142,646
5-02(14) Accumulated depreciation 56,362
5-02(18) Total assets 309,412
5-02(21) Total current liabilities 121,737
5-02(22) Bonds, mortgages and similar debt
5-02(28) Preferred stock - mandatory redemption
5-02(29) Preferred Stock - no mandatory redemption
5-02(30) Common Stock 21,004
5-02(31) Other stockholders'equity 131,151
5-02(32) Total liabilities and stockholders'equity 309,412
</TABLE>
<TABLE>
<CAPTION>
Three months
Ended
September 30
Item Number Item Description 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
503(b)1(a) Net sales of tangible products
5-03(b)1 Total revenues 122,898
5-03(b)2(e) Cost of tangible goods sold
5-03(b)2 Total costs and expenses applicable to sales 72,483
5-03(b)3 Other costs and expenses 44,135
5-03(b)5 Provision for doubtful accounts and notes
5-03(b)(8) Interest and amortization of debt discount
5-03(b)(10) Income before taxes and other items 7,607
5-03(b)(11) Income tax expense 2,723
5-03(b)(14) Income/loss continuing operations 4,884
5-03(b)(15) Discontinued operations
5-03(b)(17) Extraordinary items
5-03(b)(18) Cumulative effect - changes in accounting principles
5-03(b)(19) Net income or loss 4,884
5-03(b)(20) Earnings per share - primary 0.30
5-03(b)(20) Earnings per share - fully diluted
</TABLE>
