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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 March 31, 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 May 6, 1994, the number of shares outstanding of the registrant's
common stock was 16,629,553.
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TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Income
Statements for the three months
ended March 31, 1994 and 1993 3
Condensed Consolidated Balance
Sheets, March 31, 1994 and
December 31, 1993 4
Condensed Consolidated Statements
of Cash Flows for the three months
ended March 31, 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 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED INCOME
STATEMENTS
(unaudited)
Three Months Ended March 31 1994 1993
(in thousands, except per
share amounts)
<S> <C> <C>
Revenue $103,226 $95,224
Freight consolidation costs 58,127 51,551
--------- --------
Net revenue 45,099 43,673
--------- --------
Other costs and expenses:
Salaries and related costs 24,856 25,243
Operating, selling, and
administrative costs 16,412 15,581
--------- --------
Total 41,268 40,824
--------- --------
Income from operations 3,831 2,849
Other income - net 816 1,587
--------- --------
Income before taxes on income 4,647 4,436
Taxes on income 1,627 1,439
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--------- --------
Net income $3,020 $2,997
========= ========
Earnings per share $.18 $.18
========= ========
Weighted average shares
outstanding 16,627 16,647
========= ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31 December 31
1994 1993
(in thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $9,578 $11,302
Marketable securities - at cost,
approximates market 3,098 2,026
Accounts receivable (net of allowance
for doubtful accounts of $6,280 in 1994
and $5,982 in 1993) 143,113 140,574
Other current assets 4,796 6,673
------- -------
Total current assets 160,585 160,575
======= =======
Property 131,967 126,881
Less accumulated depreciation 51,061 48,376
------- -------
Property-net 80,906 78,505
Long-term marketable securities 50,444 47,869
Other assets 15,722 15,971
-------- --------
Total $307,657 $302,920
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $12,448 $11,633
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Accounts payable 89,019 91,514
Accrued liabilities 26,484 25,187
------- -------
Total current liabilities 127,951 128,334
Deferred taxes on income 6,224 6,850
Long-term notes payable 27,586 22,561
Stockholders' equity:
Preferred stock, $1 par: shares
authorized, 1,000,000 - -
Common stock, $1 par: shares
authorized, 40,000,000;issued and
outstanding:
March 31, 1994, 16,629,553
December 31, 1993, 16,625,803 25,734 25,686
Retained earnings 128,127 126,770
Unrealized change in value of
marketable securities (Note 2) (1,262) -
Cumulative translation adjustments (6,703) (7,281)
------- -------
Total stockholders' equity 145,896 145,175
------- -------
Total $307,657 $302,920
======== ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
Three Months Ended March 31, 1994 1993
(in thousands)
<S> <C> <C>
Operating activities:
Net income $3,020 $2,997
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization 2,850 2,269
Other (231) (115)
Net effect of changes in working
capital (2,342) 2,066
------- ------
Net cash provided by operating
activities 3,297 7,217
------- ------
Investing activities:
Capital expenditures (3,807) (2,796)
Proceeds from sales of marketable
securities 7,925 17,732
Purchases of marketable securities (12,892) (15,085)
Other 37 342
-------- --------
Net cash provided by (used in)
investing activities (8,737) 193
-------- --------
Financing activities:
Issuance of long-term notes payable -
net 5,025 3,383
Increase (decrease) in notes payable 839 (2,841)
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Payments of dividends (1,663) (1,660)
Other (177) 14
------- -------
Net cash provided by (used in)
financing activities 4,024 (1,104)
------- -------
Effect of exchange rate changes on cash (308) (320)
Increase (decrease) in cash and
equivalents $(1,724) $5,986
======== =======
Cash and equivalents at beginning of
year $11,302 $6,214
Increase (decrease) in cash and
equivalents (1,724) 5,986
------- --------
Cash and equivalents at end of period $9,578 $ 12,200
======= ========
Cash paid for interest expense $245 $647
======= ========
Cash paid for income taxes $67 $1,426
======= ========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
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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 March 31, 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 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 under
the standard in the stockholder's equity section of the balance sheet
under the caption "Unrealized change in value of marketable securities",
net of deferred taxes. During the three months ended March 31, 1994 the
fair value of marketable securities decreased by $1,942,000. Management
has designated long term marketable securities as available for sale.
At January 1 and March 31, 1994 the aggregate fair value, gross
unrealized losses, and amortized cost of long term marketable securities
were as follows (in thousands):
<TABLE>
<CAPTION>
January 1, March 31,
1994 1994
<S> <C> <C>
Debt Securities
Fair Value $34,163 $34,723
Amortized Cost 34,129 36,006
Unrealized (Gain) Loss (34) 1,283
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Equity Securities
Fair Value 13,696 15,721
Cost 13,740 16,380
Unrealized (Gain) Loss $44 $659
Contractual maturities of the fair
value of debt securities as of March
31, 1994
Within five years $3,962
From six to nine years $30,761
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 arising out of the 1992
write-offs involving approximately $9 million of tax. 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 vigorously 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.
Management believes the ultimate resolution of these matters will not
have a material adverse effect on the Company's financial position.
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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 Corporate Elimi- Consol-
America Europe East America Areas Overhead nations idated
(in thousands)
Three months
ended March 31,
1994:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
customers $54,156 $17,263 $21,635 $5,368 $4,804 $0 $0 $103,226
Revenue from
affiliates 1,918 179 360 0 24 0 (2,481) 0
------- ------- ------- ------- ------ -------- -------- --------
Total revenue $56,074 $17,442 $21,995 $5,368 $4,828 $0 $(2,481) $103,226
======= ======= ======= ======= ====== ======== ======== ========
Net revenue $23,601 $10,821 $5,178 $1,878 $3,621 $0 $0 $45,099
======= ======= ======= ======= ====== ======== ======== ========
Income (loss)
from operations $4,116 $1,522 $965 $454 $666 $(3,892) $0 $3,831
======= ======= ======= ======= ====== ======== ======== ========
Three months
ended March 31
1993:
Revenue from
customers $50,446 $18,757 $20,315 $1,754 $3,952 $0 $0 $95,224
Revenue from
affiliates 864 287 662 8 651 0 (2,472) 0
------- ------- ------- ------- ------ -------- -------- --------
Total revenue $51,310 $19,044 $20,977 $1,762 $4,603 $0 $(2,472) $95,224
======= ======= ======= ======= ====== ======== ======== ========
Net revenue $22,599 $11,406 $5,039 $1,202 $3,427 $0 $0 $43,673
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======= ======= ======= ======= ====== ======== ======== ========
Income (loss)
from operations $3,562 $482 $762 $218 $664 $(2,839) $0 $2,849
======= ======= ======= ======= ====== ======== ======== ========
</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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 measures the relative importance of the Company's principal
services.
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
1994 1993
(dollars in
thousands)
Revenue
<S> <C> <C> <C> <C>
Air freight
forwarding $69,213 67% $59,451 62%
Customs
brokerage 16,012 16 15,798 17
Ocean freight
forwarding 18,001 17 19,975 21
---------- ----- ------- ----
103,226 100% 95,224 100%
========== ===== ======= ====
Net Revenue
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Air freight
forwarding $20,806 46% $19,656 45%
Customs
brokerage 16,012 36 15,798 36
Ocean freight
forwarding 8,281 18 8,219 19
---------- ----- ------- ----
$45,099 100% $43,673 100%
========== ===== ======= ====
</TABLE>
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Air freight revenue increased 16% as a result of more shipments
worldwide, but were offset by lower rates, a result of competitive
pressures in every market. Air freight net revenue increased at a
lower rate than gross revenue as a result of market pricing
pressures.
Customs brokerage revenue, which includes logistics and ancillary
service revenues, increased primarily in North America .
Ocean freight forwarding revenue decreased 10%, and yields
increased 12%, as a result of increased focus on more profitable
markets. Over the last two years, the Company has been
systematically reducing its participation in the lower margin
areas, particularly between Northern Europe and the US.
Salaries and related costs decreased as a result of reductions in
staff and employee benefit costs related to the 1992 and 1993
European restructuring, which included severance costs, partially
offset by increases in other regions.
Operating, selling, administrative and other costs increased as a
result of higher information technology costs incurred for new
systems to improve operational efficiencies and provide better
management control. Included in the increased spending for
information and communications was Electronic Data Interchange
(EDI) technologies, designed to streamline the information flow
with customers and vendors. Higher revenue volumes also
contributed to an increase in operating costs.
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 to realize any significant gains on securities sales
during the remainder of 1994, therefore other income-net will be
lower throughout the year than 1993 levels.
Liquidity and Capital Resources
Capital expenditures for the three months ended March 31, 1994 were
$3.8 million. Anticipated total capital expenditures for 1994 are
approximately $15 million. The Company will be making investments
in new facilities intended to support total logistics services and
in information and communication technologies, over the next
several years.
Management believes that the Company s current financial structure
and potential borrowing capacity will be adequate to fund its
operations, finance capital expenditures, and pay dividends to
stockholders.
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II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
No exhibits were filed during the three
months ended March 31, 1994.
(b) Form 8-K:
No reports on Form 8-K were filed during
the three months ended March 31, 1994
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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: May 9, 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
