<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, 1995
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 7, 1995 the number of shares outstanding of the registrant's
common stock was 16,149,559.
<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, 1995 and 1994 3
Condensed Consolidated Balance Sheets,
June 30, 1995 and December 31, 1994 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1995 and 1994 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
<PAGE> 3
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue $ 133,996 $ 115,940 $ 259,939 $ 219,166
Freight
consolidation costs 79,059 68,883 153,893 127,010
--------- --------- --------- ---------
Net revenue 54,937 47,057 106,046 92,156
Other costs and
expenses:
Salaries and related 28,905 25,346 57,125 50,202
Operating, selling and
administrative 18,969 15,569 36,844 31,981
--------- --------- --------- ---------
Total other costs
and expenses 47,874 40,915 93,969 82,183
Income from operations 7,063 6,142 12,077 9,973
--------- --------- --------- ---------
Other income-net 601 655 1,268 1,471
--------- --------- --------- ---------
Income before taxes
on income 7,664 6,797 13,345 11,444
--------- --------- --------- ---------
Taxes on income 3,063 2,508 5,204 4,135
--------- --------- --------- ---------
Net income $ 4,601 $ 4,289 $ 8,141 $ 7,309
========= ========= ========= =========
Net income per share $ .29 $ .26 $ .51 $ .44
========= ========= ========= =========
Dividends declared
per share $ .11 $ .10 $ .11 $ .10
========= ========= ========= =========
Weighted average
shares outstanding 16,065 16,556 16,096 16,586
========= ========= ========= =========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
<TABLE>
June 30 December 31
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 20,934 $ 18,135
Short-term marketable
securities - at cost,
approximates market 3,534 2,126
Accounts receivable (net of allowance
for doubtful accounts of $4,774 in 1995
and $4,414 in 1994) 154,220 153,664
Other current assets 7,414 4,791
--------- ---------
Total current assets 186,102 178,716
Property 149,290 142,450
Less accumulated depreciation (58,283) (55,032)
--------- ---------
Property-net 91,007 87,418
Marketable securities 39,876 41,660
Other assets 20,455 16,670
--------- ---------
Total assets $ 337,440 $ 324,464
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 7,243 $ 14,385
Accounts payable 106,989 93,384
Accrued liabilities 26,273 28,273
--------- ---------
Total current liabilities 140,505 136,042
Deferred income taxes 6,077 5,206
Long-term notes payable 31,444 31,867
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par: shares
authorized, 1,000,000 - -
Common stock, $1 par: shares
authorized, 40,000,000;
shares issued:
June 30, 1995, 16,144,978;
December 31, 1994, 16,132,678 18,753 18,600
Treasury Stock, at cost, 189,500 shares (3,254) -
Retained earnings 146,448 140,063
Unrealized change in value of
marketable securities (1,107) (2,657)
Cumulative translation adjustments (1,426) (4,657)
--------- ---------
Total stockholders' equity 159,414 151,349
--------- ---------
Total liabilities and stockholders' equity $ 337,440 $ 324,464
========= =========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 8,141 $ 7,309
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,109 5,524
Net effect of changes in working capital 6,810 (817)
Other (685) 281
-------- --------
Net cash provided by operating activities 19,375 12,297
-------- --------
Investing activities:
Capital expenditures (6,205) (7,032)
Proceeds from sales of marketable securities 2,963 19,020
Purchases of marketable securities - (23,264)
Proceeds from sales of fixed assets 1,685 258
Acquisitions of businesses (2,950) -
Other 260 580
-------- --------
Net cash used in investing activities (4,247) (10,438)
-------- --------
Financing activities:
Issuance (repayment) of long-term notes
payable - net (423) 6,894
Increase (decrease) in notes payable (7,142) 2,949
Payments of dividends (1,775) (1,663)
Stock repurchases (3,254) (3,712)
Other 130 48
-------- --------
Net cash (used) provided by financing activities (12,464) 4,516
-------- --------
Effect of exchange rate changes on cash 135 (201)
-------- --------
Increase in cash and equivalents 2,799 6,174
Cash and equivalents at beginning of period 18,135 11,302
-------- --------
Cash and equivalents at end of period $ 20,934 $ 17,476
======== ========
Cash paid for interest expense $ 2,055 $ 1,091
======== ========
Cash paid for income taxes $ 4,898 $ 2,310
======== ========
</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, 1995 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) 1994 Annual Report to Stockholders incorporated by
reference in the Company's 1994 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 - Federal Tax Litigation
The United States Internal Revenue Service issued a notice of
deficiency with respect to the Company's income tax liabilities for
the years ended 1986 and 1987 asserting an aggregate liability for
tax of approximately $7.9 million. The Company subsequently filed
a petition in the U.S. Tax Court contesting all of the asserted
deficiency, and made a partial payment of tax. Settlement
negotiations with the Internal Revenue Service have now been
concluded with respect to this matter. Under the terms of the
proposed settlement, the Company would be entitled to receive a net
refund of approximately $300,000. However, there has been no final
settlement because the matter has been held in abeyance pending
resolution of the Company's refund proposals arising out of its
1992 writeoffs.
The Company is engaged in discussions with the Internal Revenue
Service with respect to federal income tax refunds arising out of
the 1992 writeoffs 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.
The Internal Revenue Service has issued a notice of proposed
deficiency with respect to tax years 1988 and 1989 proposing to
assert deficiencies in tax and penalties in the aggregate amount of
approximately $9.9 million. The Company has agreed to adjustments
that will result in a deficiency in tax in the amount of
approximately $500,000 for 1988 and has filed a protest with
respect to the remaining unagreed proposed deficiency. Because of
the number and complexity of the issues involved, resolution of the
issues may require a number of years. Management believes that the
ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position or results of
operations.
<PAGE> 7
Note 3 - Business Segment Information
The Company operates in the international freight forwarding
industry, which encompasses air freight forwarding, customs
brokerage and other, as well as ocean freight forwarding. Certain
information regarding the Company's operations by region is
summarized below.
<TABLE>
<CAPTION>
North Far Latin Other Elimi- Consol-
America Europe East America Areas Corporate nations idated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Three months ended
June 30, 1995:
Revenue from
customers $ 70,891 $ 29,309 $ 23,811 $ 4,390 $ 5,595 $ 0 $ 0 $133,996
Transfers between
regions 517 625 1,246 1,001 665 0 (4,054) 0
Total
revenue $ 71,408 $ 29,934 $ 25,057 $ 5,391 $ 6,260 $ 0 $ (4,054) $133,996
Net revenue $ 25,776 $ 15,555 $ 6,432 $ 2,558 $ 4,616 $ 0 $ 0 $ 54,937
Income (loss)
from
operations $ 5,193 $ 2,324 $ 891 $ 623 $ 860 $ (2,828) $ 0 $ 7,063
Three months ended June 30, 1994:
Revenue from
customers $ 61,084 $ 25,098 $ 20,256 $ 4,365 $ 5,137 $ 0 $ 0 $115,940
Transfers between
regions 442 34 1,044 788 405 0 (2,713) 0
Total
revenue $ 61,526 $ 25,132 $ 21,300 $ 5,153 $ 5,542 $ 0 $ (2,713) $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
Six months ended June 30, 1995:
Revenue from
customers $141,553 $ 54,027 $ 43,855 $ 9,258 $ 11,246 $ 0 $ 0 $259,939
Transfers between
regions 1,706 934 1,735 1,419 951 0 (6,745) 0
Total
revenue $143,259 $ 54,961 $ 45,590 $ 10,677 $ 12,197 $ 0 $ (6,745) $259,939
Net revenue $ 50,950 $ 29,392 $ 11,675 $ 4,870 $ 9,159 $ 0 $ 0 $106,046
Income (loss)
from
operations $ 9,673 $ 4,265 $ 1,414 $ 1,140 $ 1,810 $ (6,225) $ 0 $ 12,077
Six months ended June 30, 1994:
Revenue from
customers $116,509 $ 41,945 $ 41,689 $ 9,309 $ 9,714 $ 0 $ 0 $219,166
Transfers between
regions 1,091 629 1,606 1,212 656 0 (5,194) 0
Total
revenue $117,600 $ 42,574 $ 43,295 $ 10,521 $ 10,370 $ 0 $ (5,194) $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
</TABLE>
Revenue from transfers between regions 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 overhead charges.
Prior period amounts have been reclassified to conform to the 1995
presentation.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's principal services are international air freight
forwarding, ocean freight forwarding, and customs brokerage and
other logistics services. 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 Six Months Ended
June 30 June 30
1995 1994 1995 1994
---------------------------- ---------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Air freight
forwarding $ 86,272 64% $ 79,620 69% $169,149 65% $148,833 68%
Ocean freight
forwarding 22,165 17% 18,446 16% 41,828 16% 36,447 17%
Customs brokerage
and other 25,559 19% 17,874 15% 48,962 19% 33,886 15%
-------------- ------------- ------------- -------------
$133,996 100% $115,940 100% $259,939 100% $219,166 100%
============== ============= ============= =============
Net Revenue
Air freight
forwarding $ 21,247 39% $ 22,588 48% $ 42,254 40% $ 43,394 47%
Ocean freight
forwarding 8,131 15% 6,595 14% 14,830 14% 14,876 16%
Customs brokerage
and other 25,559 46% 17,874 38% 48,962 46% 33,886 37%
------------- ------------- ------------- -------------
$ 54,937 100% $ 47,057 100% $106,046 100% $ 92,156 100%
============= ============= ============= =============
</TABLE>
Results of Operations
- ---------------------
Three Months ended June 30, 1995 vs 1994:
Revenue increased in 1995 by 16% to $134.0 million from $115.9
million reported in 1994.
Air freight forwarding revenue increased 8% as a result of
increased average weight per shipment on fewer shipments. Ocean
freight forwarding revenue increased 20% over the prior year as a
result of increased rates on fewer shipments.
Customs brokerage and other revenue increased 43% primarily as a
result of increases in warehousing, distribution, and other
services. Customs entries increased primarily in North America
and Europe.
Net revenue increased 17% over the prior year. Air freight
forwarding net revenue decreased 6% from the prior year as a result
of decreased yields on fewer shipments. Net ocean freight
forwarding revenue increased over the prior year as a result of
increased yields on fewer shipments.
<PAGE> 9
Salaries and related costs increased as a result of a 5% increase
in the number of employees and an increase in rates.
Operating, selling and administrative expenses increased as a
result of costs related to processing higher transaction volumes
including increased data processing costs and additional costs from
new facilities. These new facilities have increased capacity
enabling the Company to increase its warehousing and distribution
revenue.
Other income-net was comparable to the 1994 period.
Six Months ended June 30, 1995 vs 1994:
Revenue increased in 1995 by 19% to $259.9 million from $219.2
million reported in 1994.
Air freight forwarding revenue increased 14% as a result of
increased shipments and average weight per shipment. Ocean freight
forwarding revenue increased 15% as a result of increased rates on
increased shipments.
Customs brokerage and other revenue increased 44% as a result of
increased warehousing and distribution revenue as well as increased
customs entries, primarily in North America and Europe.
Net revenue increased by 15% over the prior year. Air freight net
revenue decreased 3% as a result of decreased yields on increased
shipments. Ocean freight net revenue was comparable to the prior
year. Ocean freight costs have shown an increase due to a change
in business mix towards ocean consolidations.
Salaries and related costs increased as a result of an increase of
5% in the number of employees at higher rates in 1995 compared to
1994.
Administrative and selling costs increased due to communication and
data processing costs connected with increased transaction volume
and to additional costs of new facilities. These new facilities
have increased capacity enabling the Company to increase its
warehousing and distribution revenue.
Other income-net decreased as a result of fewer gains on the sale
of long term marketable securities, as well as fewer foreign
exchange gains in 1995 compared to 1994.
Liquidity and Capital Resources
- -------------------------------
Capital expenditures for the six months ended June 30, 1995 were
$6.2 million. Total anticipated capital expenditures for the year
are $12.0 million.
During the second quarter the Company purchased 189,500 shares of
its common stock at a total cost of $3.3 million at prices ranging
from $16.00 to $18.25 per share. The stock has been classified as
treasury stock within the stockholders' equity section of the
balance sheet. Subsequent to the end of the second quarter the
Company purchased an additional 55,000 shares of its common stock
at a total cost of $925,000 with prices ranging from $16.63 to
$17.00 per share.
The Company has improved its cash position as a result of increased
cash provided by operations, primarily as a result of management's
efforts to improve trade working capital, as well as the sale of
facilities. The Company plans to use these and other
methods to convert non-cash assets to cash.
Management believes that the Company's current financial position,
operating cash flow and borrowing capacity will be adequate to fund
its operations, finance capital expenditures, and pay dividends to
stockholders.
<PAGE> 10
II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 9,
1995. Peter Gibert and Edwin J. Holman were elected as
directors.
Against or
For Withheld Abstentions
Election of Directors
Peter Gibert 14,524,151 65,325 -
Edwin J. Holman 14,525,281 64,195 -
Ray C. Robinson, Jr., Wesley J. Fastiff, Frank J. Wezniak
and John M. Kaiser will continue as directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, Page 12, EDGAR filing only.
(b) Form 8-K:
No reports on Form 8-K were filed during the three months
ended June 30, 1995.
<PAGE> 11
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 10, 1995
/S/ Peter Gibert
Peter Gibert, President and
Chief Executive Officer
/S/ Robert J. Diaz
Robert J. Diaz, Senior Vice President
and Chief Financial Officer
/S/ Michael L. French
Michael L. French, Vice President
and Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 June 30, 1995, and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUN-30-1995
<CASH> 20934
<SECURITIES> 39876
<RECEIVABLES> 154220
<ALLOWANCES> 4774
<INVENTORY> 0
<CURRENT-ASSETS> 186102
<PP&E> 149290
<DEPRECIATION> 58283
<TOTAL-ASSETS> 337440
<CURRENT-LIABILITIES> 140505
<BONDS> 0
0
0
<COMMON> 18753
<OTHER-SE> 140661
<TOTAL-LIABILITY-AND-EQUITY> 337440
<SALES> 0
<TOTAL-REVENUES> 259939
<CGS> 0
<TOTAL-COSTS> 153893
<OTHER-EXPENSES> 93969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13345
<INCOME-TAX> 5204
<INCOME-CONTINUING> 8141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8141
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
