<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, 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 November 3, 1995 the number of shares outstanding of the registrant's
common stock was 16,249,044.
<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, 1995 and 1994 3
Condensed Consolidated Balance Sheets,
September 30, 1995 and December 31, 1994 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 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
<TABLE>
<CAPTION>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited, in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 138,279 $ 122,898 $ 398,218 $ 342,064
Freight consolidation costs 80,767 72,483 234,660 199,493
--------- --------- --------- ---------
Net revenue 57,512 50,415 163,558 142,571
Other costs and expenses:
Salaries and related 30,628 27,035 87,753 77,237
Operating, selling and
administrative 19,169 17,100 56,013 49,081
--------- -------- --------- ---------
Total other costs and
expenses 49,797 44,135 143,766 126,318
Income from operations 7,715 6,280 19,792 16,253
--------- -------- --------- ---------
Other income-net 591 1,327 1,859 2,798
--------- -------- --------- ---------
Income before taxes on income 8,306 7,607 21,651 19,051
Taxes on income 3,240 2,723 8,444 6,858
--------- --------- --------- ---------
Net income $ 5,066 $ 4,884 $ 13,207 $ 12,193
========= ========= ========= =========
Net income per share $ .32 $ .30 $ .82 $ .74
========= ========= ========= =========
Dividends declared
per share $ - $ - $ .11 $ .10
========= ========= ========= =========
Weighted average shares
outstanding 15,929 16,342 16,044 16,509
========= ========= ========= =========
</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 share and per share amounts)
September 30 December 31
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $18,447 $18,135
Short-term marketable securities - at cost,
approximates market 3,773 2,126
Accounts receivable (net of allowance
for doubtful accounts of $4,849 in 1995
and $4,414 in 1994) 172,855 153,664
Other current assets 6,464 4,791
--------- ---------
Total current assets 201,539 178,716
Property 149,752 142,450
Less accumulated depreciation (59,310) (55,032)
--------- ---------
Property-net 90,442 87,418
Marketable securities 40,181 41,660
Other assets 18,845 16,670
--------- ---------
Total assets $ 351,007 $ 324,464
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 17,316 $ 14,385
Accounts payable 109,466 93,384
Accrued liabilities 25,469 28,273
--------- ---------
Total current liabilities 152,251 136,042
Deferred income taxes 6,205 5,206
Long-term notes payable 30,566 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:
September 30, 1995, 15,928,585;
December 31, 1994, 16,132,678 19,657 18,600
Treasury Stock, at cost, 279,500 shares (4,766) -
Retained earnings 151,503 140,063
Unrealized change in value of
marketable securities (840) (2,657)
Cumulative translation adjustments (3,569) (4,657)
--------- ---------
Total stockholders' equity 161,985 151,349
--------- ---------
Total liabilities and stockholders' equity $ 351,007 $ 324,464
========= =========
</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
1995 1994
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 13,207 $ 12,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,848 7,956
Gains on sales of assets-net (639) (596)
Net effect of changes in working capital (5,282) (1,895)
Other (419) 26
-------- --------
Net cash provided by operating activities 14,715 17,684
-------- --------
Investing activities:
Capital expenditures (9,951) (12,167)
Proceeds from sales of marketable securities 4,183 23,099
Purchases of marketable securities (1,220) (23,450)
Proceeds from sales of fixed assets 1,849 372
Acquisitions and disposals of businesses (2,950) 804
Other (487) 1,134
-------- --------
Net cash used in investing activities (8,576) (10,208)
-------- --------
Financing activities:
Issuance/(repayment) of long-term notes payable (1,301) 6,717
Increase (decrease) in notes payable 2,931 (4,097)
Payments of dividends (3,551) (3,301)
Stock repurchases (4,766) (4,744)
Proceeds from exercise of stock options 915 62
-------- --------
Net cash used in financing activities (5,772) (5,363)
-------- --------
Effect of exchange rate changes on cash (55) (401)
-------- --------
Increase in cash and equivalents 312 1,712
Cash and equivalents at beginning of period 18,135 11,302
-------- --------
Cash and equivalents at end of period $ 18,447 $ 13,014
======== ========
Cash paid for interest expense $ 2,782 $ 2,130
======== ========
Cash paid for income taxes $ 8,626 $ 6,085
======== ========
</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, 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 Corpo- Elimi- Consol-
America Europe East America Areas rate nations idated
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended September 30, 1995:
Revenue from
customers $ 70,824 $31,420 $26,291 $ 3,628 $ 6,116 $ 0 $ 0 $138,279
Transfers
between
regions 137 482 954 585 650 0 (2,808) 0
Total -------- ------- ------- ------- ------- -------- ------- --------
revenue $ 70,961 $31,902 $27,245 $ 4,213 $ 6,766 $ 0 $(2,808) $138,279
======== ======= ======= ======= ======= ======== ======= ========
Net
revenue $ 27,512 $16,413 $ 6,193 $ 2,367 $ 5,027 $ 0 $ 0 $ 57,512
======== ======= ======= ======= ======= ======== ======= ========
Income
(loss) from
operations $ 5,107 $ 3,105 $ 1,145 $ 442 $ 963 $ (3,047)$ 0 $ 7,715
======== ======= ======= ======= ======= ======== ======= ========
Three months ended September 30, 1994:
Revenue from
customers $ 70,069 $22,337 $20,951 $ 3,764 $ 5,777 $ 0 $ 0 $122,898
Transfers
between
regions 652 303 451 260 721 0 (2,387) 0
Total -------- ------- ------- ------- ------- -------- ------- --------
revenue $ 70,721 $22,640 $21,402 $ 4,024 $ 6,498 $ 0 $(2,387) $122,898
======== ======= ======= ======= ======= ======== ======= ========
Net
revenue $ 25,777 $12,609 $ 5,655 $ 2,101 $ 4,273 $ 0 $ 0 $ 50,415
======== ======= ======= ======= ======= ======== ======= ========
Income
(loss) from
operations $ 5,362 $ 2,318 $ 771 $ 541 $ 907 $ (3,619)$ 0 $ 6,280
======== ======= ======= ======= ======= ======== ======= ========
Nine months ended September 30, 1995:
Revenue from
customers $212,377 $85,447 $70,146 $12,886 $17,362 $ 0 $ 0 $398,218
Transfers
between
regions 1,843 1,416 2,689 2,004 1,601 0 (9,553) 0
Total -------- ------- ------- ------- ------- -------- ------- --------
revenue $214,220 $86,863 $72,835 $14,890 $18,963 $ 0 $(9,553) $398,218
======== ======= ======= ======= ======= ======== ======= ========
Net
revenue $ 78,462 $45,805 $17,868 $ 7,237 $14,186 $ 0 $ 0 $163,558
======== ======= ======= ======= ======= ======== ======= ========
Income
(loss) from
operations $ 14,780 $ 7,370 $ 2,559 $ 1,582 $ 2,773 $ (9,272)$ 0 $ 19,792
======== ======= ======= ======= ======= ======== ======= ========
Nine months ended September 30, 1994:
Revenue from
customers $186,578 $64,282 $62,640 $13,073 $15,491 $ 0 $ 0 $342,064
Transfers
between
regions 1,743 932 2,057 1,472 1,377 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
operation $ 14,469 $ 6,072 $ 2,616 $ 1,490 $ 2,263 $(10,657)$ 0 $ 16,253
======== ======= ======= ======= ======= ======== ======= ========
</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 Nine Months Ended
September 30 September 30
1995 1994 1995 1994
------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Air freight forwarding $ 84,104 61% $ 79,770 65% $253,253 64% $228,603 67%
Ocean freight forwarding 26,207 19% 21,434 17% 68,035 17% 57,881 17%
Customs brokerage
and other 27,968 20% 21,694 18% 76,930 19% 55,580 16%
------------- ------------- ------------- -------------
$138,279 100% $122,898 100% $398,218 100% $342,064 100%
============= ============= ============= =============
Net Revenue
Air freight forwarding $ 21,366 37% $ 21,535 43% $ 63,620 39% $ 64,929 46%
Ocean freight forwarding 8,178 14% 7,186 14% 23,008 14% 22,062 15%
Customs brokerage
and other 27,968 49% 21,694 43% 76,930 47% 55,580 39%
------------- ------------- ------------- -------------
$ 57,512 100% $ 50,415 100% $163,558 100% $142,571 100%
============= ============= ============= =============
</TABLE>
Results of Operations
- - ---------------------
Three Months ended September 30, 1995 vs 1994:
- - ---------------------------------------------
Revenue increased in 1995 by 13% to $138.3 million from $122.9 million
reported in 1994.
Air freight forwarding revenue increased 5% as a result of increases in
revenue primarily in Europe and the Far East, partially offset by decreases
in revenue in North America due to competitive price pressures. Ocean
freight forwarding revenue increased 22% partially as a result of increases
in the number of shipments in North America, as well as improved results
from the restructured European ocean operations. Customs brokerage and
other revenue, which consist of warehousing, distribution and other
logistics services, increased 29% primarily as a result of growth in
warehousing and distribution revenues and because of an increase in the
number of customs brokerage entries and revenue per entry, worldwide.
<PAGE> 9
Net revenue increased 14% compared to the prior year. Air freight forwarding
net revenue was comparable to prior year levels primarily as a result of
revenue increases in Europe and the Far East offset by increased consolidation
costs in North America due to higher effective carrier rates. Net air freight
revenue in other regions showed improvement, primarily in Europe, mainly as a
result of an increase in revenue per shipment. Ocean freight forwarding net
revenue increased 14% as a result of improved yields in North America, and an
increase in the number of shipments in Europe.
Salaries and related costs increased as a result of an increase in the
number of employees and an increase in rates. Salaries as a percentage
of net revenues decreased slightly from the prior year.
Operating, selling and administrative expenses increased as a result of
increased data processing costs related to processing more transactions,
and as a result of additional occupancy costs from new facilities.
These new facilities have increased capacity enabling the Company to
increase its warehousing and distribution revenue.
Other income-net decreased from the prior year because 1994 included
gains on the sale of investments, while the current year includes
exchange losses due to the volatility of certain currencies against the
dollar, primarily the Japanese Yen and Mexican Peso, as well as higher
interest expense due to slightly higher rates. Foreign exchange gains
and losses are a normal result of the Company's operations and it is the
Company's policy to manage them through spot rates and forward contracts,
but not derivatives.
Nine Months ended September 30, 1995 vs 1994:
- - --------------------------------------------
Revenue increased in 1995 by 16% to $398.2 million from $342.1 million
reported in 1994.
Air freight forwarding revenue increased 11% as a result of increased
shipments and increased weight. Air freight revenue per
shipment increased substantially in the Far East while the number of
shipments increased due to new customers in North America and Europe.
Ocean freight forwarding revenue increased 18% as a result of increased
rates on increased shipments worldwide. Customs brokerage and other
revenue increased 38% as a result of increased warehousing and distribution
revenue as well as increased customs entries, primarily in North America
and Europe but also to a lesser extent in all other regions.
Net revenue increased by 15% over the prior year. Air freight net revenue
decreased 2% as a result of decreased yields on increased shipments,
primarily in North America due to higher carrier rates; partially offset
by increased shipments in Europe. Ocean freight forwarding net revenue
increased 4% partially as a result of increases in the number of shipments
in North America as well as better results from the restructured European
ocean operations.
Salaries and related costs increased as a result of an increase in the
number of employees and an increase in rates. Salaries as a percentage
of net revenues decreased from the prior year resulting in slightly improved
operating margins.
Administrative and selling costs increased due to communication and data
processing costs connected with increased transaction volume, and to
additional occupancy 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
investments in 1995 compared to 1994, as well as foreign exchange losses
in 1995 resulting from volatility in certain exchange rates. Interest
expense is also higher than the prior year resulting from higher rates
and slightly higher debt levels. Foreign exchange gains and losses are
a normal result of the Company's operations and it is the Company's policy to
manage these risks through spot rates and forward contracts, but not
derivatives.
Liquidity and Capital Resources
- - -------------------------------
Capital expenditures for the nine months ended September 30, 1995 were
$10.0 million. Total anticipated capital expenditures for the year are
$12.0 million.
During the third quarter the Company purchased 90,000 shares of its common
stock at a total cost of $1.5 million at prices ranging from $16.63 to
$17.00 per share. On a year to date basis the Company purchased 279,500
shares of its common stock at a total cost of $4.8 million at prices
ranging from $16.00 to $19.00 per share. These purchases of common stock
are classified as treasury stock within the stockholders' equity section
of the balance sheet.
<PAGE> 10
During 1995, to minimize the Company's investment in trade working capital
(customer trade receivables less trade payables) the Company implemented
reporting, training and measurement systems which are designed to improve
the management of trade working capital. As a result, management expects
improvement in the Company's trade working capital position and cash flow from
operations. Because of seasonality and new customers trade working capital
was higher at September 30, 1995. This peak was reversed in October,
resulting in an improved trade working capital position.
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.
II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, Page 11, EDGAR filing
only.
(b) Form 8-K:
No reports on Form 8-K were filed during the three months
ended September 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: November 3, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Harper Group Inc., and Subsidiaries - Financial Data Schedule
(in thousands except per share amount)
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, 1995, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1995
<PERIOD-END> Sep-30-1995
<CASH> 18447
<SECURITIES> 40181
<RECEIVABLES> 177704
<ALLOWANCES> 4849
<INVENTORY> 0
<CURRENT-ASSETS> 201539
<PP&E> 149752
<DEPRECIATION> 59310
<TOTAL-ASSETS> 351007
<CURRENT-LIABILITIES> 152251
<BONDS> 0
0
0
<COMMON> 19657
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 351007
<SALES> 0
<TOTAL-REVENUES> 398218
<CGS> 0
<TOTAL-COSTS> 234660
<OTHER-EXPENSES> 143766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21651
<INCOME-TAX> 8444
<INCOME-CONTINUING> 13207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13207
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
