<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 March 31, 1996
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, 1996 the number of shares outstanding of the registrant's common
stock was 15,906,778.
<PAGE> 2
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Income Statements
for the three months ended
March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets,
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1996 and 1995 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
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenue $ 132,446 $ 125,943
Freight consolidation costs 77,554 74,834
------- -------
Net revenue 54,892 51,109
Other costs and expenses:
Salaries and related 31,455 28,220
Operating, selling and
administrative 18,559 17,875
------- -------
Total other costs and expenses 50,014 46,095
Income from operations 4,878 5,014
------- -------
Other income-net 1,284 667
------- -------
Income before taxes on income 6,162 5,681
------- -------
Taxes on income 2,404 2,141
------- -------
Net income $ 3,758 $ 3,540
======= =======
Net income per share $ 0.24 $ 0.22
======= =======
Weighted average shares outstanding 15,919 16,138
======= =======
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
<TABLE>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
March 31 December 31
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 24,327 $ 22,439
Short-term investments 4,693 11,299
Accounts receivable, less allowance
(1996, $4,802; 1995, $4,739) 167,276 166,885
Other current assets 7,622 6,741
--------- ---------
Total current assets 203,918 207,364
Property 131,955 130,008
Less accumulated depreciation (58,636) (56,413)
--------- ---------
Property-net 73,319 73,595
Marketable securities 35,795 36,544
Other assets 28,736 19,240
--------- ---------
Total assets $ 341,768 $ 336,743
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 2,846 $ 2,898
Accounts payable 111,282 101,313
Accrued liabilities 28,430 30,146
--------- ---------
Total current liabilities 142,558 134,357
Deferred income taxes 6,727 6,877
Long-term notes payable 24,774 30,053
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 and outstanding:
March 31, 1996, 15,902,994;
December 31, 1995, 16,250,669 20,103 19,956
Treasury Stock, at cost, 352,000 shares (5,991) (4,890)
Retained earnings 159,173 155,427
Unrealized change in value of
marketable securities (747) (806)
Cumulative translation adjustments (4,829) (4,231)
--------- ---------
Total stockholders' equity 167,709 165,456
--------- ---------
Total liabilities and stockholders' equity $ 341,768 $ 336,743
========= =========
</TABLE>
[FN]
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
<TABLE>
THE HARPER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended
March 31
------------------
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 3,758 $ 3,540
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,574 2,378
losses/(Gains) on sales of assets (350) 43
Net effect of changes in working capital 8,410 2,532
Other 333 298
------- -------
Net cash provided by operating activities 14,725 8,791
------- -------
Investing activities:
Capital expenditures (3,163) (2,910)
Proceeds from sales of marketable securities 7,397 -
Proceeds from sales of fixed assets 1,763 65
Acquisition of businesses (10,350) (2,219)
Other (129) (132)
------- -------
Net cash used in investing activities (4,482) (5,196)
------- -------
Financing activities:
Issuance/(repayment) of long-term
notes payable - net (5,279) 1,034
Decrease in notes payable (52) (763)
Payments of dividends (1,768) (1,775)
Purchases of treasury stock (1,101) -
Proceeds from exercise of stock options 147 129
-------- --------
Net cash used by financing activities (8,053) (1,375)
-------- --------
Effect of exchange rate changes on cash (302) 659
-------- --------
Increase in cash and equivalents 1,888 2,879
-------- --------
Cash and equivalents at beginning of period 22,439 18,135
-------- --------
Cash and equivalents at end of period $ 24,327 $ 21,014
======== ========
</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 March 31, 1996 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)
1995 Annual Report to Stockholders incorporated by reference in the Company's
1995 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. A tentative agreement has been made
on issues which would produce a refund of $4 million. 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. The matter is pending before
the Internal Revenue Service Appeals Office. Because of the number and
complexity of the issues involved, resolution of the controversy 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 March 31, 1996:
Revenue from
customers $ 74,601 $ 28,881 $ 19,262 $ 3,684 $ 6,018 $ 0 $ 0 $132,446
Transfers
between
regions 511 568 817 641 474 0 (3,011) 0
-------- -------- -------- ------- -------- ------- ------- --------
Total
revenue $ 75,112 $ 29,449 $ 20,079 $ 4,325 $ 6,492 $ 0 $(3,011)$132,446
Net
revenue $ 27,089 $ 14,913 $ 5,675 $ 2,330 $ 4,885 $ 0 $ 0 $ 54,892
-------- -------- -------- ------- ------- ------- ------- --------
Income
(loss) from
operations$ 3,744 $ 1,843 $ 916 $ 415 $ 912 $(2,952)$ 0 $ 4,878
Three months ended March 31, 1995:
Revenue from
customers $ 71,420 $ 24,555 $ 19,809 $ 4,628 $ 5,531 $ 0 $ 0 $125,943
Transfers
between
regions 431 472 724 658 406 0 (2,691) 0
Total
revenue $ 71,851 $ 25,027 $ 20,533 $ 5,286 $ 5,937 $ 0 $(2,691)$125,943
Net
revenue $ 25,174 $ 13,837 $ 5,243 $ 2,312 $ 4,543 $ 0 $ 0 $ 51,109
Income
(loss) from
operations$ 4,480 $ 1,941 $ 523 $ 517 $ 950 $(3,397)$ 0 $ 5,014
</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 1996 presentation.
Note 4 - Acquisition
In February, 1996 the Company acquired the customer list and other operating
freight forwarding assets of Celadon/Jacky Maeder, Ltd., a US based
international freight forwarding and customs brokerage company. The
acquisition was accounted for as a purchase. The purchase price is contingent
upon future net revenues of the acquired assets.
<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 value added
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
March 31
---------- ----------
1996 1995
(dollars in thousands)
Revenue
- ---------
<S> <C> <C>
Air freight forwarding $ 83,135 63% $ 82,877 66%
Ocean freight forwarding 24,012 18 19,663 16
Customs brokerage and other 25,299 19 23,403 18
-------------- -------------
$ 132,446 100% $ 125,943 100%
============== =============
Net Revenue
- -------------
Air freight forwarding $ 21,637 39% $ 21,007 41%
Ocean freight forwarding 7,956 15 6,699 13
Customs brokerage and other 25,299 46 23,403 46
--------------- -------------
$ 54,892 100% $ 51,109 100%
=============== =============
</TABLE>
Results of Operations
- ---------------------
Three Months ended March 31, 1996 Vs 1995:
- ------------------------------------------
Revenue increased in 1996 by 5% to $132.4 million from $125.9 million reported
in 1995.
Airfreight revenue was consistent with strong prior year levels although
within the different regions some changes from prior year were experienced.
Increases were primarily in North America and Europe. North America
improvements were partially due to the acquisition in the first quarter of the
customer list and other operating freight forwarding assets of Celadon/Jacky
Maeder, a US based international freight forwarding and customs brokerage
company. Europe gross revenue improved as a result of increased revenue per
shipment. These improvements were offset by a temporary setback due to
competitive pressures in Latin America and an economic downturn in the Far
East. Net airfreight revenue increased 3% over the prior year as a result of
improvements in the Company's yields.
Ocean freight revenue increased 22% or $4.3 million over the prior year due to
an increase in the number of shipments in North America and revenue per
shipment in Europe. Ocean freight forwarding net revenue increased $1.3
million or 19% over the prior year also due to increased shipments.
<PAGE> 9
Customs brokerage and other revenue increased $1.9 million or 8% over the
prior year due to an increase in the number of customs entries and other fee
based services primarily in Europe and North America. The Company continues to
show growth in these services primarily due to systems enhancements and other
service innovations tailored to customer needs.
Salaries and related costs increased as a result of more employees hired to
serve new customers and the initial hiring of Celadon/Jacky Maeder personnel.
Headcount reductions were effected before the end of the quarter to reduce
these expenses in future periods.
The increase in administrative and selling costs results from increases in
rent expense on leases from the 1995 sale and leaseback transaction. Non-
recurring integration costs related to the Celadon/Jacky Maeder acquisition
also adversely effected administrative expenses.
Other income - net improved over the prior year as a result of increased
earnings from non-consolidated affiliates, gains from the sale of assets in
1996 and foreign currency losses on the Japanese Yen in 1995. The Company
mitigates against such losses through the use of foreign currency forward
contracts. Interest expense was lower in 1996 compared to 1995 as a result of
lower borrowings.
Liquidity and Capital Resources
- -------------------------------
Capital expenditures for the Company for the three months ended March 31, 1996
were $3.2 million. Total anticipated capital expenditures for the year are
approximately $13.0 million.
In the first quarter of 1996, the Company purchased 65,000 shares of its
common stock at a total cost of $1.1 million with prices ranging from $16.75
to $17.00 per share through the stock repurchase program approved by the Board
of Directors in 1994. 148,000 remaining shares can be purchased under the
current program. Repurchased stock is classified as treasury stock in the
Stockholders' equity section of the balance sheet.
In December 1995, the Company entered into a sale and leaseback transaction
which generated cash proceeds of approximately $15 million. The proceeds were
used to pay for acquisitions and to reduce borrowings.
The Company makes significant disbursements on behalf of its customers for
transportation costs and customs duties. The billings to customers for these
disbursements, which are several times the amount of revenue and fees derived
from these transactions, are not recorded as revenue and expense on the
Company's income statement.
Successful asset management programs developed in 1995 continued to improve
the Company's working capital in the first quarter. Management believes its
commitment to working capital management will continue to improve the
Company's ability to generate cash from operations in the future.
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 acquisitions, and pay dividends to
stockholders.
<PAGE> 10
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 March 31, 1996.
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, 1996
/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>
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 March 31, 1996, and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 24327
<SECURITIES> 35795
<RECEIVABLES> 172078
<ALLOWANCES> 4802
<INVENTORY> 0
<CURRENT-ASSETS> 203918
<PP&E> 131955
<DEPRECIATION> 58636
<TOTAL-ASSETS> 341768
<CURRENT-LIABILITIES> 142558
<BONDS> 0
0
0
<COMMON> 14112
<OTHER-SE> 153597
<TOTAL-LIABILITY-AND-EQUITY> 341768
<SALES> 0
<TOTAL-REVENUES> 132446
<CGS> 0
<TOTAL-COSTS> 77554
<OTHER-EXPENSES> 50014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6162
<INCOME-TAX> 2404
<INCOME-CONTINUING> 3758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3758
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
