<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, 1997
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 2, 1997 the number of shares outstanding of the
registrant's common stock was 16,469,930.
<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, 1997
and 1996 3
Condensed Consolidated Balance Sheets,
March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1997 and 1996 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,
1997 1996
------------------
<S> <C> <C>
Revenue $ 155,452 $ 132,446
Freight consolidation costs 93,786 77,554
--------- ---------
Net revenue 61,666 54,892
Other costs and expenses:
Salaries and related 33,695 31,455
Operating, selling and
administrative 22,061 18,559
--------- ---------
Total other costs and expenses 55,756 50,014
--------- ---------
Income from operations 5,910 4,878
Other income-net 1,415 1,284
--------- ---------
Income before taxes on income 7,325 6,162
Taxes on income 2,734 2,404
--------- ---------
Net income $ 4,591 $ 3,758
========= =========
Net income per share $ 0.29 $ 0.24
========= =========
Weighted average shares outstanding 15,942 15,919
========= =========
</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)
March 31 December 31
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets: ------
Cash and equivalents $ 35,981 $ 31,522
Short-term investments 6,911 6,469
Trade receivables, less allowance
for doubtful accounts (1997,
$5,528; 1996, $4,970) 196,167 196,070
Other receivables 5,354 5,616
Other current assets 9,584 8,993
--------- ---------
Total current assets 253,997 248,670
Property 137,681 139,513
Less accumulated depreciation (61,760) (62,171)
--------- ---------
Property-net 75,921 77,342
Marketable securities 7,787 7,799
Investments in unconsolidated affiliates 35,506 34,489
Goodwill and other assets 26,220 25,030
--------- ---------
Total assets $ 399,431 $ 393,330
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks $ 7,677 $ 7,731
Trade payables 132,654 134,272
Accrued salaries and related costs 10,660 11,723
Income taxes payable 5,147 6,082
Other liabilities 16,385 17,196
--------- ---------
Total current liabilities 172,523 177,004
Deferred income taxes 7,963 5,619
Long-term notes payable 33,605 28,963
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, 1997, 16,462,343;
December 31, 1996, 16,392,848 23,882 22,627
Treasury Stock, at cost:
March 31,1997 and
December 31,1996,500,000 shares (8,947) (8,947)
Retained earnings 177,815 173,224
Unrealized change in value of
marketable securities (110) (407)
Cumulative translation adjustments (7,300) (4,753)
--------- ---------
Total stockholders' equity 185,340 181,744
--------- ---------
Total liabilities and stockholders'equity $ 399,431 $ 393,330
========= =========
</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)
Three Months Ended
March 31
------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $ 4,591 $ 3,758
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,800 2,574
Gains on sales of assets (593) (350)
Net effect of changes in working
capital (1,922) 8,410
Other 188 333
-------- --------
Net cash provided by operating activities 5,064 14,725
-------- --------
Investing activities:
Capital expenditures (3,114) (3,163)
Proceeds from sales of marketable
securities 473 7,397
Proceeds from sales of fixed assets 977 1,763
Acquisition of businesses (1,776) (10,350)
Other (366) (129)
-------- --------
Net cash used in investing activities (3,806) (4,482)
-------- --------
Financing activities:
Issuance/(repayment) of long-term
notes payable - net 4,641 (5,279)
Decrease in notes payable (54) (52)
Payments of dividends (1,911) (1,768)
Purchases of treasury stock - (1,101)
Proceeds from exercise of stock
options 1,212 147
Other 50 -
-------- --------
Net cash provided/(used) by financing
activities 3,938 (8,053)
-------- --------
Effect of exchange rate changes on cash (737) (302)
-------- --------
Increase in cash and equivalents 4,459 1,888
Cash and equivalents at beginning of period 31,522 22,439
-------- --------
Cash and equivalents at end of period $ 35,981 $ 24,327
======== ========
</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, 1997 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) 1996 Annual Report to Stockholders incorporated by
reference in the Company's 1996 Form 10-K, and Management's
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-Q.
In February 1997, Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128)
Earnings Per Share, which specifies the computation for dilutive
earnings per share (EPS) and requires dual presentation of basic
and diluted EPS on the face of the income statement. SFAS No. 128
is effective for financial statements issued for periods ending
after December 15, 1997. The adoption of SFAS No. 128 will not
have a material effect on the Company's EPS.
Certain 1996 amounts have been reclassified to conform with the
1997 presentation.
Note 2 - Federal Tax Litigation
The Company has been in discussions with the Internal Revenue
Service with respect to federal income tax refunds arising out of
the 1992 write-offs and prior adjustments involving approximately
$9 million of tax. Tentative agreements have been made on
specific issues which would produce a tax refund of $5.6 million.
Any differences between the recoveries expected by the Company and
the actual tax refund received will be offset by interest
receivable from the Internal Revenue Service. It is expected that
the tentative agreements will be finalized by the third quarter
of 1997.
The Internal Revenue Service originally issued a notice of
deficiency with respect to the years 1988 and 1989 proposing an
aggregate liability of approximately $9.9 million. The Company has
agreed with some adjustments and filed a protest with respect to
the remaining unagreed issues. The matter has been pending before
the Internal Revenue Service Appeals Office. Settlement
negotiations with the Internal Revenue Service have recently been
concluded with respect to this matter. Under the terms of the
proposed settlement, the Company has agreed to adjustments that
would result in a net deficiency in tax of $270,000. This net
deficiency will be offset by the refund resulting from the
settlement with respect to the years 1986 and 1987 as described
below. Final settlement of this matter will be held in abeyance
pending resolution of the Company's refund proposals arising out
of its 1992 write-offs and prior period adjustments.
The Internal Revenue Service originally issued a notice of
deficiency with respect to the years 1986 and 1987 proposing an
aggregate liability 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
been concluded with respect to this matter. Under the terms of the
proposed settlement, adjusted recently by carrybacks from the year
1988, the Company would be entitled to receive a net refund in tax
of approximately $500,000. Final settlement of this matter will
be held in abeyance pending resolution of the Company's refund
proposals arising out of its 1992 write-offs and prior period
adjustments.
<PAGE> 7
Note 3 - Business Segment Information
The Company operates in the international logistics services
industry, which encompasses air freight forwarding, ocean freight
forwarding, as well as customs brokerage and other logistics
services. Certain information regarding the Company's operations
by region is summarized below.
<TABLE>
<CAPTION>
Europe & Elimi- Consol-
Americas Middle East Asia Pacific Corporate nations idated
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1997:
Revenue
from
customers $ 93,003 $ 31,707 $ 30,742 $ 0 $ 0 $155,452
Transfers
between
regions 1,850 1,136 1,400 0 (4,386) 0
-------- -------- --------- ------- ------- --------
Total
revenue $ 94,853 $ 32,843 $ 32,142 $ 0 $(4,386) $155,452
======== ======== ========= ======= ======= ========
Net
revenue $ 34,389 $ 16,604 $ 10,673 $ 0 $ 0 $ 61,666
======== ======== ========= ======= ======= ========
Income
(loss)
from
operat-
ions $ 3,491 $ 2,003 $ 1,719 $(1,303) $ 0 $ 5,910
======== ======== ========= ======= ======= ========
Three months ended March 31, 1996:
Revenue
from
customers $ 78,317 $ 30,167 $ 23,962 $ 0 $ 0 $132,446
Transfers
between
regions 1,119 747 1,145 0 (3,011) 0
-------- -------- --------- ------- ------- --------
Total
revenue $ 79,436 $ 30,914 $ 25,107 $ 0 $(3,011) $132,446
======== ======== ========= ======= ======= ========
Net
revenue $ 29,419 $ 16,297 $ 9,176 $ 0 $ 0 $ 54,892
======== ======== ========= ======= ======= ========
Income
(loss)
from
operat-
ions $ 2,909 $ 1,986 $ 1,275 $(1,292) $ 0 $ 4,878
======== ======== ========= ======= ======= ========
</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 1997
presentation due to the realignment of certain corporate overhead
expenses as part of local operating expenses effective January 1,
1997.
Note 4 - Joint Venture Investment
In February, 1997 the Company formed a joint venture with a
Thailand-based brokerage and import services company, Worldbridge
Transportation. The Company will own 55% of the combined
operation of Worldbridge Transportation and Circle Thailand, which
will be called Circle Worldbridge.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters
set forth in this release are forward-looking statements that are
dependent on certain risks and uncertainties including but not
limited to such factors as market demand, risks associated with
operations outside of the U.S. including currency fluctuations,
information technology uncertainties, changing economic conditions
including international laws, the concentration of business
towards large accounts, the effect of the Company's accounting
policies, and other risk factors detailed in the Company's SEC
filings.
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 shipments) includes the cost of such
freight, whereas net revenue does not. Revenue for air freight
and ocean freight agency or direct shipments, customs brokerage
and import services, includes only the 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
__________________
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue
- -------
Air freight forwarding $ 99,373 64% $ 83,135 63%
Ocean freight forwarding 27,004 17 24,012 18
Customs brokerage and other 29,075 19 25,299 19
-------------- -------------
$ 155,452 100% $ 132,446 100%
Net Revenue ============== =============
- -----------
Air freight forwarding $ 23,568 38% $ 21,637 39%
Ocean freight forwarding 9,023 15 7,956 15
Customs brokerage and other 29,075 47 25,299 46
-------------- --------------
$ 61,666 100% $ 54,892 100%
============== ==============
</TABLE>
Results of Operations
- ---------------------
Three Months ended March 31, 1997 Vs 1996:
- -----------------------------------------
Revenue increased in 1997 by 17% to $155.5 million from $132.4
million reported in 1996.
Airfreight revenue increased 20% with significant growth in the
Asia Pacific and Americas regions. The strong results were
reduced by a higher rate of growth in freight consolidation costs
experienced in Europe and Asia. Nonetheless, net airfreight
revenue increased 9% over the prior year.
<PAGE> 9
Ocean freight revenue increased 12% or $3.0 million over the prior
year, while net ocean revenue increased by $1.1 million or 13%.
This healthy growth was contributed by the Americas and Asia
Pacific regions.
Customs brokerage and other logistics services revenue increased
$3.8 million or 15% over the prior year, with excellent growth
contributed by all regions. This service line continues to grow as
companies see the benefit of outsourcing the logistics functions
to third party experts. The increased revenue reflects the
Company's continued effort to expand logistics services to meet
customer needs.
Salaries and related costs increased 7% as a result of hiring more
employees to serve new customers and to handle business growth.
The increase in administrative and selling costs was partly due to
an increase in occupancy cost due to additional leased and owned
warehousing and distribution capacity. There were also higher
communication costs across all regions, due to a higher volume of
transactions.
Other income - net improved over the prior year as a result of
increased earnings from non-consolidated affiliates and foreign
exchange gains in Europe and Asia. The improvement was offset by
lower interest income due to the sale of marketable securities
throughout 1996 and higher minority partner shares of earnings in
consolidated joint ventures.
Liquidity and Capital Resources
- -------------------------------
Capital expenditures for the Company for the three months ended
March 31, 1997 were $3.1 million. Capital expenditures for the
year are expected to be comparable to 1996, depending on lease vs.
buy opportunities.
In February 1997, the Board of Directors approved the repurchase
of 100,000 shares of the Company's common stock. No shares were
purchased during the first quarter of 1997. Repurchased stock
not retired is classified as treasury stock in the Stockholders'
equity section of the balance sheet.
The Company sold buildings and generated proceeds of approximately
$1.0 million for the three months ended March 31, 1997, which was
applied to general corporate use.
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, but are reflected in the Company's
Trade Receivables and Trade Payables.
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, 1997.
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 5, 1997
/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,
1997, 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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 35981
<SECURITIES> 7787
<RECEIVABLES> 196167
<ALLOWANCES> 5528
<INVENTORY> 0
<CURRENT-ASSETS> 253997
<PP&E> 137681
<DEPRECIATION> 61760
<TOTAL-ASSETS> 399431
<CURRENT-LIABILITIES> 172523
<BONDS> 0
0
0
<COMMON> 14935
<OTHER-SE> 170405
<TOTAL-LIABILITY-AND-EQUITY> 399431
<SALES> 0
<TOTAL-REVENUES> 155452
<CGS> 0
<TOTAL-COSTS> 93786
<OTHER-EXPENSES> 55756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7325
<INCOME-TAX> 2734
<INCOME-CONTINUING> 4591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4591
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
